Minimum Wage, Politics, and the Elephant in the Room

By Masked Crusader

The government, through Deputy Prime Minister/Finance Minister Tharman Shanmugaratnam, has announced a “minimum wage” for the cleaning and security services industries in an extraordinary move that follows a whole slew of ineffective measures meticulously detailed by Leong Sze Hian over the years. Despite the previous schemes, the current median salary for cleaners is still only $850 per month!

The government, and even the union, are struggling with the correct word to describe their unique initiative. It comes closest to a collective agreement since it is industry specific. However, CAs are the result of negotiations and are not mandated by law as this measure is. I shall refer to this recent move by the government as “base salary” since minimum wage has an entirely different meaning and the government itself has said that their “minimum wage” should not be confused with, well, minimum wage.

Apparently the “base salary” of $1000 per month—which seems rather low and entirely arbitrary since there is no formula provided for how this figure is derived—is a result of the silly “tripartite approach” where outcomes are based on pow-wows between the government, the union—which is controlled by the government—and employers. Since the government is also the largest employer or buyer of services, the tripartite arrangement is in reality a coalition of the government, government and government making the process a silly conversation between Me, Myself and I. In this uniquely Singaporean arrangement, workers’ interests are subjugated to that of the government’s.

An example of this tripartite mechanism at work: During the SMRT bus drivers’ pay dispute in 2012, the Deputy Secretary General of the National Trades Union Congress, Ong Ye Kung, was tasked with resolving the conflict.  Ong’s independence and objectivity in the matter was highly questionable given he represented all 3 partners of the tripartite! Ong was also an independent director of SMRT’s board at the time and had been a PAP candidate in the 2011 General Elections. He was even touted as being of minister calibre by the Prime Minister before his team lost the Aljunied Group Representation Constituency. Ong has since left NTUC to join Keppel Corporation.

Among the oddities in the government’s “base salary” scheme is that a rate per hour is not mentioned. The omission of payment rates is a common feature of similar government initiatives and leaves sufficient room for confusion that it gives ample wiggle room for exploitation to continue. An employer whilst agreeing to a mandated wage of $1000 could require workers to work longer hours to achieve it. As there is no unit rate of payment, the wages of part-time or casual workers can be difficult to determine and can easily be manipulated. In the aforementioned SMRT bus drivers’ pay controversy, there was never a mention of a base rate of pay by management or NTUC and many drivers felt that, with the new pay structure, they would be working more and earning less per hour worked. In addition, the salaries for Singaporean bus drivers and foreign ones differed, which meant that “difficult” local drivers would face the constant threat of being replaced by cheaper, subservient foreigners.

But, why cleaners and security professionals? As mentioned, the government had unveiled a whole slew of unsuccessful measures targeted at increasing wages in these two industries over the years and have only stopped short of running an emotional national campaign on how cleaners and security professionals are key to nation building! Why not include construction workers, who are actually building the nation?

The key to answering the question is to first note the targeted approach to raising salaries. The government, in rejecting calls to establish a minimum wage, has responded with a host of targeted measures which it claims are better than minimum wage.

Clearly, the government’s pattern of direct assistance indicates that if it is to be forced into helping low-wage workers, it prefers its measures help Singapore citizens only. The government has focused on these these industries, instead of say, construction, which has much larger numbers of workers earning below $850 a month and who are equally, if not more, vulnerable. Could it be that it is because there are more Singaporeans working as cleaners and security professionals than as construction workers?

Before one asks what is wrong with the government wanting to help Singaporeans over foreigners, one needs to examine the reasons why the government favours this approach. If the government’s real aim was to help Singaporeans do better than foreigners, it would have trumpeted this with each initiative. But, it has not and has not even been able to effectively articulate how or why its numerous schemes are better than a minimum wage policy.

DPM Shanmugaratnam in his statement said:

Politicians are keen to take the credit for raising minimum wages, without accepting responsibility when those with low skills and experience are unable to find an employer at the minimum wage. … We are not setting wages by political decree. What legislation will do is to ensure the progressive wage model that the tripartite partners work out is actually implemented in these industries.

While Shanmugaratnam denounces politically expedient measures, most would argue that measures targeted only at voters—particularly low-wage earners who are among the most disgruntled—are in fact political moves. Most construction workers are ineligible to vote in Singapore.

Prior to legislating its progressive wage model for cleaners, the PAP had adopted the high moral ground by stating that it would only hire registered cleaning companies paying its cleaners at least $1000 per month in its town councils. This political gamble, of course, would have resulted in PAP-held town councils paying more for these services than the Workers Party which had not made a similar pledge. Certainly, the PAP government, through this current piece of legislation, has evened the playing field for itself.

Some have pointed out that the government’s targeted welfare handouts—some of which occur just prior to elections—may be politically motivated to make the PAP appear compassionate when in fact the payments should be considered an entitlement for those who qualify. Many have complained that the process of applying for some of these assistance schemes have been onerous. Workers would prefer a minimum wage with which they can live with dignity than to scrounge around for small ad hoc payouts.

If, as the government claims, minimum wage is a populist political tool to be exploited by the opposition, surely the PAP too can be accused of engaging in political posturing by refusing to consider minimum wage particularly as it in their interests not to adopt it.

It is time to confront the elephant in the room. What the government will not talk about and what some Singaporeans do not want to hear:

 

A Minimum wage policy, which 90 percent of countries have adopted, does not discriminate based on the nationality of a worker.

All workers who earn the basic wage—local or foreign—would receive equal pay for equal work. The government’s legislated base salary scheme for cleaners and security personnel does not guarantee this.

In some countries with minimum wage, where teenagers struggle to find jobs—something Shanmugaratnam alluded to as an adverse effect—the minimum wage for teenagers is lower than for adults to address the issue. Something similar to protect older workers could also be structured. However, for the most part, minimum wage is not discriminatory.

The real reason why the government and employers, especially in construction, do not want minimum wages is because they would have to pay a Bangladeshi or Chinese worker the same as a local. With minimum wage, the exploitation of foreign workers becomes more difficult.

The government, via its Government-Linked Companies, is a massive employer of migrant workers. Even the NTUC, which established the Migrant Workers’ Centre to look into the welfare of migrant workers, is an employer of foreign workers in its so-called Social Enterprises. It would seemingly not be in NTUC’s interests to advocate for equal pay for equal work if migrant workers enter the equation. This means every single one of the three components of the tripartite group will not benefit from a minimum wage for workers, including the very entity which workers entrust to protect their interests.

Since it is not in the government’s interest to do anything that will increase the wages of migrant workers, it does not approach the issue objectively and almost never presents the pros of minimum wage. It seems it only researches and presents the cons to the public. Clearly its stand on the issue is political despite the DPMs protestations.

While intuitively it appears appropriate to support measures directed at Singaporeans over minimum wage which would treat Singaporeans and foreigners the same, in fact, minimum wage helps Singaporeans.

It is all too common nowadays to come across retail staff who are less than helpful due to their inability to communicate effectively in English? Why then were they hired?

Many Singaporeans feel that their skills have been devalued and wages suppressed due to unfair competition from foreign workers, who are cheap. Most employers in a competitive industry, particularly SMEs, are tempted to hire the cheapest worker possible even if they are unable to speak English well and may be less productive. Employers keep their fingers crossed that the deficiencies of the foreign workers will not hurt them unduly and if it does, well, there is an endless supply of such workers from third world countries to replace them with. This results in unfair competition for Singaporeans.

With minimum wage, a Singaporean in a low-wage environment, will compete much better as the foreign worker with poor English skills now costs the same to hire.

Any advocate of minimum wage must first acknowledge that it does impact on the costs of goods and services and present the pros and cons in order to be persuasive. This, however, has not been the case thus far. Advocates must confront squarely the criticisms of minimum wage and be prepared to counter them. This should not be too difficult. Ninety percent of the world’s economies have adopted minimum wage despite the criticisms so the pros must surely outweigh the cons. Also, the International Labour Organization, an agency of the United Nations, which Singapore is a member of encourages member States to adopt a minimum wage policy to help the most vulnerable in society achieve a decent living while reducing income inequality. Minimum wage provides an incentive to work and reduces the need for social welfare programs.

If costs go up as a result, this is mitigated by better spending power of those earning the least. The government can also control inflation through several mechanisms at its disposal including the lowering of GST or exempting taxation of basic essentials. GST has the greatest effect on low-wage earners as it makes up a larger portion of their income than the wealthy. GST can be considered a regressive tax particularly in Singapore which is not a welfare state and where revenues are not passed on to the poor. Inheritance tax, which was abolished in 2008, and capital gains tax, which are taxes on the rich, could be re-introduced. With the most millionaires per capita here, the government could easily recover the loss of income from reduced GST collection through a more progressive tax regime.

Some have argued that cost of living, although on the rise over the years, has nevertheless been kept artificially low by the exploitation of foreign labour and the depression of wages among the local labour force. Therefore, a leveling off period is likely, perhaps even justified, in the event a minimum wage policy is instituted. In any case, any economist will tell you that labour is only one element that contributes to the cost of doing business. If the government is really bent on reducing business costs, and hence costs of goods and services, it could release land at lower costs or charge lower rents which would cause other landlords to reduce rents to compete. It could also tinker with direct and indirect taxes paid by companies and improve the host of pro-employer programs it already runs.

One could go on and on about how to make minimum wage work. But without the will to introduce it, the arguments are just that—arguments. There should be no doubt that the arguments for or against minimum wage are political in nature as they have been in most countries. Given the current situation, it will require PAP to be convinced minimum wage is in its interests for it to budge on its position. The best way to resolve the issue may be for a national referendum, where the people—not politicians—make the ultimate call.

This article was first published at Masked Rider’s blog .