Wage differential between low and high end vocations unusually high in Singapore

One of the most striking factoids I’ve heard in a while was this: In Singapore, a construction worker earns about 9 percent of what a doctor earns, compared to Hong Kong where such a worker earns about 25 percent of what a doctor does.

Ho Kwon Ping, executive chairman of Banyan Tree Holdings, highlighted this in a talk he gave Monday, 16 January 2012, at a seminar organised by the Institute of Policy Studies (IPS). The institute had prepared the statistics for him.

Doctors in both cities earn about the same. Likewise, both Singapore and Hong Kong are open to foreign labour. Yet there is this disparity.

If we look at other developed countries, again, Singapore looks like the outlier. Ho said, “First, professionals like doctors and lawyers are paid slightly better in Singapore than the average of the IPS sample of developed countries. Second, our lower-income workers fare much worse than their counterparts in developed countries.

“In fact, in Germany and Australia where immigration policies are more restrictive, construction workers earn about — believe it or not — half the salary of a doctor.”

An excerpt of Ho’s speech was carried in the Straits Times, 17 January 2012.

Ho didn’t want to try diagnosing the problem, except to say that after looking at nurses, the wage gap closes as skills go up – which is not a terribly informative finding since it is true everywhere. It is the enormous gap between construction workers and plumbers on the one side and doctors (representing professionals) on the other that requires explanation.

Instinctively, readers would say supply and demand lie at the bottom of this phenomenon. Singapore’s open-door policy to foreign labour is the direct cause of such low wages in lower-skilled sectors. And you would be right. Nor is it confined to foreign labour. There are spill-over effects on many other low-skill jobs where Singaporeans also work in, e.g. cleaners, airconditioner servicemen, food service workers.

Indeed, one can certainly boost wages by restricting supply, However, unless skills and productivity rise, what one gets is smaller output (because fewer workers) at a higher price. This is why many among us would say, let’s take a softly, softly approach. The middle class fear that if the wage gap closes, they will have to pay more for services that they consume. Cognisant of this, the government too is applying little more than the gentlest tap on the brakes.

What seems hard for Singaporeans to imagine is a worker in these industries being far more productive than he presently is, thereby earning more without sacrificing output. This inability to visualise how we can get the same done with half the people is holding us back. We take half-steps to address the problem, because we are fearful of withdrawal symptoms should cheap labour come to an end.

I said half, because Ho Kwon Ping said half. He cited something a Korean construction company told him as they were building one of our casinos. The Koreans had noticed that their subcontractors in Singapore had twice as many workers as would have been needed in Korea.

Just the other day, I saw an example of “the Singapore way”. A worker who had injured his back told me it came about from a fall while carrying 50-kg sacks of cement up makeshift stairs.

The immediate question I had – which is not particularly relevant to this article – was why he flouted the safety rule that no man should try to lift more than 20 kg. He had no choice, he said. His boss would fire him if he did not do as told. The small point of relevance here is that our foreign labour policies are so careful to please employers, they give carte blanche powers to bosses to fire workers at will; in the same way, our policymakers may be paralysed with fear when it comes to telling them that going forward, they need to pay workers more and use fewer of them.

However, more pertinent to this article was the worker’s answer when I asked him why it was necessary to carry sacks of cement up rickety stairs in the first place. There was no lifting equipment — was the answer.

And there you have it: a vicious cycle.  Assured of plentiful supply of cheap labour there is no incentive to mechanise. The result is that human beings are used as mules. Is it any wonder that our productivity is abysmal?

Lest the more hard-hearted among us see the issue merely as one of comparative cost of human muscle versus cost of machinery, I will hasten to add that relying on large numbers of low-skilled workers – not just foreign ones — generate a variety of social costs too. Overcrowding and social friction have been mentioned many times. Businessmen may not take these costs into account, but everybody else on this island pays the price for him.

But I want to add two more costs. The first is that — and here I am referring to low-wage Singaporeans — creating an underclass by paying workers in certain vocations a less-than-living wage breeds resentment. It changes the tenor of society. The rich actually feel more insecure when they are surrounded by the poor.

The second springs from the case of the worker with the injured back. He and other injured workers then put demands on our healthcare system. As we all know, in healthcare, costs can be considerable and bed capacity already very limited.

At the end of the day, it is a fallacy to think low-wage workers are cheap.