Academician Linda Lim: Progressive Wage Model does not address problem of low labour productivity, wage stagnation due to “widespread cheap sourcing”

The Progressive Wage Model (PWM) does not address the core issue of Singapore’s “ultra-low wages”, which is caused by an excess supply of “unskilled” migrant labour, says Professor Emerita of Corporate Strategy and International Business at the University of Michigan Linda Lim.

In an interview with Kwan Jin Yao — a PhD (Social Welfare) Candidate at the UCLA and a NUS alumnus — last week, Professor Lim quoted the Ministry of Manpower’s statement on how “low wages result in high turnover and labour shortages which hurts productivity”.

More than two decades of “a huge influx of foreign workers from very low wage neighboring countries”, she said, has pushed down “the market wage of low-skilled workers in Singapore”.

She questioned why government quotas, levies and other forms of regulatory practices have not succeeded in “limiting or even just slowing down” the increase of migrant workers in Singapore.

“If something has not been working for 20, 30 years, then we need to do something different,” said Professor Lim.

The PWM was designed to raise the salaries of the lowest 10 per cent to 20 per cent wage earners in Singapore, who earn below the “local living wage” and whose salaries “are much lower, relative to median wages than in other countries at the same level of per capita income”.

Noting that Singapore has “twice as many poor citizens” when proportionally compared with other OECD countries, Professor Lim said that such a rich country “shouldn’t have so many poor citizens”.

The PWM, she said, “mandates specified increases in the wages of low-skilled workers over a number of years” and “requires employers to provide training to raise worker productivity”.

Such wage increases and training are determined by tripartite partners, namely employers, unions and the government, and currently cover the cleaning, security and landscaping sectors.

In addition to the PWM, Professor Lim noted that the government subsidises wages for workers earning below the median under the Wage Credit Scheme, as well as cash and Central Provident Fund (CPF) top-ups for workers in the bottom 20 per cent of wage earners through a separate Workfare Income Supplement.

While the PWM has raised the wages of the lowest income earners in the sectors it covers, Professor Lim argued that such increases have been taking place in a manner that is “too little, too slowly, and too incompletely”.

From its introduction in 2012, the “roll-out” has been “very slow”, with the PWM being implemented around two years later, and it has yet to be extended to sectors beyond security, cleaning and landscaping, she observed.

The PWM and other wage subsidies above, Professor Lim added, are only available to Singaporeans and permanent residents.

Because of that, said Professor Lim, there is a possibility of employers avoiding paying wage increases that the PWM stipulates simply by hiring migrant workers in the same job scope, “who are not subject to all these requirements”.

Employers, she added, will then be “discouraged from investing in productivity-enhancing technologies and work[ing] on organization for all workers in an entire job category” as a result.

In many “low-skilled” jobs such as cleaning, productivity is measured less by workers’ individual skills and more on “the equipment they have to work with by job design and work organization”, the latter of which depends largely on “the employers’ investment and management”.

“It’s not like, how fast you can use the mop? It is [about] how many places you have to clean within a certain period of time. Do you have a particular more advanced equipment that you can do with, and so on, and who organizes the time schedule,” Professor Lim illustrated.

Many Singaporean workers in low-wage jobs, she highlighted, “tend to be the elderly poor”.

“Now, you will expect the elderly poor in manual jobs to be less productive than younger foreign contract workers,” said Professor Lim, adding that the limitations on agility and mobility on the part of elderly workers make it difficult for them to obtain better positions at their workplace compared to their younger counterparts.

Minimum wage paid by employers, not govt; minimum wage raises employment rate in some countries contrary to common belief: Professor Linda Lim

Minimum wage, on the other hand, is the lowest wage that employers are statutorily obliged to provide as a means of preventing low-wage workers from being “unduly exploited” and to ensure that they have minimum living standards, said Professor Lim.

The minimum wage, she said, is paid by the employer, and not by the government.

“The government just sets the regulation, and in the case of Singapore, I assume will be the same as in other countries — that is, a minimum wage would apply to all workers: Singapore citizens and PRs as well as foreigners,” said Professor Lim.

Nearly all other high-income “developed” nations have a minimum wage, she stressed.

Countering the common perception that minimum wage encourages unemployment, Professor Lim argued that there is “empirical evidence in other rich countries shows that [there is] little impact of minimum wage on overall employment”.

A minimum wage, she said, “increases the incentive to work”.

“If you offer people more money, they are more likely to work more if a higher wage enables low-wage worker to better cover how cost of work like child care and transport,” Professor Lim elaborated.

The only exception is youth unemployment, which she said “does rise by a small amount”.

“However, it should not be an issue in Singapore, since firstly, we have an overall labour shortage and low citizen unemployment.

“Secondly, we have high educational standards compared with other countries, including other rich countries, and if it means anything our higher education standards should be correlated with higher productivity.

“Thirdly, nearly all our youths and teenagers are in tertiary education, vocational training and our military service. So our social context is totally different from other countries where it has been observed that a minimum wage does reduce the employment of teenagers,” said Professor Lim.

Not only can the minimum wage “raise employment by encouraging higher labour force participation by low-wage workers”, it can also encourage employers to invest in raising productivity as it reduces uncertainty, she added.

A minimum wage, said Professor Lim, is also less “bureaucratically complex” compared to the PWM, the latter of which “requires a lot of civil servants to maintain”.

“The civil servants are paid a lot more than the minimum wage workers,” she quipped.

Neither PWM nor proposed minimum wage adequate for lowest-income workers in Singapore to sustain basic needs: Professor Linda Lim

Professor Lim noted that the current wage target under the PWM is S$1,237 per month for cleaners and S$1,250 for landscapers. The minimum wage proposed by the Workers’ Party, on the other hand, is S$1,300 per month.

Both thresholds, however, still fall below the “absolute poverty level threshold”, she argued.

Absolute poverty, Professor Ng explained, is when “the amount of money one has falls below a predetermined level set by the state, or an official or authoritative body”.

While Singapore does not have an official poverty line, the estimated threshold for “absolute poverty” in Singapore, based on research by National University of Singapore social work professor Irene Ng, is S$1,878 per month for a family of four, according to Professor Lim.

The conservative estimate encompasses basic necessities such as food, utilities, service and conservancy charges, polyclinic medical expenses, and children’s school uniform, books and supplies.

Neither the thresholds set by the PWM nor the proposed minimum wage, Professor Lim added, meets the minimum income standard required for a one-person elderly household to sustain basic needs.

Research by the National University of Singapore’s Lee Kuan Yew School of Public Policy last year found that seniors in Singapore aged 65 and above living alone need at least S$1,379 to sustain their basic expenses.

Professor Lim questioned why only the cost of low-wage workers should be suppressed when other costs can also be reduced.

“Some employers say rising rents force them to squeeze labour costs, and they resort to the widespread cheap sourcing of foreign workers. So if there are, like, five components of cost, why do you only choose this one?”

“Singapore is often ranked as one of the world’s most competitive economies. I’m not sure how a marginal increase of, say, 20 per cent in the cost of low-skilled labour would damage this significantly,” she argued.

Professor Lim stressed that cost will not increase if productivity also increases through the deployment of technology and better management. Instead, she opined that cost can be reduced by lowering the size of landlords’ or property owners’ profits.

She cited a study in the United States, which found that from 1978 to 2015, restaurant food prices “rose by just 0.36 per cent for every 10 per cent increase in the minimum wage”.

“Researchers, therefore, conclude that small minimum wage increases do not lead to higher prices,” said Professor Lim.

Further, the lowest-earning workers comprise only a small proportion of the workforce in a particular economy, and is also “small, relative to the number of consumers in a high-income country”.

While the estimated number of low-wage workers in Singapore is “very high for a rich country” — around 30 per cent of the workforce — 70 per cent do not fall into the category, Professor Lim illustrated.

Any increase in costs borne by consumers are therefore equally spread across the board, she said.

“Remember, we’re not talking about a big chunk of chocolate … [We are talking about] very low wages increasing by a small amount for a minority of the labour force,” Professor Lim said.

A minimum wage, she added, will also remove the need for taxpayers to subsidise the salaries of low-wage workers through welfare payments, as the poor will be earning “closer to the living wage”.

“Wage credit, workfare — all of those are paid by the Singaporean taxpayer,” said Professor Lim.

Responding to a question on claims that a minimum wage will increase costs on the taxpayers’ part, Professor Lim reiterated that the minimum wage “is paid by employers” and “does not come from the government budget, unless it is too low so that there are separate wage subsidies” such as what is seen in the PWM.

Further, the issue of unemployment can be compensated via the existence of unemployment insurance, she added.

The closest to unemployment insurance is the redundancy insurance proposed by the Workers’ Party in Parliament, which also became one of the key proposals in its election manifesto this year in the wake of the COVID-19 pandemic, where many have lost their jobs as businesses and economies experience a massive downfall.

An unemployment insurance, said Professor Lim, is “the norm in other rich countries” but has yet to be implemented in Singapore.

Even “if increased budgetary resources are required”, Professor Lim said that they should be “minimal”, as Singapore has “plenty of accumulated surplus and reserves from which to pay them”.

Compared to other high-income countries, she added, even if an increase in taxes is required — which is unlikely — “they would not be out of line with what we should expect to pay at our income level”.

“Singaporeans have done well by the system, including benefiting for decades from third world wages in a first world country can afford. It should be willing to pay a bit more to improve the lot of its fellow citizens,” she said.

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