Arguments for minimum wage by Prof Lim sound and clear

Sharing the video of the interview of Professor Lim Chong Yah by Channel News Asia, Former GIC Chief Economist, Mr Yeoh Lam Keong agreed with Prof Lim's points about minimum wage, saying that Prof Lim has set out the arguments for the need for a minimum wage in Singapore and how best it should be administered plainly and clearly.

Stating that Prof Lim is right on two counts. "First, a minimum wage is needed to help bring our working poor up to a decent living wage. Second, in many of the countries where a minimum wage works best, it is set, underpinned and updated by a strong and responsible collective bargaining process." wrote Yeoh.

He then stated that it is high time for Singapore to have a decent minimum wage we can best afford as the working poor desperately need it. "We also have the NWC. Let's use it to do so."

He further wrote, "If, at this stage, our companies cannot fully afford a decent living wage, the difference can then the be topped up by the Workfare Income Supplement (WIS). But to do that we need to measure the living wage properly and give out an adequate WIS payout in cash, neither of which we do adequately today even though we can well afford to."

"Only then can be begin to effectively make poverty history in Singapore. And with dignity."

A friend of Yeoh, Ngiam Shih-Tung wrote that he remains skeptical about minimum wage.

"There seems to be a confounding of living income and minimum wage. We can argue about the quantums but the various wage supplement schemes are far better than trying to set a wage rate by state edict. The real cause of low wages for unskilled workers is the willingness to import even lower-wage foreign workers." wrote Ngiam.

In response, Yeoh wrote,

"Yes, the argument that living wage needs should be met by wage supplements (chiefly the WIS) is a valid one

This is especially so in Singapore where two decades of excessive import of unskilled foreign labor have depressed the market unskilled wage below the living wage by so much that if we were to raise minimum wages to the living wage this would severely hurt employment and competitiveness near to medium term

In fact Prof Lim Chong Yah's original recommendation to rates low wages 50% would have risked having the same effect as the recession in the early 1980s caused by raising wages too quickly

But Prof Lim's latest more measured recommendation is to set the minimum wage to what employers can generally afford via the NWC.

This is a good recommendation as it avoids an arbitrary minimum wage that might be unrealistic. It thus gives low wage workers more dignity in terms of earning their keep instead of relying on official wage supplements.

However, because we have suppressed unskilled wages so much below the living wage, Prof Lim's new recommendation may not be enough to eliminate absolute poverty i.e. his new NWC determined minimum wage might still be substantially lower than the living wage.

Hence we probably still need to supplement Prof Lim's NWC-set minimum wage with significant WIS cash supplements until firms have increase productivity levels such that they can afford to pay a minimum wage closer to the living wage. This might take up to a decade.

The minimum wage administered by NWC though would also serve the function of ensuring employers are constantly doing their part and not reducing wages just because the govt is giving larger WIS payouts

This underscores the need for first, reliable empirical measures of the living wage or absolute poverty measures and second larger cash payouts under WIS until firms can afford to pay a minimum wage closer to the living wage

But I therefore think you need all three policy measures: a NWC administered minimum wage, good poverty measurement and substantial WIS cash payment increases to effectively deal with the structural problem of the working poor which is, after all, an unintended negative consequence of our excessive immigration policy

This entry was posted in Economics.