In principle, Workfare is better than minimum wage

There’s rising talk about the need for a minimum wage in Singapore. It was inevitable once the realisation sank in that not only has the income gap widened in the last decade or more, it looks likely to continue doing so. No society can look benignly on such a trend.

Opposition parties are beginning to seize on this as a vote-getting issue. The ruling People’s Action Party (PAP), in yet another example of political deafness, has been saying the bluntest of No’s.

15 September 2010
Channel NewsAsia

Link

S’pore should not set a minimum wage for low-income workers: Lim Boon Heng

Singapore should not set a minimum wage for low-income workers, according to Minister in the Prime Minister’s Office, Lim Boon Heng, during a speech at a ceremony recognising top managers in the country.

Mr Lim believes that this could push up the price tag on Singaporean workers, and in turn make it harder for them to find jobs.

Part of the PAP’s problem is that the mainstream media has been so conditioned to being the government’s megaphone, they too don’t know how to package a story to help their political masters out. The result is what you see above — a story led by a thumping “No”, reinforcing the PAP’s image of insensitivity and stubbornness.

In actual fact, Lim Boon Heng’s point was more nuanced, as you will be able to see in the subsequent parts of the same news report:

Whether Singapore should have a minimum wage system has been hotly debated among experts recently. Mr Lim said there is a widening gap between higher and lower paid Singaporeans.

However, Mr Lim said a basic wage policy is not the way to go to help lower paid workers here.

Instead, the government should step in to top up the pay of low-income workers, something that has already been done through the Workfare Income Supplement (WIS).

Mr Lim said: “So we started the WIS system a couple of years ago. I think with this system, we should improve…I believe the minimum wage meets the needs of a bygone era, it does not meet the needs of today’s world.”

— ibid.

And he’s right. The trouble though, is that Lim — like many PAP ministers — did not bother to explain the concepts behind his thinking. It is typical of PAP bigwigs, when they speak to Singaporeans nowadays, to assume they are talking to children. They issue a pronouncement but think it pointless to take their audience through the reasoning process. All they do is to dish out “reasons” that are so simplistic, e.g. the above statement “push up the price tag on Singaporean workers, and in turn make it harder for them to find jobs”, that instead of convincing the audience, only serve to make them even more sceptical of the speaker.

Minimum wage, balancing employment and inflation

Whether a minimum wage pushes up the price tag on the local worker surely depends on what level it is set at. If it is set very low, below the level of most wages, it won’t. But of course, for its poverty-reduction objective, when people speak of minimum wage, they tend to mean that it should be higher than the current lowest wages. So in that sense, there will be some pushing up.

Will that make it harder for them to find jobs? It will vary from industry to industry. Those that are based on personal or on-site services and use low-skilled workers, e.g. barbering, catering and cleaning, will be much affected. But so long as there is demand, they will continue to hire. What it will mean is that for the rest of us who consume these services, costs will go up. Eating out will be more expensive, and shopping centres may start to charge for use of restrooms to recover costs.

Where automation can replace workers, this can happen, but much will depend on what level the minimum wage is set at. Only when it leaps significantly above current labour costs will there be sufficient incentive for employers to redesign work processes and replace humans with machines.

If, however, an industry relies on large numbers of lowly-paid assembly-line workers — and there are fewer and fewer of these in Singapore, I think — a minimum wage that is higher than their current wages will certainly make companies consider moving out of Singapore if automation is not justifiable cost-wise.

The bottom-line is that Lim was too simplistic when he spoke of it becoming harder for Singaporeans to find jobs. I think the more likely outcome is a variety of effects, not least a general increase in cost-push inflation.

Minimal wage a solution only for formal employment

The more interesting statement that Lim made, but which he didn’t bother to explain, as far as CNA’s report shows, is this: “the minimum wage meets the needs of a bygone era”.

I agree with him. The minimum wage is a solution for a certain economic model which is passing into history. This model is one where work is strongly equated with employment, which frankly speaking, is a rather ahistorical connection. Coming out of the industrial age, we tend to see no other kind of work except formal employment with a clear distinction between employers and employees. Increasingly, this stratified, corporate-centric model is breaking down. More and more, work is done on a piece-rate, personal subcontract or franchise basis. Barbershops may well never employ barbers, but merely take them on  on a commission basis. Convenience-store chains increasingly do not run their own stores; they franchise out the store locations and the franchisee will run the shop by himself (with perhaps a couple of family members) on a profit-sharing basis with the chain. Ditto with all the cooks and servers in food courts. Ditto with petrol stations.

As more and more people are pushed out into self-employment, how does the question of minimum-wage apply?

Laws guaranteeing minimum wage thus create a state-mandated benefit for formal employees “within” the system, excluding those workers “outside” the system. It creates an “in-group” and an “out-group”. In my view, this is inherently unfair.

More seriously, the cost of poverty-reduction via a minimum-wage scheme is borne by business entities. Firstly, it is economically distorting; secondly, it doesn’t seem to hold the state responsible for the welfare of its people when the cost is passed off to business.

In principle, Workfare is better

On all these points, Workfare is better a scheme, and here I am speaking of the principles behind it, rather than the specifics of the scheme as currently applied. In essence, Workfare is a wage-top-up scheme to augment the wages of the lowly-paid. Note the following characteristics:

  • It is a benefit open to all those who work, whether they work as traditional “employees” in formal organisations, on a piece-rate or commission basis, or as self-employed.
  • The cost of subvention is borne by the state, not by business — so it is not cost-distorting for business.

In other words, it is more comprehensive in coverage and cost is more accurately accounted for. It becomes a classic wealth-transfer mechanism from general taxation of the wealthier to benefit those less privileged.

It is important to understand the above principles first before getting into the specifics. In my view, the principles are convincing, though the details are, and should be, negotiable.

Where I would fault the government is that they have kept the details of the scheme as mysterious as possible. As far as I know, they have never laid out clear, automatic thresholds and amounts in a way that is simple for laymen to understand. My guess is that they want to keep all discretion to themselves — it is typical of this government — which is why they avoid setting out clear rules. Partly too, they want people to see Workfare as gift of the government so people will be grateful (and vote for them) instead of as a politically-neutral scheme. Since gifts are by nature discretionary, the government probably likes the variable and unpredictable quality of the scheme they have set up, the better to cement a patron-client relationship.

And that is why, even though it is a better scheme than a minimum wage, it has virtually no constituency supporting it. Nobody understands it, especially when compared to the far-simpler-to-grasp minimum wage.

It’s a pity, for the debate would more fruitful if it were about the details of Workfare. What are the trigger thresholds? What are the subsidies? Should it be in cash or merely as payments into Central Provident Fund accounts?

Regrettably, we seem stuck talking about less worthy scheme – the minimum wage.

48 Responses to “In principle, Workfare is better than minimum wage”


  1. 1 yuen 26 September 2010 at 23:55

    I dont think the government wants to encourage people to start demanding “we want workfare to be made permanent” instead of it ending with the recession. Comparing it with minimum wage brings up the chance of such a demand arising.

    In a way, the work permit scheme sets the minimum wage for certain job categories: you can only bring in foreign workers at certain wage levels, and assuming you find local workers for the same jobs, they would be paid similarly.

  2. 2 defennder 27 September 2010 at 00:37

    Dear Alex, I disagree that costs would necessarily go up for small business owners if a minimum wage is imposed. How about rental costs? If the government takes pro-active steps to lower business rentals and licenses, the employer may make use of this discount to pay for increased worker wages. In a sense there’s no reason to believe that costs can be controlled if the government is willing to do so. The only drawback is of course a revenue loss by taxing rent.

  3. 3 Robox 27 September 2010 at 02:15

    I support Min Wage legislation (MW).

    But I think that any discussion on MW must necessarily be prefaced with an important point, namely, that it is not to be implemented in isolation from other economic and even social policies particularly those that have to do with costs; they need to work in tandem. That is precisely why the arguments against MW tend to be focussed exclusively on rising operational costs, and the accompanying fear mongering about business leaving Singapore.

    In isolation, MW will in fact lead to rising costs. However that argument also assumes that all other cost factors are held unchanged. But labour costs, and especially the labour costs only of the lowest income earners, hardly represents all operational costs. I have always maintained that the if top income earners in Singapore, whose incomes also add significantly to operational costs, were exposed to true competition for their labour, theyw ould not be earning anywhere close to what they are currently eraning. I feel that cost cutting measures, which typically accompany any legislation that results in higher business costs, must look into that component of operational costs as well. To use a favourite defensive argument of the PAP themselves in their opposition to any move towards equity, there is a distortion of market forces there because I feel that it has resulted form the sense of elite entitlement that pervades the the thinking of employers and top earners alike.

    Then there is also one seemingly unconnected social policy – public housing policy – and its impact on operational costs of business. The speculative motive among Singaporeans and the accompanying property bubbles that it creates has been an open secret and I have always observed that general price increases have always been a property-led phenomenon. That has an impact on rental property which affects the operational costs of businesses as well. But Singaporeans have been thrown off this because of the soothing sounds of the “asset enhancement” strains.

    But these are just two examples of other costs that need to be worked on. I’m sure thare are more.

    • 4 yawningbread 27 September 2010 at 03:19

      You seem to be agreeing that a minimum wage can create cost-inflation pressures in certain sectors. Then you say that the government can ameliorate inflation by cutting costs elsewhere. If there are areas where cost-cutting can be achieved, it should be done, whether or not we have a minimum wage. This is not an argument for implementing a minimum wage.

      • 5 Robox 27 September 2010 at 06:05

        1. You seem to be agreeing that a minimum wage can create cost-inflation pressures in certain sectors.”

        Well, I wouldn’t really use the words ‘create cost-inflation pressures in certain sectors’.

        For one, my argument was an intra-sector, and perhaps even an intra-concern one, a correction to imbalances within any one business at the micro level where there are huge income disparities. But, at this point of my argument, I do concede that operational costs will rise, but only insofar as the operational costs accruing to the rise in labour costs resulting from MW are concerned and with all other cost factors remaining unchanged.

        2. Re: “Then you say that the government can ameliorate inflation by cutting costs elsewhere.”

        Yes, I think government policy will help.

        But government was not my main focus of cost cutting because I think that it is the primary responsibilty – and perhaps even sole responsibilty – of any entrepreneur to cut down on costs, and even more from my observation of the Singapore entrepreneur, cut down on the wastes incurred in the running of his/her business.

        If entrepreneurs, who are usually assumed to:

        a) have the not insubstantial capital to start a business to begin with;

        a) be driven by the profit motive, which incidentally, I have observed in Singapore to be often conflated with ideas of “greed for money” which is not in the least bit one and the same thing;

        b) have the financial management skills to run a business, and again my point about a certain prerequsite greed above being often assumed to be the same thing as this skill; and,

        b) be risk takers, the biggest of those risks being to lose everything s/he’s got;

        don’t assume responsibility for any of the above, but instead pass the buck for the responsibility to its own employees for their right to a living wage, then I would question their rights to be employers when they are unable to balance their own responsibilities with their obligations to those they employ to get their business done.

        Government policy helps, but only if it helps to balance the rights and responsibilities of labour aginst those of entrepreneurs.

        Re: “If there are areas where cost-cutting can be achieved, it should be done, whether or not we have a minimum wage. This is not an argument for implementing a minimum wage.”

        True. But neither should it be used as an excuse AGAINST Minimum Wage which is exactly what is being done now – and quite covertly I might add – in that there is a refusal to balance all considerations that have to go into this debate.

        It actually reinforces my main point: that the MW debate cannot be conducted in isolation from all other economic policies that must work in tandem with it.

      • 6 defennder 27 September 2010 at 11:44

        By your counter-argument, neither can rising costs be used as an argument against minimum wage. If the government can always help offset labour costs by helping businesses cut costs elsewhere then one can’t say minimum wage would hurt businesses.

        And secondly, other commenters have rightly pointed out the workfare has to be funded as well, except it’s done so by the government. So even if you’re sparing businesses rising costs by not having a minimum wage, taxpayers would have to fund the workfare scheme. Take a good look at tax changes the past decade. Corporate and income taxes have always gone down, not up while GST and fees and charges have always increased. The cost burden problem hasn’t been solved; it’s just been shifted regressively to lower and middle-class income groups.

        So in the end we’re all back to square one. Workfare isn’t any better than minimum wage.

  4. 7 Robox 27 September 2010 at 02:32

    Next you say, and I do note the qualification that you agree with this in principle though not necessarily how it has been implemented:

    “The cost of subvention is borne by the state, not by business — so it is not cost-distorting for business.”

    Again, the above is undeniably true.

    However, there is another principle that might need to be considered and this would call for a balancing act: the protection of labour from employer exploitation and whose responsibility it is.

    It is no coincidence that the strongest opposition against MW come also from people who hold the view that the most vulnerable deserve no protection against exploitation; its a paradigm that such people adere to in many areas of human activity and interaction. Again, not uncoincidentally, this is also the paradigm that was operation in the pre-modern state era, the age of feudal and other traditional economies. In my considered opinion, employer-employee realtions in Singapore approximates this model very closely. (Thus, I would also dismiss Lim Boon Heng’s assertion that MW ‘the minimum wage meets the needs of a bygone era, it does not meet the needs of today’s world’. It does not. On the contrary, it is a correction of the excesses of that bygone era. Not having MW is the true anachronism here.) Employees are left open to all manner of exploitaion and abuse by employers.

    Not having MW is one of those ways that employees are left open to abuse; it’s introduction, while again not the cure-all but needs to work in tandem with other legislation that protects labour, would begin the reversal of the situation.

    To the question of whose responsibilty is this, my answer would be that government would have met that reponsibility in its legislative role as well as its dispute-resolutions one.

    But employers do also have the responsibilty to treat their employees with dignity.

  5. 8 Robox 27 September 2010 at 02:35

    However, the section on “Minimal wage a solution only for formal employment” is to me desrving of more attention. I confess to having not taken that matter into my own considerations.

    It is one aspect of the debate that I feel is worthy of more elucidation and discussion.

  6. 9 thomas 27 September 2010 at 02:56

    Alex maybe Im missing something but doesn’t workfare incentivize businesses to decrease wages or keep wages low. Businesses have no need to increase salaries if they know that the govt will top up whatever the shortfall is. From that perspective workfare to me seems like a payroll subsidy for businesses.

    I think there is nothing wrong with creating a bifurcated system. Those who work based on a comission or are self-employed have assumed a degree of risk. In turn they are compensated for the risk they assume. If they weren’t compensated adequately than they can always “opt out” of that type of contract. I think the traditional economic model still holds true; until of course i see statistics to the contrary. The majority of businesses still follow the corporate centric model (ex. mcdonals, starbucks, retailers, transport companies etc). [My understanding of the ubiquitous american franchises like mcdonalds and starbucks is that they the employees don't benefit from a franchise profit sharing model.]

    And I don’t think the discussion on the minimum wage should be restricted to the economics of it. There are moral arguments for the minimum wage. The minimum wage sets a benchmark for society; by having that benchmark we accept that people are entitled to a minimum standard of living afforded by that wage.

    But there is a difficulty in setting the appropriate amount and I’m not sure if cosnumers are prepared to see their expenditures go up in the short term (espeacially for things we take for granted like domestic helpers).

    Finally I think the minimum wage discussion ties in with the influx of foreign labour. Would companies still bring in foreign labour if there was price floor on the cost of labour. Part of the reason foreign labour is so attractive is that it is relatively cheaper, no?

    • 10 yawningbread 27 September 2010 at 03:31

      thomas wrote: “but doesn’t workfare incentivize businesses to decrease wages or keep wages low. Businesses have no need to increase salaries if they know that the govt will top up whatever the shortfall is. From that perspective workfare to me seems like a payroll subsidy for businesses.”

      Yes it can happen. But the effect is probably minor compared to the market forces of demand and supply of labour. If unemployment is low and it’s a seller’s market (sellers of labour), then companies will bid up wages anyway to get the workers they need. If it’s a buyer’s market (i.e. few jobs, plenty of excess workers, workfare or no workfare, wages will fall. The difference is, workfare will top up wages, even if the worker only gets part-time work when times are bad.

      In fact, workfare shines when times are bad. It incentivises employers to keep all employees on board but reduce everybody’s wages, or work hours.

      With minimum wage, there is a rigidity in employment. When times are bad, managers can’t reduce wages below a stipulated baseline, so to reduce payroll costs, they retrench workers, reducing headcount instead.

      What good does a theoretical minimum wage do for retrenched workers?
      ____

      I think we should leave out foreign workers from this disucssion. Workfare does not apply to them, and I think most proponents of minimum wage do not intend it to apply to them either.

      • 11 defennder 27 September 2010 at 11:53

        “With minimum wage, there is a rigidity in employment. When times are bad, managers can’t reduce wages below a stipulated baseline, so to reduce payroll costs, they retrench workers, reducing headcount instead.”

        This is patently untrue. There are alternatives to a flexible wage system and retrenching others. In terms of wage flexibility, Singapore tops the world since businesses routinely cut pay in order to stay afloat in times of weak demand. But Singapore fares very badly in terms of working hours flexibility. Germany for example, has a work-sharing programme which encourages firms to cut working hours instead of wages.

        http://articles.latimes.com/2010/apr/05/opinion/la-oe-baker5-2010apr05

        In bad times, working hours go down which could help reduce stress levels while workers get to keep their jobs and are adequately paid for whatever time they spend at work. At the same time, work-sharing avoids the problem of stingy firms unwilling to raise wages even when the economy starts to boom again.

        It’s a mystery to me why Singapore hasn’t considered this arrangement. Singapore workers spend some of the longest hours at work and in a downturn productivity dives because working hours aren’t cut while output is reduced due to weaker demand.

      • 12 Vernon Voon 27 September 2010 at 15:35

        Thanks Alex for your clarification. I think according to what you say Workfare may indeed be better than MW. We shall have to see what happens in HK in the next few years to find out.

  7. 13 yuen 27 September 2010 at 06:34

    workfare as it currently exists was meant to be a recession coping, economic management measure – keep people employed through the bad times to avoid widespread retrenchments that would worsen the recession (including problems within the banking system because of housing loan repayment difficulties), paid by using government reserves; to adopt it as a regular measure of wage subsidy for low pay workers, paid from government tax income in annual budgets, is very different idea, a form of social welfare

    singapore has in the past adopted its own forms of welfare for common social needs; e.g., old age pension is common in the west (including Hongkong), but Singapore has the CPF annuity scheme instead; child endowment (milk money) is also a common scheme in the west, but Singapore implements other schemes to encourage people to have children; whether such unconventional ideas would succeed in dealing with the problems, is still quite unclear

  8. 14 hahhaha 27 September 2010 at 09:31

    Welcome to the internet.

    Where bloggers who know jack shit about economics, weigh in on everything, and write as though they’re experts.

  9. 15 hahaha 27 September 2010 at 10:10

    YB, you appear to compare only Min. Wage to WIS. Are there any other schemes you can come up with? I think WIS is government funded (meaning more political votes won) while Min. Wage is free market.
    Wages is only a factor in the whole HR equation.
    What needs to be changed is really our deep seated HR and Labour practices which are pro- employers than employees.
    This is a big fish eat small fish world. Employees will always be at the losing end.

  10. 16 KiWeTO 27 September 2010 at 10:46

    Workfare transfers the cost of bearing the difference between labour wage and minimum living standards to the government. It is in effect – the government telling the people they are not valuable enough to survive in this city and need subsidies to keep them human.

    MinimumWage makes businesses bear the cost. It is the government saying – this is the expected minimum standard of living, and businesses just have to manage it by improving productivity (or also known as reducing dependence on foreign labour.)

    YB, sorry, but to have a discussion about labour without contemplating the distorting effects of cheaper imported labour is to fatally doom the discussion. Every action has consequences, and to consider workfare to be independent of foreign talent levies is not feasible.

    The end result socialistic tendencies want is to have a fairer society (or, perhaps, in terms of economics, a smaller GINI co-efficient? or perhaps more food on everyone’s table?). Without a rural hinterland for the less-economically-productive to eke their living, our city has to bear the cost of carrying the economically not-as-productive and the social envy/jealousy that comes with being in close contact with too much wealth.

    The end result this government seeks may be the same, but it has the consequences of a reliant workforce that changes slower than the necessary pace of global economic evolution, and can only continue to seek more aid from their government as they get further left behind. The presence of cheaper foreign labour just means that instead of businesses bearing the proper cost of production, it is distorted by foreign worker levies (which are then “transferred” to the workfared.)

    Wealth transfer happens either method (or any other method.) People will game whatever system is in place, because any individual advantage is an advantage in competing. The issue is to make people give up the idea that their job will be available if they want it, for life. (perhaps the job of a politician will forever be available as long as there is society?)

    The deeper questions are:

    Are more of our people unable to qualify for higher education, and then benefit economically from it?
    This is salient when it comes to considering the award of scholarships by the government: foreigners vis-a-vis the qualified-yet-unable-economically-to-study taxi-driver’s son who has to choose work to take care of his retiring (or perhaps now medically unfit to drive) parent?

    Should not such situations be taken care of by the government? Would anyone begrudge this family a living subsidy to allow their son/daughter to pursue a higher education (and hopefully improve the family tree’s economic prospects?)

    It is one thing to take talent from everywhere if they have intention of becoming Singaporean. It is another to, by taking in the external talent, deprive our own of the opportunity at a better economic life, and then watch the talent disappear from our shores immediately after the minimum work-in-Singapore period.

    Workfare is after the economic fact that the labour is unable to compete for a living wage in this city. Are we implementing the right policies to prevent or limit future occurrences of the need for workfare or working at future cross-purposes?

    E.o.M.

  11. 17 hahhaha 27 September 2010 at 10:47

    What a joke. Let me put it in layman’s terms.

    Minimum wage is to make sure that the pay is enough to subsist in Singapore.

    Companies will always want the best workers for the lowest pay.

    If all assembly line jobs offer $1/hr work, set by the free market ‘invisible hand’, does worker have any choice? vs making $0/hr and jobless?

    So what difference does it make if the government is topping up the pay from $1/hr to $8/hr, so that the worker can make a living?

    Topping up the cash only distorts the market. The employer thinks that they still can further exploit the worker, maybe lowering from $1/hr to $0.8/hr, and the government increasing the workfare
    budget to top up.

    The money that the govt use to top up is not free, you just don’t feel it, becos it comes from taxes.

  12. 18 Robox 27 September 2010 at 11:16

    Let’s be fair to Alex.

    It is clear that he is not against the idea of the most vulnerable subsisting on, at the very least, a living wage. He’s only pondering out loud whose burden it is to ensure that those who are vulnerable have what we are now having to call a ‘safety net’ in spite of the fact that it is not, in my opinion, true market forces that are at work that sets the wages of this group at the levels that it does.

    It should also be admirable that Alex, who had previously explicitly championed MW, is now demonstrating that he remains open to other ideas on how this problem can be solved.

    My own opinion, as I have already alluded to, is that not having MW is only a symptomatic of a larger issue of worker exploitation. That being the case, at least as I see it, the burden of non-exploitation of workers has to be shifted to where it belongs, and that is with employers, the same people who come into the most direct contact with their employees.

    Government only plays a supportive role, maybe even an educational one, in the matter of worker exploitation.

  13. 19 hahhaha 27 September 2010 at 11:54

    “My own opinion, as I have already alluded to, is that not having MW is only a symptomatic of a larger issue of worker exploitation. ”

    HAHAHA you talk too deep english.

    Worker exploitation is (short of slavery and torture) when employers either to overwork one person for very little pay, or underpay one person.

    It all boils down to pay. In Singapore, employers have proven time and time again that they cannot be trusted to pay a fair wage, even resorting to forcefully holding foreign workers in their quaters.

    So you still want the ‘market’ to set the fair wage? HAHHAHA
    I think the market wants $0/hr if they can help it.

    To solve it, either you analyse and decide on what is ‘subsistance’ level pay in Singapore, and make a law so that every employer follow.

    or

    Do it the Singapore way. Simplified, to Top up cash for every employee that is underpaid.

    Who pays in the end? You think the Govt so kind ? pay from their own pocket? Its still your $ in the end, suckers!

    • 20 Robox 27 September 2010 at 12:00

      Why are you repeating my points thinking that it is an attack of them?

      • 21 defennder 27 September 2010 at 16:42

        Take a good look at his username. Some people post only to annoy their readers while having nothing to contribute except the opinions of others they are deriding.

  14. 22 Natasha 27 September 2010 at 12:20

    YB – I think your reply to thomas was a bit light. Workfare is an out and out subsidy to employers. I’m not such a market fundamentalist as to say all subsidies are necessarily a bad thing, but since they ARE distorting economically and tend to have pernicious political effects, they need a tight rationalization and monitoring. Prima facie, I do not see any rationalization for why the govt. should pick up the tab in this case: it just reduces incentives for businesses to make the investments (in training, technology or whatever) to be competitive at higher wage rates.

    Your reply to thomas talked of wage rates rising with market conditions – yet in Singapore you have labour in the mass market segment facing an unusual (by developed country standards) exacerbation of its structural disadvantage via the virtual open door policy to importing labour — precisely in order to contain costs. To then give business a double subsidy in the form of workfare in order to try to make this situation somewhat palatable politically is just a gross distortion with no value-added dynamic gains. What happened to wanting to avoid a crutch mentality I wonder.. a minimum wage would be much less distorting, as long as it was set at reasonable level.

  15. 23 Tan Kuan Han 27 September 2010 at 12:48

    “Where I would fault the government is that they have kept the details of the scheme as mysterious as possible. As far as I know, they have never laid out clear, automatic thresholds and amounts in a way that is simple for laymen to understand”.

    Not true, sir.

    http://mycpf.cpf.gov.sg/NR/rdonlyres/2BE8F97B-E10C-4BC9-BC86-2D60C6B0C162/0/WIS_EEBenefits.pdf

    I understand your rationale in regard…s to minimum wage affecting our economic competitiveness and the business basis behind it.

    Those we try to help may lose their jobs instead, right?

    Work income supplement is definitely a good scheme. It helps to keep people in work.

    Still, a few points.

    If I am earning 200 per month and I am aged between 35 to 44, I will get 360 dollars per year.

    For every tier at 35 to 44, 70% of the WIS will go to CPF and only 30 percent in cash.

    Hence, 103 dollars will be in cash and the remainder will go to my CPF account.

    That’s about $8.60 to supplement my income of 200 dollars.

    For all earning below 400 dollars, the highest cash supplement is at 55 and above at 343 dollars, about $28.60 per month.

    http://mycpf.cpf.gov.sg/NR/rdonlyres/2BE8F97B-E10C-4BC9-BC86-2D60C6B0C162/0/WIS_EEBenefits.pdf

    You sincerely believe that amount is sufficient enough to act as a wage buffer, to provide enough supplement to those low wage workers?

    Regards,

    Kuan Han

  16. 24 Sos 27 September 2010 at 13:05

    I have noticed this subject has stimulated alot of interest in netizens, but what I cannot understand is why the ppl in ekunaba are talking to only their own kind. And the ppl here are doing the same here. Everyone is talking from their own corner. There is zero interaction. That is why we all cannot seem to build up a critical mass in the knowledge abt MW

  17. 25 Lucky Tan 27 September 2010 at 13:06

    Alex, I disagree with you.

    Actually in Singapore’s situation both are bad. Minimum wage will affect adversely a large part of the economy that has come to depend on cheap labor. Workfare locks us into current status quo because it gives no incentives for businesses to invest to improve productivity and become less dependent on cheap labor.

    Minimum wage is doable if the living wage only if a small number at the margin. To do this the economy has to first away from industries dependent on cheap labor. In Canada, Austrailia and NZ when they had minimum wage legislation only about 4-7% of the workforce was below the minimum wage. Today, we have 300,000 Singapore workers on workfare…and workfare + wages may be still less than what many see as a living wage to which minimum wage has to be set i.e. we don’t meet the pre-requisite conditions to set a min wage.

    Minimum wage as a principle, I suuport because I don’t think anyone should be paid less than what is needed for decent living if he works a full time job. We have to restructure our economy so that we can set a meaningful minimum wage.

    Workfare, in principle, I don’t support because it will simply keep businesses dependent on cheap labor and our workers locked in menial jobs because businesses don’t want to invest in machines that will improve productivity.

  18. 26 David Tay 27 September 2010 at 16:45

    Hi Alex, very well-written article. Just my 2cts worth. My thoughts may be simplistic but this is why i think minimum wage is the way to go. In principle, i think it will solve the problem.

    The main problem: widening income gap

    Quote: “Mr Lim said there is a widening gap between higher and lower paid Singaporeans.”

    Cure: Minimum wage
    -ensures wages are enough to meet basic needs, housing and food.
    - as others have mentioned, forces the companies to re-structure their budgets etc, increase productivity (an added benefit)
    - The burden of paying higher wages will be passed onto the rest of the nation through higher costs for services etc, and hence evening out the income gap.

    Why not Workfare?
    1. the main thrust of workfare is to protect the company’s profits. Keep the profitable so that they can continue to pay their workers. Workers keep their job but they are paid the same.

    2. Minimum wage may reduce the number of jobs for Singaporeans? Send the foreigners home! then there will be jobs

    • 27 yuen 27 September 2010 at 17:40

      so simple? I can also argue that government should impose higher salary requirements for work permit – then employers will find foreign labour too expensive and will hire more locals; alternatively, SG should employ a lot more cheap foreign labour, increase export, collect more tax, and use the revenue to provide more welfare for singaporeans; it is very easy to propose piecemeal solutions that sound alright on paper

      • 28 Anonymous 27 September 2010 at 19:05

        that could be one way to do it but increasing welfare increases dependence on it which is not beneficial in the long run. Anyway we are arguing between the two, in terms of principle, which is better right?

  19. 29 Gard 27 September 2010 at 17:49

    The discussion takes on a ‘pros-and-cons’ mode, but has not properly defined the problem. Alex’s article seems to suggest that the problem is one of ‘income inequality’; but Kuan Han (and proponents of minimum wage) quite obviously looks at the problem as one of ‘poverty.’ Some also thought about the problem of ‘low productivity.’

    Income inequality can be one of choice. A person can choose a job that is lower paying but more personally satisfying.

    It is, however, hard to argue that poverty is a rational choice. (Doesn’t mean that people won’t make wrong decisions, however.)

    But Alex got one thing right: the mainstream media does a lousy job to encourage thinking and engagement.

  20. 30 Kirsten 27 September 2010 at 19:01

    It is difficult to discuss MW and Workfare as if they are mutually exclusive, or two different solutions to the same problem. The thing is, Workfare as it stands now, is simply not an adequate alternative to the MW.

    With all its criteria and red tape, Workfare excludes many people. For example, those below 35, or those who earn $1,700 a month will not be eligible for Workfare. But is $1,700 really enough, especially if one has a family? This is how we get those people caught in limbo, where they are too poor to make ends meet in this expensive society, yet too “rich” to qualify for any of the meagre social welfare schemes we have.

    Until Workfare is made permanent and the conditions are adjusted to be available to more people in need of financial assistance, we cannot talk about it as an alternative to MW.

  21. 31 Teck Soon 27 September 2010 at 22:28

    Wouldn’t eliminating low-skilled immigrant labor push up wages? This would increase our costs of living, but also reduce demands on infrastructure. I think Singapore should allow immigration only for highly skilled workers that bring innovation and creativity to the country. This would put it in line with immigration policies of many other first world countries. Why must Singapore be different?

  22. 32 Gard 27 September 2010 at 23:27

    How we see the world affects how we think.

    Opponents of minimum wage see in terms of ‘fixed size pie’ – more for the lower wage workers means less for the rest (less profit, higher prices, higher unemployment rate).

    Proponents see in terms of ‘growing pie.’ (more machines, better skilled foreign workers, higher productivity, etc.)

    Unfortunately, for low wage workers, the pie they see is the ‘shrinking pie’. In Singapore, the 10th decile employed household per capita income has negative real growth between 2000 and 2009, but median income was up more than 20%.

    Kirsten is right about the refrain to see MW and Workfare as mutually exclusive. Can both work better together? – or with other policy instruments?

    It is cautionary to view foreign workers and local workers as perfectly substitutable.

    It is also apt to consider innovation not as a personal attribute, but an entire eco-system that transforms a good idea into one that is relevant and sellable to the market.

  23. 33 ILMA 28 September 2010 at 02:16

    I totally second Lucky’s view. Workfare is not a sustainable policy because it is in essence a stop-gap measure. The purpose is only to sustain the existing industry structure (and the associated jobs), which in the long run may be pointless because the economy should be allowed to evolve to keep pace with society’s progress.

    Workfare broadly speaking, is akin to agricultural subsidies in the US where I am based. Tremendous tax payer money is utilized to prop up the industry, which hires largely foreign laborers anyway (not unlike most industries promoted by Singapore’s EDB). Question is though, should the US be engaged in this industry? However there is at least an argument to be made here that the agricultural industry is necessary for strategic purposes especially in the context of the US, but I am digressing…

    My point is that Workfare in Singapore sustains an economic structure that is static. We are engaged in industries which we should perhaps NOT be engaged in. Low end manufacturing — yes EDB, hard disk drive industry is not high end. Ship building. And the list goes on. Workfare is a lazy policy tool that only makes EDB and the government ever lazier, facilitating them to stop thinking about what Singapore really SHOULD be engaged in economically.

    Minimum wage on the other hand, forces us to engage in serious economic planning for Singaporeans. Which industries can truly support what we deem are suitable wages for Singapore citizens to lead decent lives. What are the industries that we really SHOULD be engaged in.

  24. 34 KT 28 September 2010 at 09:07

    ‘Workfare in Singapore sustains an economic structure that is static. We are engaged in industries which we should perhaps NOT be engaged in . . . . Workfare is a lazy policy tool that only makes EDB and the government ever lazier, facilitating them to stop thinking about what Singapore really SHOULD be engaged in economically.’

    The macro view on economic structure and industries ignores the human aspect. Weak industries and companies should be eliminated but what about old and uneducated workers? Should we eliminate all weakest links, even human ones, with nary a thought? Old ladies who clean public toilets or clear dirty dishes at hawker centres are being replaced with foreign workers. To them, it’s irrelevant whether Singapore makes hard disk drives.

    • 35 ILMA 28 September 2010 at 09:25

      Your concern about the less privileged citizens technically, has nothing to do with the economic structure. Your concern has to do with social welfare, and how Singapore as a country, organizes itself to address the needs of its citizens.

      • 36 KT 28 September 2010 at 12:39

        I don’t know what ‘technically’ means but what good is the economy if it’s an end in itself? Or if it causes or leads to problems and misery for some segments of society? You’re not part of that miserable group at the bottom so you don’t care what happens to them. And you don’t have the pleasure of running any country, so you can compartmentalize the economy in a neat little technical box. You don’t have to worry about bottom feeders biting you on the bottom when they’re fed up with being ignored by the economy.

        Ever heard of ‘socio-economic’, ‘socio-political’ or ‘socio-political-economic’? These terms exist for a reason.

      • 37 ILMA 29 September 2010 at 09:34

        What I am trying to say here, is that the society can still choose to ensure that less privileged citizens don’t fall behind, through other mechanisms such as welfare transfers. For example through use of unemployment benefits or universal healthcare etc. My point is that I do not think we should be keeping jobs / industries which may not be worth keeping. That’s all. This is especially in the context of Singapore’s economy which is and continues to be painstakingly planned. The incentives that go towards keeping these industries in Singapore, the amounts are simply staggering.

        Btw, i came from a really humble background and I have spent the better part of my working life, fighting for a equitable society in Singapore. You don’t know me, nor my background, so this flaming is uncalled for. I was merely expressing my view that workfare retards our economy’s natural evolution. I was not expressing my views with regards to your so called “human aspect”. I am all in favor of promoting an equitable, plural society. I just don’t think retention of industries/jobs is the right way to go.

      • 38 yuen 29 September 2010 at 10:36

        pap is anti welfare in principle, believing that it reduces incentive to work and save; it is less against propping up certain economic sectors and companies – in fact, GLCs are in one way or another propped up by the government despite being required to compete in the market, since their association reassures investors/banks that they are more secure and can get approvals more easily – which is why workfare, at least as a temporary measure, is more acceptable, even though it is still a form of welfare

  25. 39 contrarian 28 September 2010 at 09:09

    Yesterday’s NY Times has a good article on workers against the enforcement of the minimum wage in South Africa:
    http://www.nytimes.com/2010/09/27/world/africa/27safrica.html?ref=world&pagewanted=all

    • 40 defennder 28 September 2010 at 16:07

      That’s somewhat non-comparable isn’t it? Singapore is so very different from South Africa in so many ways that it’s hard to draw any lesson from the article. The wage structure, economic model, social policies are completely different over there.

  26. 41 Voter 28 September 2010 at 11:00

    I wouldn’t dwell too much into workfare scheme because of its temporal in nature. It is a carrot one might say, when election draws near or at the whims and fancies of one-party system to scrap it in future. On the other hand, if minimum wage is implemented, it is likely to be long term when legislation is passed. Minimum wage also encouarge employers to look beyond their comfy zone of having readily cheap labour and forced them to be more creative and productive to generate revenue to cover his basic business costs. If business cannot sustain it, so be it. There are many costs, not just labour, that caused business to fail and just to name a few: complacency cost and rental cost.

  27. 42 mystykyl 28 September 2010 at 19:19

    In a closed system where labour migration is minimal, the labour market would price its lowest wage at a basic subsistence level that is reasonable to this society. Government intervention is unnecessary. Processes and automation react to this labour pricing to reach an equilibrium.

    In an open labour market where cheap foreign labour is freely available, this depresses the wage levels compared to the closed system. This is due to foreign labour accepting a wage level beneath the reasonable level of the locals.

    Supposing that WIS applies only to citizens, then it brings that lower wage level back up to that in the closed system. This caps cost to the local society since the cheap foreign labour is not eligible for the WIS top up. Minimum wage is more crude in that it applies to the cheap foreign labour as well as the low income citizen and drives total cost up.

    • 43 KiWeTO 29 September 2010 at 09:57

      As I mentioned, workfare is just the transfer of wealth from foreign worker levy to work income supplement. This is still distortional in terms of economic balance.

      A minimum wage would increase the cost of foreign labour, but is this ultimately undesireable? depends on which strata of labour we are talking about. Manual Shipworker? Server administrator? The former I should think.

      At the end of the day, whatever scheme implemented indicates the government’s mentality towards the (value) of labour. We’ve done the labour-intensive industries to get into what appears to be a first world economy. Now it seems we need to change, and faster than the weaker labour can ‘wash out’ of the economic system.

      The lack of a hinterland means we have to continue to absorb our weaker labour within the city’s economy rather than let market forces push them out of the city into the ‘countryside’. Is workfare then a better method of taking care of our weaker labour? Or does it create a dependency complex in both labour and business?

      What is the measure of the worth of a member of our society? Just the salary?

      E.o.M.

  28. 44 K 28 September 2010 at 22:31

    Alex Au has analysed the issue without referring to the specifics of implementation. I believe that the workfare legislation as it is currently crafted leaves too much administrative discretion and ambiguity, such that many people might end up getting left out of the scheme. Look at this TOC article for instance: http://theonlinecitizen.com/2010/09/some-lower-income-workers-not-included-in-workfare/

    Furthermore, most of the workfare is credited into CPF account and not available for use in day-to-day living where the funds are most urgently needed. This makes a mockery out of social assistance, because the govt is dictating how exactly the money can be used, and at the same time denying the right of the worker to use the additional funds to better his own life.

    Alex Au is right on one point: Workfare is a good concept because it transfers the burden on corporations back onto the state, and thus it results in taxpayers looking after the less-well off in society.

    However I see one caveat: our tax system must be a fair one. As it currently stands, our taxation system is becoming more and more regressive over time, with GST increasing to take the place of personal and corporate income tax, the latter remaining at absurdly low levels.

    In order for Workfare to be a good substitute for a minimum wage, administrative ambiguity and loopholes must be patched up, our taxation system must be overhauled, and workers must be given cash rather have the money credited to CPF. Workfare can only be considered superior to a minimum wage system when all these details have been rectified.

    One cannot divorce the principle of Workfare from its implementation.

  29. 45 Tel 28 September 2010 at 23:00

    Please have a read of this letter, ‘Some lower-income workers not included in Workfare’ – http://theonlinecitizen.com/2010/09/some-lower-income-workers-not-included-in-workfare/

  30. 46 Arif 5 October 2010 at 13:22

    If we have a minimum wage, would that apply to foreigners as well? If it does, Singaporeans will have to pay more for domestic maids and that will cause an uproar. If it doesn’t, that’s another reason for Singaporean employers to hire foreigners over locals.

  31. 47 productivity nut 12 October 2010 at 01:11

    For all the talk on productivity, has anyone ever stopped to think: what’s the purpose of productivity? Are we working so hard just for the GDP?

    I think this obsession about GDP is getting nowhere, seriously. We have these excesses- shopping malls every where with the same few brands, mrt stations fewer than 3 bus stops apart etc. There are issues worth much more attention like, cultivating entrepreneurial spirit (work for yourself), tackling monopolies effectively, environmental awareness, supporting local products etc.

    Local work culture has to change. Work part-time if minimum wage cannot be implemented. It all boils down to flexibility. But then again, how many employers allow that?

    At the end of the day, everybody works for himself, even more so in future. A lot of people don’t work for themselves, that’s why our papers say every now and then, why are Singaporeans not happy? People work long hours, subjecting themselves to all sorts of negativity at the workplace, just to bring home the bread (big or small). If that’s the lifestyle we lead, how to be happy?

    • 48 Gard 12 October 2010 at 09:07

      Productivity, as understood as labour productivity in the developed world, is output per working hour.

      So working long hours is not a sign of high productivity.

      Economics has yet to advance to prescribe the formulae to assert relative importance of supporting local products, entrepreneurial spirit, environmental awareness and various issues. But we recognize the need for human ingenuity to tackle them.

      Well, economics do have a proxy measure for the ingenuity, the innovation contributing to economic growth: it comes up as total factor productivity.

      So yes, productivity matters, depending on how you look at it.


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