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
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.”
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.