Should Singapore adopt a minimum wage model?

Authors: Vedika Bhagat, Tajuddin Bin Muhammad Zahid Region Head: Hteik Tin Min Paing

Editor: Sakshi Sanganeria

Illustration by Michelle Faith Lee

Abstract

This article seeks to analyse Singapore’s progressive wage model and Minimum wage policy, and to weigh their pros and cons- tossing aside all political bias in the process.

Politics has always been at the heart of economic policy. It is the politician elected into office that oversees the vast network of a nation's economy, and conversely it is the politician on the backbench that critiques economic policy. In the third sitting of Parliament, freshman Member of Parliament for Sengkang Group Representative Constituency, Dr Jamus Lim spoke about the need for a broad minimum wage policy in order to take into account the needs of Singaporeans on the lower-end of the income spectrum. Dr Lim, further stated that the current Progressive Wage Model, is not enough to help the poor in Singaporean Society. This prompted Senior Minister Tharman and other government MPs to explain that the government does as much as it can for the country’s poor, defending the PWM as well as noting that it was unfair to insinuate otherwise (Tang, 2020).

The exchange prompted a renewed debate among Singaporeans about the need for a minimum wage and the effectiveness of the PWM. This article seeks to explain the difference between the two policies, and to weigh their pros and cons, tossing aside all political bias in the process.

Several questions are still to be answered: What is minimum wage, and whom will it aid ?

What is the Progressive Wage Model ? Should we adopt one ?

What Is Minimum Wage ?

The minimum wage is defined as the minimum amount of renumeration than an employer is required to pay a worker for work performed during a period of time or under contract, that by law cannot be reduced by collective agreement or by individual contracts (Minimum Wage Systems,2014). The ILO recommends a balanced and evidenced based approach is necessary to take into account on the one hand the needs of workers and their families and on the other economic factors.

Minimum wage is meant to help the least qualified and skilled workers in our society. Statistics released by the Ministry of Manpower reveal that workers in unskilled or semi-skilled jobs have the lowest monthly income. Of the people surveyed, some 28,000 people, many of whom work in the services sector, earn less than $1000 a month (Ministry of Manpower (Singapore), 2020) . The survey limited its scope to Singaporeans and Residents. From the initial data alone it is clear that there is a large group of people who can benefit from a minimum wage.

The Minimum wage is meant to be constantly reviewed and brought up periodically. The nature of how minimum wage is adjusted depends on the country implementing it. In the United States the Minimum Wage is set by Congress, which means that Minimum Wage only changes depending on the balance of power in the legislature. France on the other hand has the minimum wage updated according to the inter-professional minimum wage formula ("Minimum wage in France? What you need to know", 2020). By statute, the minimum wage changes automatically according to the formula thereby preventing it from becoming a political issue. For larger, more populous countries such as India and China, the Minimum wage is set locally, thereby ensuring that the minimum wage matches the appropriate cost of living for that state or province (Who should Set Minimum Wages ? (Minimum Wage)).

Most of the countries in the world have a minimum wage. Each country implements it separately and independently of each other, adapting the system as necessary according to the circumstances they find themselves in. With that in mind however, why does Singapore not have a Minimum Wage ?

Singapore’s Progressive Wage Model

It is national policy not to have a minimum wage in Singapore ("Is there a prescribed minimum wage for foreign workers in Singapore?", 2020). Negotiation of wages is the responsibility of the worker with the employer, and so wages in Singapore for skilled and professional industries have the advantage of being determined by market forces.

Employability is the ability to find and keep satisfactory work (Institute of Employability Studies UK, n.d.). How much you earn is directly tied to your education qualifications, technical training and experience. Starting from the year 2005 almost 93.7 % of each Primary one cohort progressed to and completed post-secondary tertiary education ("Percentage of P1 Cohort that Progressed to Post-Secondary Education-Data.gov.sg", 2020). That means the vast majority of school leavers have the advantage of being able to negotiate their wages according to the market standard.

This however does not mean that there are Singaporeans who do not need help in securing fair wages.

The Progressive Wage Model is meant to ensure fair employment in low-skill industries of Singaporean and Singaporean Permanent Residents. The Progressive Wage Model was developed from a tripartite agreement of labour unions, employers and the Ministry of Manpower ("What is the Progressive Wage Model", 2020). The PWM sought to introduce a monthly minimum salary for workers in the cleaning, security and landscaping industries. The PWM also ensures that workers undergo standard training and upskilling that they can then use to advance their careers and move up to relatively higher-paid positions. The PWM sets the framework to incentivise companies to promote and compensate workers who perform well, Through the scheme, Singaporeans who work in low-skilled jobs will eventually take on more supervisory roles. The promise of career development and promotion also incentivises workers to stay on longer thereby ensuring continued employment meeting both the needs of the employer and employee (HO, 2020). Companies in industries where the PWM is applied are also still bound by the policies of hiring foreign workers, which should ensure priority for jobs going first to Singaporeans and PRs.

A critique of Minimum Wage

Opponents of a minimum wage have argued that such measures are unnecessary. The law of supply and demand states that as prices rise, consumption falls. This principle, applied to the labour market dictates that so long as the demands for a specific type of labour is high enough, the price or in this case, wage, will rise to meet demand ("Labor Demand and Supply in a Perfectly Competitive Market", 2020) . This thus makes a minimum wage unnecessary. In fact it has been argued that the minimum wage may in fact do more harm than good. If a price floor is set at a level higher than the market standard, it leads to excess supply and decreased demand. This means that more people will be unemployed as employers seek to cut costs and hire less. Another reason is, with higher wages, businesses might not be able to afford some staff and hence let them go to keep the cost of operations down. This could then lead to an increase in unemployment.In a study conducted by David Neumark of the University of California Irvine (UCI), it was discovered that a minimum wage would hurt the people it was meant to serve the most. The same study revealed that the minimum wage caused a decrease in low-skilled jobs, increasing unemployment rates (Neumark, 2014).

Minimum wage policies also do not incentivise employers to increase wages. Referring back to the supply and demand, if the labour performed by the worker is valued at less than the minimum wage, employers will not raise wages as at the minimum wage, they would be overpaying for labour performed. In the United States, wages of low-income workers from states with no additional increment to the federal minimum wage grow only by 0.9% ("Labor Day 2019 | Low-wage workers are suffering from a decline in the real value of the federal minimum wage", 2020). In contrast, states who increased the minimum wage via local statute grew by 4.1%(Gould, 2020).

The nature of semi-skilled and unskilled labour is that the exchange of labour for wages can be transactional. Many minimum wage jobs have high turnover rates, in the US the rate could be as high as 70% (Matthew Castillon, 2020) . Likewise, many firms see no incentive to upskill minimum wage workers, with workers who leave firms having no net gain in terms of employability and skills.

Do We Need A Minimum Wage In Singapore ?

The minimum wage results in an increase in net income, which the worker can then use to improve their lives, pay bills etc.The goal of a minimum wage is to prevent the exploitation of desperate workers and ensure that they earn a sufficient amount to survive.

Singapore has the lowest Gini coefficient among OECD countries (Li,T 2020), with the real income of Singaporeans having grown between 3 - 5 % over the last decade. As was mentioned earlier, 90% of the cohort who enrolled in primary school in 2005 have gone on to attain post-secondary education. Implicitly, this means that 10% of that same cohort, roughly 5,600 Singaporeans and Permanent Residents born in 1998 did not attain post-secondary education. For out of every 10 Singaporeans born in 1998 one likely will benefit from a Minimum wage.

Arguments for a Minimum Wage in Singapore:

a. Adopting a Minimum wage model in Singapore would not lead to an increase in unemployment as claimed by Josephine Teo (Channel News Asia, 2018).

Singapore has always had strict policies regarding work permits due to which firms are in constant need of people to take up low paying jobs. (The Times Of India,2018) Rising pay may act as a bridge between the divide between workers and employers. Damien Huang, a research associate at Institute of policy Studies emphasised that there is an inadequacy of evidence for unemployment rise claims (Business Times,2020).

In addition , Singapore enjoys almost full employment due to a strong labour market, which brings an upward pressure on wages. Singapore needs to uplift itself to an extent where its competitive advantage does not rely on the ability to import vast amounts of cheap labour.

b. It would not lead to a decrease in the country’s competitiveness. Apart from being a first world country, the cost of living in Singapore is already SGD 800 which is considered to be quite high(Internations,2020). It would be unreasonable to compare the labour market of Singapore with that of developing countries such as India or Vietnam, as companies in Singapore can afford to pay high minimum wages. Furthermore, being a developed country, Singapore should focus more on diversification of exports or enrich other factors rather than supplying cheap labour.

c. A minimum wage model can remove the problem of low productivity. Over-reliance on cheap and low skilled foreign labour for years (The Independent, 2020) has led companies in Singapore to invest less in automation and their operations' skills or technological content.

d. PWM is not key Contrary to the beliefs of the Singaporean government, PWM is not key. It does not cover all sectors. It only covers three sectors right now; cleaning, landscaping and security, when sectors such as food servicing and retail trading have the prospects to come on board as well. The inequality gap between employers and employees cannot be bridged by a mere 3% increment in annual wages as well. Furthermore, PWM reduces mobility of jobs.

Policy Recommendations (Expansion of the PWM)

A minimum wage is unlikely to include foreigners working in Singapore and so would cover only Singaporeans and PRs. Tougher enforcement and more stringent measures by MOM would certainly help reduce the likelihood of Singaporeans being pushed out in favour of foreigners. This would likely lead in a rise in price for some goods and services, but it is likely to be minimal.

The Progressive Wage Model is arguably already a minimum wage. The PWM clearly sets the minimum acceptable wage for workers in the various industries, but at the same time defines the rules and responsibilities of the worker to the employer. The worker, given time and experience can advance and upskill, thereby increasing their worth to the employer and justifying wage growth and promotion. This in turn helps to solve the problem of high turnover rates.

But the PWM alone is still flawed. The PWM is restricted only to several industries like landscaping, security and cleaning. Furthermore even though the PWM was negotiated through the tripartite council, many workers in the existing industries may not be represented by unions who can help negotiate pay on their behalf. Firms can still resort to hiring more part-time staff while reducing full-time employment. The PWM should therefore be expanded to include more industries. The government should partner with companies through the tripartite model to ensure that the training provided to workers is substantial. Training would result in a rise in the employability of the worker and their value to the employer resulting in wage growth without the need for interference from the legislature. The government can do this through their existing upskilling programmes and work-skill qualifications scheme.

Looking Ahead

Any minimum wage legislation must be complemented with policies aimed at increasing opportunities amongst Singaporeans and to discourage employers from hiring less workers and redistribute the labour among their current workforce. In addition to this, from a social perspective, it provides proper living standards to people who otherwise are unable to afford it. However, given the situation of the pandemic, the government should try to embrace a Minimum Wage Model with patience because escalating wages during a sluggish world economy would just result in business running out of action. In the post-Covid world though, minimum wage could in itself be a safe and fair practice to recover from the effects of the pandemic.

References

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