Worsening income inequality in Singapore

~ By Wen Shan ~

This afternoon, I was at City Hall MRT waiting for a friend. Today, instead of the usual old lady in her 60s distributing Today papers, I saw this young lady who should be barely 16 or 17. There she was, wearing a Mediacorp polo shirt, working hard and distributing the papers to the commuters passing through the gantry. Since these jobs are usually handled by those in their 50s, 60s, this young lady got my attention for about 10 minutes.

Somehow, my heart aches for her. Not that I disregard the older workers who have been distributing the papers most of the time, somehow, I feel that someone at her age, should be given the opportunity to focus on her studies and pursue her dreams, instead of worrying about the finances of her family. While I do not know why she was there, I am almost certain that she is either doing it for her own financial reasons, or maybe helping someone she knows, and not because she has nothing to do.[1] The fact that I was in City Hall looking for a camera which costs $300 makes me feel guilty. $300 would probably be what she earns in a month, and yet I would spend it on an item as if it does not cost much. This is probably social equity theory at work, and economics failed to capture that I could be a lower utility due to someone earning much lesser than me.

Of course, I always feel for the older workers too because I feel that they too, at their age, should be having an easier life instead of spending hours every morning/afternoon on their feet distributing papers. On this note, over the past week, I have spent days in school revising for my final examinations. I always noticed this lady cleaner, who looks tired and she takes short rest near my regular spot. Someone please convince me that this lady has nothing much better to do and chose to work as a cleaner everyday instead of spending most of her time at home. I will feel so much better.

Recently, Professor Lim argued for a wage restructuring programme in Singapore. This created controversies with strong rebuttals from many economists. I was upset that many Singaporeans do not stand up for the low wage income workers, beside the netizens who is less credible. I will challenge some of the reasons given by the economists and the governments, along with the minority of my friends.

Productivity = Wage Gains

Firstly, I would like to pose a few questions. How do you measure productivity? How much of the productivity gain has been distributed to the workers’ salary? For a cleaner who can only clean so many tables in a day, are we agreeable that his salary should remain the same forever? Looking at the other extreme end, how much productivity can a CEO bring to a company? How do we measure that?

High cost of labour will drive companies away

Cost of production is an important factor for MNCs to locate in Singapore, but not the most important factor. If cost is the only factor, financial companies would move their operations to Jakarta where an MBA holder would only be paid 800-1000SGD a month for a position in investment banks. If taxes are the biggest factor, companies would move their operations to the Bahamas or those dodgy economies with low taxations. If China is the reason, most of them would base their office in Hong Kong, or Macau but not in Singapore. Singapore labour cost is actually higher than those in Hong Kong if you compared the fresh graduate salary (Information from my aunt who is living in Hong Kong for the past 10 years).

What is unique to Singapore is our high quality education system, high quality workforce (English-speaking), political stability, transparency, low taxes, and low corruption. These are the important factors which would attract MNCs to base in Singapore. Because of our unique advantage, especially in Asia Pacific, I reckon that we would allow wage increment, or even higher taxation on the super-rich and corporate incomes for investment in our social safety net. It is also time to have a strong labour framework to protect the rights of workers. Singapore law guidelines have no teeth at all.

Poor people “deserve” it

A minority of my friends feel that the low-income people are earning low-income because they had chosen it this way via their own decisions. Yet I beg to differ. Some of them just do not have a conducive environment to make the optimal decision. For me, I am lucky because I was never under a financially-challenged situation where I had to make hard decision. I was also very lucky that my parents could afford that bit of tuition when I needed it for my O levels.

I was so fortunate to have wonderful teachers who went the extra mile to help me. However, not everyone is as fortunate as me. For every few excellent teachers, there are some teachers who performed less desirably. Just like how these excellent teachers could motivate the students, these few teachers could have a negative impact of students’ outcome. Somehow, these affected students are left in a deep hole and trapped in an urban poverty cycle.

Look at Europe!

When I mentioned about social security system, like unemployment benefits or minimum wage, people would say, oh this is bad for the economy or the economic theories would say that it would distorted human behaviour. Just look at Europe, they are in a dire state now. Even till today, I would quote Europe as my example. Europe is a big continent full of heterogeneous countries. Yes, the PIIGS countries are in trouble, but look at the others, Germany, Austria, Poland, the Netherlands, Sweden, Denmark, and Finland are all coping pretty well with the crisis and they have managed it with a strong social welfare system. Hence, it is easy to dismiss the European Model just because of a few failures but the relatively success of the others should not cause us to discredit the system. The euro-crisis has caused many lives lost, as government cut social protection schemes in this financial crisis and driving many of them to commit suicide. [2]

Are things really better?

My family had been through tough times. 1998 financial crisis brought down my parents business. My Dad had to close his shop and be a delivery man. My mum business became a victim of globalization and technological progress. She has had to start all over again. I remembered vividly when I was 16 I had only $2 in my bank account and wished to close it down. Yet in these tough times, I seldom encountered so many experiences which aches my heart. There were fewer elderly selling tissues back then; it was purely a vocation only for the physically challenged community. There were lesser old workers working as cleaner, or at fast food restaurants.

I am not against them working at old ages, but I ask, could we make things better for them? Removing these jobs will only deprive them of income. As much as I hate those flyer distributions, I know that it is a hard job and many people depend on it for income. Yet, there is so much scope for improvements; a minimum wage would be a good starting point because the pay of these jobs is just pitiful.

Efficiency and equity

I spent most of my final year in SMU studying politics and economics. Although these tend to be entry level modules, I have learnt a lot. To sum it up, I would like to quote this statement from my public sector economics textbook, "We have repeatedly emphasis that efficiency considerations alone are never enough to determine policy. As chief Justice Warren Burger remarked in a different context," Convenience and efficiency are not the primary objectives or hallmarks of democratic government."

There is always the conflict between efficiency and equity. Life is not always about efficiency, and we cannot be efficient. By the very presence of market externalities, market is “inefficient”. There is no perfect taxation or optimal taxation. That’s why we need the government to be strong. If we are to believe in efficiency, we do not even need to have a democratic government; we just need someone to provide the regulation. A technocratic system would be the best for everyone if efficiency is the rule of thumb.

Singapore has received plenty of accolades for economic progress. However, a country should not be judged based solely on economics. I do not feel comfortable living in a society with wide income disparity. Social equity has an important role to play in every society. We can just look at how social inequality has caused social tension in the US, China, Hong Kong, and the Arab countries and in Europe. Singapore will need to adjust fast to prevent similar tension from exploding in Singapore. We are small and nimble country. Past challenges have failed to break us. This is an excellent opportunity for us change the social construct.

We have to take the first step. If we can give up some efficiency to have a greater equity, I would gladly support the idea.  It is time for us to make a stand that social equity is an important feature of our culture. I call on the government of Singapore to be brave and implement the first social protection system in Singapore.

[1] Many people claimed that the primary reason that elderly are working because they have too much time to spare and want to find a purpose in life. While I do not disagree with this statement, I do not see this reason being applied to most elderly people who chose to spend hours in the awful condition of hawkers centers, cleaning the tables, selling tissues papers, cleaning toilets.

[2] NYTimes, World Trends, ‘Suicide by Economic Crisis’  Plagues Struggling Europe, Published on Today, 22nd April

Headline photo courtesy of Angry Black Lady Chronicles