In a market economy, wages aren’t determined by wishful thinking

It hit me yesterday that we are at risk of brandishing the term “productivity” as if we truly understand what it is and, more importantly, how it is measured. It is a very technical thing, and from what I understand, there are serious difficulties in measuring it. I myself am in no position to explain it to you. But I am given to understand that while methods for determining Total Factor Productivity are reasonably advanced and established at the level of national accounts, they can get devilishly difficult at sectorial or industry levels. Even more so at the level of a company.

And yet, the prime minister’s rejoinder to economist Lim Chong Yah’s idea to raise the wages of low-income workers by 50 percent over three years, was to link the wages of lower-level workers to productivity gains. 

But I do not agree with his drastic approach because the only realistic way to lift their wages is step by step, with wages and productivity going up in tandem together as fast as we can but as fast as it is possible.

— Lee Hsien Loong, speech, 1 May 2012

It seems to me to be one of those easy answers that beguile.

Firstly, how many companies measure productivity? Mostly, they are concerned with profitability. Few companies systematically collect the necessary data to track productivity. But since wages are determined at the company level and not with reference to national accounts, how does one expect companies to adjust wages in line with productivity when they have no consistent measure of it?

Secondly, even if a company tracks productivity of each profit centre or cost centre, it makes a poor fit with the issue of the day:  the low, low wages of low-skill workers. Typically, a profit centre or cost centre comprises a team of managers, supervisors, technical experts and maybe general labour. There is no separate measurement for the productivity contribution of low-wage workers for the simple reason that it is very hard to tease out their contribution versus that from more senior ranks.

In other words, Lee’s words may seem like a sensible solution, but there is no practical way to operationalise it across the myriad of firms, large and small.

Let’s be honest. Wages are largely determined by three chief factors.

  1. The first is how profitable the company is. This establishes a pool of available money for paying out. But it doesn’t determine which employee gets what salary, or what annual increase.
  2. This is where the second factor comes in: demand and supply. When a company hires, it takes note of the market rate for the skills that it is looking for. Periodically, in determining pay adjustments, it looks at the market rate again, to make sure it continues to pay a competitive salary in order to retain talent. Yet, even so, it does leave considerable wiggle room.
  3. The third factor then comes in. Do you wiggle more in favour of the executive staff? Or the shopfloor staff? Left alone, managements have a tendency to reward themselves preferentially. The opposite may apply when unions are strong and able to claw a bigger share for its members.

One might be tempted to say that if a company neglected its low-wage workers long enough, it would find its salaries uncompetitive and factor #2 would then kick in to counter-balance a bias against low-wage workers in factor #3. Potentially, yes. But if due to a systemic weakness of unions throughout an economy, no company is faced with union pressure, then the aggregate of all companies’ actions would be to stagnate pay for those levels of staff. By corollary, the tendency to disproportionately inflate executive pay also becomes systemic.

And if one adds to that a governmental policy of easy immigration, the demand and supply equation is skewed further.

These factors in determining remuneration are inherent in a market economy. Talking about using productivity improvements (if you can even measure them for different grades of workers) to guide wage adjustments is just so much theory; it cannot overcome these operational realities.

Moreover, a company doesn’t have to pay more to workers even if productivity improves. It can park the gains as profit and distribute it as dividend to share-holders.

Let’s get real. Salaries for the lower grades of staff will go up when they have bargaining power, or, failing that, when the state takes the side of workers. Whistling on and on about productivity improvement as the only yardstick is really quite meaningless. Dreaming, almost.

77 Responses to “In a market economy, wages aren’t determined by wishful thinking”


  1. 1 allthatjazz 8 May 2012 at 02:49

    it is surely easiest to measure productivity on the factory floor.
    otherwise, as you say, what exactly do you measure?

    too often, experience is not factored in enough. too often too,
    managers forget they are where they are as a result of teamwork.
    can u imagine what this place would be like without cleaners?

    very frequently, if a worker is not performing, it is due to poor mgt
    of the person and the job he is asked to do. this probably has
    greater impact on the final result and a worker’s level of performance
    than on his ability and drive. from my experience, in spore,
    managers, esp of the lower levels, suck.

    • 2 yawningbread 8 May 2012 at 08:30

      ‘Factory floor’ is a mental image that no longer suits the times. Most low-wage workers are in service industries. The problem is how you’re going to count output in many of these industries. Take a sanitation worker. How many square metres per person cleaned to a certain standard depends quite a fair amount on how dirty the area was. If littering goes up, his productivity falls. Is it his fault? Take a neighbourhood hairstylist. If fashion leads to people asking for simpler styles, or shunning hair colouring, what impact does it have on productivity? How does one measure that in a meaningful comparable way?

  2. 3 ricardo 8 May 2012 at 03:39

    The factors that drive Productivity are Employer driven. You get better productivity by using better machinery / automation and by investing in training and education for your employees.

    What is the incentive for Employers to do this if wages are artificially kept low by allowing cheap foreign labour? They will only do this if some other factor like a Minimum Wage comes into the picture.

    Otherwise PM Lee’s rhetoric is just another example of “Work Harder, Faster, Cheaper and contribute CPF to keep me in multi-million Dignity.” It will have no effect on Productivity unless other measures like a Minimum Wage are introduced.

  3. 4 Phil 8 May 2012 at 05:30

    By definition, an increase in labour productivity means that the same output and services can be generated using less labour. So, why should wages go up? The experience in the US is that increased labour productivity has resulted in stagnant real wages for the past twenty years. As long as society place a higher priority on giving the investing class a “satisfactory” return on its money than providing workers with a livable wage, the gains from increased labour productivity will accrue to the owners of capital.

  4. 5 Sasitharan 8 May 2012 at 08:14

    Hi Alex,

    Thank you for keeping it honest and truthful. It blows away the claptrap around this issue. There is however another way of inducing a reluctant governments to act in favour of poor workers. In particular cases when unions are especially cozy with the ruling elite, lighting a political fire parliamentary arses has the magical effect of re-writing Economic theory and making a real difference to workers.

  5. 6 Tan Kin Lian 8 May 2012 at 09:27

    Dear Alex
    This is an excellent article, which I agree whole heatedly. We need a minimum wage and stronger trade unions – which do not indulge with wishful thinking. I have expreesed similar views in my blog http://www.tankinlian.blogspot.com.

  6. 7 Tan Tai Wei 8 May 2012 at 10:03

    The artificial supply of cheap labour depressed wages so unfairly as to make the professor say that they have been 50% underpaid, ie. paid way below their “productivity”, whatever this term is taken to mean. And the PM replies that “productivity” should be the measure of pay! Well, so let it be!
    And if they have been that much underpaid, who have been consequentially taking more than a fair share of the rest of the pie?

  7. 8 Plumber 8 May 2012 at 10:07

    Alex, having been in management position, the three factors you outlined are exactly how it works at the company level. Even at MNC we really do not monitor productivity the way we monitor profit and return on assets and equity and return on capital deployed

    • 9 yawningbread 8 May 2012 at 16:16

      I’ve been in management; that’s how I know. The scary thing is this: our PM has never been in the private sector. He has never run a small/medium enterprise. he’s never been a departmental manager in a large company.

      • 10 octopi 8 May 2012 at 21:02

        Well, you could say the same of the other founding fathers: Rajaretnam, Toh Chin Chye, Goh Keng Swee. Only LKY had experience running a law firm!

        That said, I don’t dispute your implication that LHL lacks a bit of cow sense.

      • 11 Poker Player 9 May 2012 at 02:40

        Did it occur to you that YB did not include that generation because it is ridiculously presumptuous to consider it a defect in people who survived WW2 and political competition with the communists (at a time when the were not only politically and militarily formidable globally but actually **fashionable**)?

      • 12 octopi 9 May 2012 at 09:50

        Yeh, big gaping hole in the CV. BG, Minister of Finance, DPM, PM, Sec Gen of PAP. Nothing as complicated as actually running a company yah?

        Let me say something about the job of PM today. Regardless of whether or not you think he’s up to it, this premiership is the toughest since LKY’s.

        And I don’t mean to blow my own trumpet, but dealing with assholes like you and me is probably tougher than dealing with the commies.

      • 13 Poker Player 9 May 2012 at 10:29

        “dealing with assholes like you and me is probably tougher than dealing with the commies.”

        Who was that talking about cow sense again?

      • 14 Poker Player 9 May 2012 at 10:37

        “Let me say something about the job of PM today. Regardless of whether or not you think he’s up to it, this premiership is the toughest since LKY’s.”

        It is one thing to notice that Scandinavia’s, Hong Kong’s etc achievements are no less than Singapore – but done with far less boasting. It’s quite another to have people swallow the boasts hook line and sinker.

      • 15 Poker Player 9 May 2012 at 10:39

        “Yeh, big gaping hole in the CV. BG, Minister of Finance, DPM, PM, Sec Gen of PAP. Nothing as complicated as actually running a company yah?”

        Aahh…can he get the same CV in another country…;)

      • 16 Poker Player 9 May 2012 at 11:10

        ““dealing with assholes like you and me is probably tougher than dealing with the commies.””

        You mean people too lazy to have their own blogs (or worse – have one that no one reads) and depend on somebody else’s?

        Get a sense of proportion.

      • 17 octopi 11 May 2012 at 06:31

        Relax, relax brother. Take a nice deep breath so that the oxygen goes to your head.

        Our founding fathers entered our government without fancy CVs, without presidential scholarships. Yes, a few of them had fancy degrees from top unis. But there was no rigorous selection process – or it wasn’t formal. You had a bunch of enthusiastic people, and they formed a gang – if you weren’t up to it, you just dropped out. The fact that we had good leaders – it was simply luck! Dr Goh Keng Swee got his PhD at a time when it was possible to get one in less than 4 years. Or maybe we had such a good pool of hardworking and enthusiastic people that those who rose to the top were necessarily the best of the best.

        Your assertion that LHL would not have had an impressive CV in another country is not provable or falsifiable and therefore purely speculation.

        The reason why you brought up comparisons with other countries is not apparent because I was comparing 3 prime ministers. The point I am trying to make and what most people would agree with, is that the problems that LHL has had to face are worse than Goh Chok Tong’s, and if you don’t believe that, you could do worse than to read this blog.

        And yes, it is difficult for him to deal with people like us. If LKY meets a commie, he can detain him without trial. If LHL meets us, he has to tell us what he had for dinner. People have grown more powerful, corporations have grown more powerful. The government, while still very powerful, no longer acts like it’s the only source of power in Singapore.

        I’d be glad to engage you further if your comments are not too childish!

      • 18 Poker Player 12 May 2012 at 14:57

        “***Relax, relax brother. Take a nice deep breath so that the oxygen goes to your head.***”

        The problem isn’t my oxygen supply. The problem is your approach in trying to make the most general claim you can get away with without trying very hard to get the background knowledge necessary.

        “***Our founding fathers entered our government without fancy CVs, without presidential scholarships. Yes, a few of them had fancy degrees from top unis. But there was no rigorous selection process – or it wasn’t formal. You had a bunch of enthusiastic people, and they formed a gang – if you weren’t up to it, you just dropped out. The fact that we had good leaders – it was simply luck! Dr Goh Keng Swee got his PhD at a time when it was possible to get one in less than 4 years. Or maybe we had such a good pool of hardworking and enthusiastic people that those who rose to the top were necessarily the best of the best.***”

        I am detecting a pattern here. You will insert something factual but trivial which neither supports nor weakens you point – for padding and to give the impression that your comments have factual content.

        “***Your assertion that LHL would not have had an impressive CV in another country is not provable or falsifiable and therefore purely speculation.***”

        No comment. Just quoting and leaving readers to their own conclusions. Man…just look at what you have been reduced to saying… LOL!!!

        “***The reason why you brought up comparisons with other countries is not apparent because I was comparing 3 prime ministers. The point I am trying to make and what most people would agree with, is that the problems that LHL has had to face are worse than Goh Chok Tong’s, and if you don’t believe that, you could do worse than to read this blog.***”

        Now it’s Goh Chok Tong. What a climb down.

        “***And yes, it is difficult for him to deal with people like us. If LKY meets a commie, he can detain him without trial. If LHL meets us, he has to tell us what he had for dinner. People have grown more powerful, corporations have grown more powerful. The government, while still very powerful, no longer acts like it’s the only source of power in Singapore.***”

        LKY was in politics longer than when he had the power to detain commies. When you say we are more difficult than the communists, you may want to heed your own advice about oxygen.

        “***I’d be glad to engage you further if your comments are not too childish!***”

        Since when was debunking childish?

  8. 19 ;ABC 8 May 2012 at 10:22

    Did`nt GCT believe that productivity increases when the popiah man makes more popiahs with more experience? Coming from an economist with a first class degree.Is real scary when those in power wield the “productivity” stick against the poor hapless peasants.

  9. 20 Poker Player 8 May 2012 at 10:44

    Finally, productivity is exposed to be as fetishist as the (Marxist!) labour theory of value.

  10. 21 octopi 8 May 2012 at 10:47

    To talk about high wages and productivity alone is like talking about one half of a pair of scissors. On the other side of the pincer is the high cost of living in Singapore. High costs of living drive up wages in Singapore. It was an optional thing, and it didn’t have to be that way: Singapore’s cost of living spiralled upwards as a result of our asset enhancement policy in the early 90s: when the cost of land goes up, the costs of rental goes up, and with it, the cost of all retail outlets.

    As it is, high wages and costs make our position in Singapore a very dangerous one: we are living in a region with low costs and low wages. We have to work that much harder and more effectively with millions of cheaper and hardworking people in our region just to keep up with the cost of living in Singapore. Bringing down costs in Singapore is very much a part of the solution to this problem.

    This article raises the very valid point bosses are responsible for raising productivity. In fact, there are some very political reasons for not raising productivity: many bosses prefer to restrict access into and out of their own personal fiefdoms, in order to maintain their hold on power. When you delegate responsibility (in the name of doing things more efficiently) you cede some power. Some bosses maintain headcount as a form of social status. Other bosses are just stupid and lazy. And even though there are bosses who are good and concerned enough to make a difference, bosses in Singapore change very quickly: they’re just appointed “for exposure” so that they have the credibility to move on to “bigger things”. Result is that they don’t stay long enough to improve their workers.

    The cultural factors in all this is that we’ve all been brought up to be respectful of our elders and seniors: and we end up being too respectful. People don’t speak up for themselves because they never had practice in doing so.

    • 22 Soon Chun Siong 8 May 2012 at 16:46

      Well said. Cost increases due to asset enhancement policies far outweigh and outpace the cost increases that will be incurred by the proposed wage increases. Unfortunately, asset enhancements are also more effective in increasing the size of the economy without increasing productivity.

  11. 23 The 8 May 2012 at 11:20

    What I find hypocritical and reeking of double standards is that when the ministers had their pay increased by more than 1000%, there is no talk of productivity. But when the proposal to increase by 50% (15% a year for 3 years) for the poorly-paid low-income workers (and Prof Lim CY has stressed that these workers are currently grossly under-paid), there ministers have the cheek to invoke the productivity mantra.

    官 字 两 个 口 (officials have two mouths – speaking with a forked tongue or from both sides of the mouth).

  12. 24 Excellent article 8 May 2012 at 11:21

    Excellent article. Would someone, anyone post it on Lee Hsien Loong’s facebook page and tell him to stop beguiling the public? I hate that sly smile on his face.

  13. 26 for our futrure's sake 8 May 2012 at 11:24

    Put yourselves in the shoes of an entrepreneur: would you need to increase wages when you can easily hire cheap foreign workers even if productivity and profit has increased? Maybe, 5-10% of those who have a conscience would do so.This Govt and their scholarly sidekicks are all theorists.

  14. 27 Saycheese 8 May 2012 at 11:55

    Productivity is a red herring that ineffectual unions in Singapore use to mollify their members’ urge for a better deal. Our PM, son of Lee Kuan Yew, has picked up on it to spur workers to be the bulwark of his anti-inflation drive. Meanwhile, we import in more foreign talents to fuel the rise in rents to help the state’s coffers.
    Holding down the wages of the majority of lower wage workers will also ensure that the top level management, that minority of income earners getting $$$millions, can have bigger bonuses for meeting their walk in the park KPIs. Nothing can be better than this win-win situation.

  15. 28 yuenchungkwong 8 May 2012 at 12:09

    wages are affected by social policies; e.g., if there is an adequate old age pension and single mother financial support, fewer old people/women would be looking for work and competition for low pay jobs would be reduced, forcing employers to pay more; similarly, if immigration/foreign labour are restricted, then competition for jobs would be generally reduced; such social policies are therefore unfriendly to employers who will lobby for more friendly policies

  16. 29 foreigntalent@foreigntalent.com 8 May 2012 at 12:56

    I don’t understand why people keep linking wage hikes to productivity in this country. Wages need to rise steadily every year simply because cost of living keeps going up. But a pro-business govt and spineless unions have ensured that companies can get away with paying peanuts. What a first-world economy.

  17. 30 DetachedObserver 8 May 2012 at 14:00

    An astute observation indeed. Productivity is indeed very hard to measure objectively and has eluded the largest western multinationals for decades. This is largely due to many interlocking factors like group/team dynamics, company culture, etc.

    For those relatively well educated and well off peeps, I would like to chime in its all about negotiation at the interview table. Do not short change yourself – after all, you become and receive what you expect not what you deserve.

    As for low productivity in Singapore, it has very little to do with individual productivity and everything to do with lack of managerial leadership and organisation structure.

  18. 31 GoonDoo 8 May 2012 at 14:04

    In conclusion then, this age old discussion about redistribution of income has little to do with ‘productivity’, but rather, the shifting of the balance of power between different social classes. Wasn’t this what precipitated the growth of Marxist-Leninist ideologies in the past? You can call it whatever you like – productivity gains, wage stagnation etc – the results if one does not address the issue effectively will be the same. Social upheaval.

  19. 32 ape@kinjioleaf 8 May 2012 at 14:06

    And how do we measure productivity of service technicians/engineers? How fast they restore a failed equipment? What if the equipment has some inherent design flaws? Fails frequently? Long lead time for spares? The technician’s fault? Compare to another group who is tasked to maintain a reliable equipment that hardly fails. Is the second group more productive if they sit around waiting for it to fail? Shrink the size of second group?

    Indeed, how can we justify wage with productivity at sectoral level when there can be no objective measure of productivity?

  20. 33 WinkingDoll 8 May 2012 at 14:22

    Just thought I’d re-post my extracts of reply to “Limpeh is a Foreign Talent” blog entry on a similar topic here.
    http://limpehft.blogspot.ca/2012/04/lim-chong-yah-wage-gap-issue.html

    ———-

    Just wanted to comment on nursing pay, speaking as someone who had worked as a nurse in Singapore and will be entering nursing in Canada.

    I think the entry-level and slightly-experienced nursing pay in Singapore sucks big time mainly because of the huge influx of foreign nurses in Singapore and a lack of strong nurses’ union. Of course, PAP’s justification for the huge influx of foreign nurses is the same as that for many labour-intensive jobs in Singapore — that Singaporeans (i.e. citizens) don’t want to do the “dirty job”.

    But IMHO, that Singapore has 1st world hospital structures and 1st world demand for customer service standards, but 3rd world work culture and conditions, is the real reasons why many shun away from nursing. Add to that, nurses in Singapore are paid based on the passport they hold (no kidding), i.e. no different from maids in Singapore. From my observations: angmoh passport is 1st class, Singapore passport 2nd class, China 3rd class, Filippino 4th class, India 5th class, and others. It is so bad that many of the young Singaporeans I encountered in nursing EITHER
    (a) chose nursing with the intention to leave Singapore with using that skills, OR
    (b) decided to leave Singapore and/or nursing after working some time in Singapore hospitals.
    But the reality that many who left Singapore still continued with nursing is a sign that the problem is not that Singaporeans don’t want to do the “dirty job”, but the work conditions in Singapore is not worth putting up with.
    I wrote my 2 cents on the issues 1+ year ago in my blog post below, and the stuff I wrote still holds true today.
    http://winkingdoll.blogspot.ca/2010/08/nurses-day.html

    While B.C. is heading the Singapore direction due to cuts to healthcare funding, it is nevertheless miles ahead of Singapore when it comes to nurses’ prospects. There is stringent controls and assessment of foreign-trained nurses. Foreign nurses unfamiliar with Canadian culture are required to complete courses to train them on it. An effective union to fight for nurses’ welfare and ensure that hospitals cannot blame nurses when shit-hits-the-fan for the hospital’s own failure to provide adequate staffing/equipment for safe nursing. The pay is that of a typical professional at CAD$30.79/hr for new graduate nurses (or CAD50K+/year). No passport based pay-discrimination bullshit here. With good pay and decent work conditions, nursing commands social respect here as a professional job. As a result, local youths fight tooth-and-nail to enter nursing schools here, and some even have to wait several years to get-in.
    http://www.viha.ca/NR/rdonlyres/D516B968-CA74-447F-ACF7-77A9E3DE6B2B/0/BCNursesSalary2010.pdf

    So for nursing in Singapore, I agree with Nelson that the artificially suppressed pay of Singapore’s nurses is not mainly due to their lack of productivity but other structural factors. If anyone wants to fire on the “I don’t want my hospital bills to go up because of an increase in nurses’ pay” line, please provide supporting evidence on the proportion of one’s hospital bill that actually goes to the salary of the nurses who actually provide one’s care. And please exclude from that figure items like “nurses’ training costs”, “nurses’ day celebration costs” and other such costs that don’t go into the nurses’ salary.

    I swear I’m not a tree-hugging loony, just a pragmatic person who recognizes the reality of the 3rd-world labour conditions in Singapore and also its 1st-world cost of living. That’s one of the many reasons why I emigrated.

    ———-

    Just yesterday I had dinner with 2 France French friends, who also migrated to Canada. France is a country known for labour strikes, my friends often joked about the excessive frequency of strikes in France. They were in full admiration of Singapore’s efficiency in contrast. We chat over dinner and they were surprised to learn that “1 person can be an illegal assembly in Singapore”. One friend asked, “Then how do you Singaporeans make your unhappiness with policies known to the government?” I told them honestly that besides some “official feedback channels” and “a small patch of grass” where Singapore citizens have to apply for LICENCE to make speeches, there is no other means except online. They were shocked, something along the lines of “not a democracy”.

    Without the power and ability to strike, make one’s voice heard and punch felt, the power differential will not swing in favour of the working class. Thus, I am not optimistic that the present PAP-dominated government will “pay people their fair wages”. Just look at the PAP stooges’ replies to LCY, we know where the wind blows.

    • 34 Poker Player 11 May 2012 at 10:47

      “They were in full admiration of Singapore’s efficiency in contrast. ”

      We have to learn to take compliments from foreigners correctly. It’s more “politeness and gracefulness” than “serious”. I am sure they will find something nice to say even in Somalia.

  21. 35 jkennyyue 8 May 2012 at 14:40

    the technical definitions or controversy of productivity measurements shouldn’t put you off understanding what it means. at its most simple level, total factor productivity is a measure that matches output, usually measured by GDP, to its inputs, usually measured by labour hours, capital depreciation, and some unobservable factor which is usually attributed to technology and education.

    so why is singapore’s productivity so low? as an aside, is singapore’s productivity even low at all? answer is: we don’t know. singapore is an extreme example of a well-to-do country not having very much productivity, which throws as much doubt on our economy as it does on statistical measures of productivity. (alwyn young 1992, krugman 1994)

    the traditional measures of productivity puts us at about half the productivity of the US. even if you discount the chronically anemic construction sector, service and manufacturing is still ~60% that of the US, which is higher than any other country’s. the biggest concern of MNCs replanting themselves in singapore is the shallow labour force – at 5m people we lack a deep pool of qualified workers, and even if we can import human capital the education system in the South East Asian region is also not well-developed.

    it’s very difficult to justify wage increases like this. few companies have formal measures of productivity (and management accountants will quickly point out that this is the reason why local businesses have no idea how inefficient they are) besides sales. for front-line staff this is immediately measurable: probationary periods for new sales hires can be as short as 1-3 months, for support hires 6 months to a year.

    the influx of cheap foreign labour influences local businesses to pay low wages, and a very powerful antidote is to increase the value of what businesses are producing, and to employ singaporeans in jobs that do so. but this is not happening. businesses employing low skill labour to do low value-add work is very attractive, and businesses involved in high-value add work tends to hire expertise from foreign countries.

    if productivity is indeed wrongly measured, and we are more productive than the measurements say we are, then we should see a natural increase in income. foreign companies should believe that singapore is worth expanding in, or if they don’t expand in singapore, there should be an increase in hiring of singaporeans in job opportunities overseas. either way, a more competitive labour market (including foreign opportunities) will increase wages organically.

    i think chong yah’s intends to make this argument that productivity needs an adjustment, and he is absolutely correct. but a shock is hardly the best way to go about it. so maybe hsien loong should have made this point clearer, and this is the point i want to reiterate for him even if he doesn’t want to make it: the government’s objective is the welfare of the people. this includes the low-skill, low-education, low-productivity group of singaporeans who have no competitive advantage in the global labour market and add little value to companies they are employed in. the GFC since 2007 was the biggest event to shake up poorly-run businesses, but it also displaced a lot of these workers.

    it’s nice to imagine that if unions don’t fight for the worker’s rights the government will enforce minimum wages. i warn that the society is better off having the government enforce nothing – because if they do then you add another layer of complexity to the government which is just as likely to be ineffectual: legislation, supervision, enforcement, penalties. the best step forward is for the government to absorb the costs and risks of increasing worker productivity for these low-skill workers, through education or training subsidies, until such time that they can be justifiably employed.

    the other way is to recognize that the singapore economy in its modern form is 60 years old, that we have a labour force that is still largely undereducated. we have invested significantly into tertiary education and we just have to gradually allow young adults leaving university to replace the retiring workers who were the products of a less-developed education system of the 60s and the 70s.

    • 36 Anonymous 8 May 2012 at 17:49

      jkennyyue wrote:

      “it’s nice to imagine that if unions don’t fight for the worker’s rights the government will enforce minimum wages. i warn that the society is better off having the government enforce nothing – because if they do then you add another layer of complexity to the government which is just as likely to be ineffectual:”

      Maybe I’m reading this wrong, and the context you’re writing in is in regards to something I’m completely missing, but this line is damn stupid. Are you sure you want the government to be hands-off on sanitation in restaurants, for instance? Or forcing factories not to dump chemical wastes into your drinking water? Enforcing proper safety standards in construction? What about proper labor laws so you don’t have to work 20 hours a day just to make ends meet? Or that you have legal recourse when your employer cheats you of your paycheck? (and guess which area minimum wages lie in? that’s right! labor laws!)

      I’m not economist enough to give a proper solution to the wage issues we have now, but have the government enforce NOTHING? Are you sure?

      • 37 RichDad 8 May 2012 at 21:56

        Hmm… I wonder which country with minimum wage law was enforced by employers, not the government?

    • 38 Anonymous 8 May 2012 at 19:36

      I don’t know what your point is, if there is one at all. first you said productivity is easily measured, then somehow you said we don’t know singapore’s productivity, and then somehow you went on about how productivity is low for Singapore – 60%of the US. So which is what?

      And you seem to imply in the last para that older uneducated Singaporeans will soon retire replaced by younger citizens presumably more educated. But do you think then wages will rise? Or productivity will rise? Or both?

      Please have your thinking sorted before the rambling so as not to waste everyone’s time.

      • 39 Poker Player 8 May 2012 at 22:55

        Thanks to the two anons. I too thought the jkennyyue comment was confused but couldn’t get past the first few sentences – thought of responding after 2 caffeine tablets washed down with essence of chicken.

        Important to call out any attempt to obfuscate. It’s bad enough the MSM goes on as it productivity is uncontroversial, don’t let anyone try using a barrage of words to give the impression that their position is stronger than it is.

        They trawl this blog for mention of their private lives.

        But, they are silent on a substantive issue. The jkennyue comment is the only one that comes close to salvaging their position here – and even that is so confused that we don’t really know if it **is** a defense.

        Feel free to draw adverse conclusions from this.

      • 40 jkennyyue 10 May 2012 at 00:42

        my first point is that productivity is not easily measured. but it is easily understood regardless. there is economic controversy over the construction, which may be why yawning bread did some magical hand-waving and ignored the productivity comment by LHL. but productivity measure is still good for many things.

        singapore has low productivity. we’re 60% of the US, but our household income is almost 20% higher (pre tax). that’s great – it’s always great to be overpaid. maybe after adjusting for cost of living we’re not that much better off than the US, but i find that hard to believe.

        my last paragraph is crystal clear – productivity will improve, then wages will increase.

        will the younger generation of workforce be more productive than the older generation? i sincerely hope so!

        i think there is a misunderstanding that working longer hours or working harder must mean higher productivity. i think that’s a well-meaning mistake, but a mistake nonetheless. for example, i can spend a lot of time and effort writing reports at work about things that nobody cares about, but that is not productive.

        let me belabour the point: productivity is part output and part input. when the government says “increase productivity”, what they really mean SHOULD be “increase the value of our work”. we don’t need to spend more time in the office, we are already #1 in the world at this. what is clear is that we need more singaporeans who have specialized skills and knowledge that is marketable and valued beyond singapore, so that they don’t have to remain being ‘support staff’ that can be easily replaced by less-educated foreigners.

      • 41 Nepenthes 11 May 2012 at 20:26

        jkennyyue,
        This discussion is really about employees earning below S$1000 in Singapore. Are you sure that this group of workers are better paid than there US counterparts? Overpaid? Seriously? Are you talking about office cleaners when you say mention leaving the office late? Time does indeed translate quite closely into productivity when we are talking about dishwashers and toilet cleaners, barring the procurement of more productive equipment, which is beyond their control, and would replace said employees.

      • 42 Poker Player 11 May 2012 at 10:03

        “my last paragraph is crystal clear – productivity will improve, then wages will increase.”

        Read the comment by “Tony” below.

      • 43 Poker Player 11 May 2012 at 10:05

        I hope for the PAP’s sake that “jkennyyue” is a “freelancer”…

      • 44 Anonymous 12 May 2012 at 16:18

        This jkennyyue is so clueless I don’t even know where to begin. Needless to say with people like this around perhaps Singapore really need to import , not foreign talented talent, but average people from overseas who has some semblance of an intellect.

  22. 45 NC 8 May 2012 at 15:59

    These arguments are not new. They are also a lot more convincing both theoretically and from empirical observations than the establishment’s rationale that low wages are due to low productivity of the lower classes.

    The interesting question is therefore this: given how common-sensical the whole thing is, why are the policy makers not adopting a different thinking? Reluctance to change the status quo leading to policy inertia? Risk averseness? Plain ignorance (highly unlikely given their supposedly intellect)? Arrogance? Simply lack of empathy for the lower classes? Or more damning, that they are actively pursuing the policy of class segregation in Singapore?

  23. 46 Anonymous 8 May 2012 at 16:00

    They are not dreaming. The ruling power knows for sure that productivity gains is hard to achieve and hard to quantify, therefore by harping on and on about “productivity gains before wage growth”, that way the politicians have certainty that they have their numbers to backup claims that wage adjustments are still not justified, and we need to work harder. It’s the elitist way of driving the ox-cart towards a goal that is never intended to be attained.

  24. 47 NC 8 May 2012 at 16:18

    Interestingly, FT has an article today on “Inequality threatens Asia Growth Miracle” by the Chief Economist of Asian Development Bank. At no time was productivity cited as the reason for growing wage gap and inequality.

    http://www.ft.com/intl/cms/s/0/fba71e2c-9607-11e1-9d9d-00144feab49a.html#axzz1uFkFiu9G

    Surely this would not have escaped teh attention of policy makers in Singapore?

  25. 48 RichDad 8 May 2012 at 16:22

    Any PAP guy have a good answer for this… New York city has a minimum wage, their GST or sales tax is higher than 7%, real estate is crazy-high yet it is less expensive to live in NYC than SG, does that mean NYC is a better managed city than SG? It doesn’t seem so the last time I live there for almost 2 months.

  26. 50 Soon Chun Siong 8 May 2012 at 16:41

    If all toilet cleaners went on strike for a whole week, the whole economy of Singapore will stagnate. A month? It will collapse. Singapore can probably survive much longer if the whole cabinet walked out.
    The focus on productivity is nothing but a red herring. In the first place, are the lower wage workers being paid appropriately for their productivity? By insisting on having productivity increase before wage increase, the current standard is being used implicitly as a benchmark. The underlying assumption is that the current level of wage-productivity ratio is an appropriate one, that it should be the reference. If Singapore really had a free market with a stable populace and appropriate unions, one might argue that the market decides the appropriate wages. This is clearly not the case. Wages at the lower end, and in the middle strata have been artificially deflated with lax foreign labour import policies. What Lim Chong Yah is proposing is not artificial inflation but rather appropriate realignment of wages, correcting a wrong that will have long term consequences socially, economically and politically. Sure it will be inconvenient. Costs will go up – but not as much as cost increases brought about by artificial asset enhancement policies.

  27. 51 Tea-Party Member 8 May 2012 at 17:38

    Hi Alex or anyone

    Read a interesting article but do not have the expertise to verify the claims. The writer seems credible enough. Can you help shed some light please

    [Yawning Bread: Unfortunately, you pointed to an article that is unrelated to the topic here, so I cannot approve that comment. However, it is an interesting read, and I appreciate your pointing it out to me. I have put it on facebook instead to be shared.]

  28. 52 stngiam 8 May 2012 at 20:39

    Long overdue commentary. However, I must point out that in reality wages are set by supply and demand. Profitability has no effect and neither does productivity. Think about it, even if you are a very profitable company, why would you pay a cent more than your competition for labour ? Would you pay your suppliers of nuts and bolts any more just because you are profitable ? Of course not. It’s exactly the same with labour.

    Productivity, as defined by economists (and nobody else) as Value-added/worker, sets an upper limit on wages because if wages exceed Value Added, it makes more sense to fire the worker. But we are not near that limit in Singapore, so VA/worker is largely irrelevant.

    It all comes down to fundamentals. Supply and Demand are the drivers of wage levels. And of course, Supply was deliberately raised in the last few years to ensure that GDP kept growing. That’s the unpleasant truth that govt and employers are trying to hide with the smoke of “productivity”.

    • 53 Anonymous 20 May 2012 at 19:45

      exactly, I ran a small iPhone app studio for awhile. won’t pay more than others, unless the employee has more skill

      if I am forced to increase wages, I have to charge higher fee from my client which might just drive them to oversea vendors

      likewise for cleaners/low wage workers, are we willing to pay more for the same product/service if there is a minimum wage?

      would the best solution be… government/union investing in heavy training and development of ‘low-wage workers’? hence moving them along the value chain, either within the organization, nation or even the world?

  29. 54 Tony 8 May 2012 at 22:04

    If my team of 10 foreign workers need 5 days to complete a task. An expert advise me to mechanise the process,reduce the completion time to 3 days with only 4 workers.Is this “productivity gain”? If Yes is the answer, then my next poser:
    1)Will I as employer/ business owner pay more to the 4 foreign workers?

    2) It is a apparent I have productivity gin in my work place. How can this be translated to better wages to our fellow Singaporean low wage earner?

    So really I am confused the talk of productivity gain to match wage increase in real life case.

    • 55 Poker Player 9 May 2012 at 03:21

      I can’t think of a better summary of the article. It has the same pointedness and simplicity as that part of the story of the Emperor’s New Clothes:

      ‘But he has nothing on!’ said a little child at last

  30. 56 Sgcynic 8 May 2012 at 22:56

    When civil service pay is raised, the justification is so that the government ensures the pay is comparable to that in the private sector and they will be able to attract capable people into public service. We don’t hear about productivity has to increase to justify the higher pay. Civil Servants’ pay are simply benchmarked against the private sector. How do they measure productivity of civil servants? How much manpower to chase down a limping criminal in vain?

  31. 57 patriot 9 May 2012 at 01:46

    Will productivity be defined in the same
    yardstick by the political leader, employer
    and employee???

    patriot

  32. 58 it's so typical.. 9 May 2012 at 09:12

    LHL’s speech is consistent with PAP’s rock solid mantra.. Just dismiss our problems.. Low wages and need a pay hike to stay alive? No no no, it’s low productivity, not low wages that’s the problem.. Up your productivity first and we see how.. I truly sick and tired of PAP. It’s always our fault and they have no solutions for us. Then why are they being paid such obscene salaries? Simply to deflect blame and point fingers? Then anyone can be ministers rite?

  33. 59 Anonymous 9 May 2012 at 10:27

    Wage increase has 2 components:
    1) to keep up with inflation
    2) to pay for increase productivity

    10 years ago, my kopi was 60 cents. Now my kopi is 1 dollar. Does this mean my kopi just become more productive?

    If you are not getting a pay rise every few years, then you are effectively getting a pay cut.

    If you suddenly sell 100 kopi an hour Vs 50 kopi an hour before, then you are more productive and deserves a pay rise ON TOP of the pay rise needed to keep up with inflation.

    PAP confuses the issue. The people are unhappy with income not keeping up with inflation.

  34. 60 Ziggy 9 May 2012 at 10:47

    Remember “Goal 2010”?.

    Remember “Swiss standard of Living”?

    This “productivity” issue will meet the same fate.

    The PAP is not even willing to acknowledge that workers are grossly underpaid for current work/productivity levels. The total reluctance to acknowledge this key point only shows that they are not an honest broker.

    If you’re not dealing with an honest broker how do you expect to get an honest deal?

  35. 61 Tea-Party Member 9 May 2012 at 12:34

    “The National Productivity Board (NPB) was established in 1972 to improve productivity in all sectors of the economy. Increasing individual and company productivity at all levels was a government priority, given Singapore’s full employment picture and relatively high wages. The National Productivity Board followed a “total productivity” approach, which emphasized productivity measurement, product quality, a flexible wage system, worker training, and assistance to small- and medium-sized enterprises”

    We were on the right track starting way back in 1972. If the government has stayed the course and emphasised productivity as the pillar for growth for SME , we would not be in such a position. Somewhere along the way, the PAP government got addicted to the drug called cheap labour. The Productivity movement was abondoned and now that they policy is blowing up on their face, they revert back to Productivity.

  36. 62 octopi 9 May 2012 at 17:59

    Now let’s take yawning bread’s point that it’s really about wage inequality between workers, rather than productivity that is the main issue. One of the key issues is power. Question is, can a worker send a boss to jail for misappropriating company funds, corruption or fraud? Can a worker send a boss to jail for neglecting safety or worker welfare? Does a worker have the right to remove a member of the board? Does the board exercise the right to remove a CEO?

    As for productivity, the main idea is not really measuring output per worker. The main idea is – when, if ever, will Singapore produce its share of world class companies? Even if you can’t produce an Apple, you can try a Coca Cola, an IBM or an Oracle. Maybe productivity of companies is already there, but if you want the next step, that is really what you have to do.

    Counting your beans is something you do after you have produced world-beating innovation.

    • 63 Poker Player 11 May 2012 at 10:01

      If anybody thinks this comment is confused and misses the point – don’t worry, you are not even close to being alone.

    • 64 Poker Player 11 May 2012 at 10:37

      “Even if you can’t produce an Apple, you can try a Coca Cola, an IBM or an Oracle. ”

      What would the equivalents be in Australia … or Norway? I hope I don’t have to spell out the reasons why I chose these 2 countries…

      • 65 octopi 12 May 2012 at 12:52

        Gee I couldn’t think what those reasons might be. Perhaps these are resource rich countries which have absolutely nothing in common with us?

    • 66 Anonymous 12 May 2012 at 16:13

      Nonsense, that’s exactly what the Americans are doing and have done. They have world beating companies ( all the companies u mentioned) and world best productivity and? 8.2% unemplyment, largest income inequality, stagnant lower and middle class wages for 2 decades. Oh and btw, on creating jobs at home? these world beating companies outsource work to china and paid executive millions for savings generated. I wonder how that helps solve our problem?

      You will do well to look around to observe reality before putting forth such a flawed argument.

      • 67 octopi 13 May 2012 at 09:39

        I was addressing how to solve the high productivity part. People were talking about high productivity as though it were a case of better management – I said that’s wrong.

        I didn’t say that high productivity was going to solve the problem of wage inequality. If you say that those are separate issues, I fully agree. What I also said was the first issue of wage inequality is how much power workers have over their employers. Think about power and where it comes from. One interesting question: why are there no workers’ representatives or union leaders on a board of directors?

      • 68 octopi 13 May 2012 at 09:55

        On another note, improving productivity is a good thing. I feel that Singaporean workers work hard rather than work smart.

      • 69 Poker Player 13 May 2012 at 19:51

        “I was addressing how to solve the high productivity part. People were talking about high productivity as though it were a case of better management – I said that’s wrong.”

        I don’t see how this improves the coherence of your original comment – except to help us see that the original first paragraph is a completely separate point (the original first paragraph itself is mystifying – but lets leave it alone for now).

        So,in the context of improving productivity, when people say “better management”, you say “that’s wrong”.

        You say instead: “you can try a Coca Cola, an IBM or an Oracle.”. How does an entrepreneurial genius creating a company like that help improve the productivity of the rest of a whole country’s economy?

        Or do you mean we need lots of Coca Cola-like companies? How? Even the US can’t do that.

        The anon comment is still spot on.

  37. 70 working singaporean 9 May 2012 at 19:14

    Enough said. Just make them panic when they lose election.

    • 71 octopi 11 May 2012 at 06:01

      What you mean is “lose a general election.” We already know they are going to lose the next election.

  38. 72 Rabbit 11 May 2012 at 04:07

    Who chanted the word “productivity” in the first place; does this tiresome mantra came from NTUC via PAP or the employer union? Already some employers cried foul about reaching their maximum capacity and no longer subscribe to the govt call for “productivity”. We also heard from the chief representative of SMEs saying majority of SME are not quite receptive to changes.

    What about the govt, how much do they know about productivity when majority sitting in parliaments are largely living on huge taxpayers money regardless of our economy situations. In good or bad times, their salaries kept rising more than anyone could swallow while Singaporeans were told to be sympathetic towards the employers during bad times. When our economy picks up, were such sympathy reciprocated via pay increment and CPF restorations despite the mounting inflations oft justified by PAP as necessary and eat into everyone savings. No!!! the chief of labor has the audacity to threaten and use words that scream “CHEAPER, BETTER AND FASTER” otherwise workers have to risk losing more jobs and getting retrenched. How will the govt convince the meaning of “inclusive society” when they created systems that are so lopsided and favored the rich (mostly employers) more than the poor (mostly workers) in our society?

    Personally, I felt “productivity” is like a bird in a cage. The govt and labor Union created a cage. The size of cage represents Singapore. The feeding dish and seeds belonged to employer. You cannot tell a bird to perform when it is locked up without any freedom to stretch its wings. In this regard, we know Singapore workers have very little freedom to voice our displeasure under such living conditions. Too many legislations also restricted our society from being creative and discourages employers to think outside the box. Failure is a shameful word in Singapore.

    Singapore is also a small country and employers are not willing to offer more than the feeding dish could hold. Instead of letting the bird out to perform better and deserve better food, this govt created the worse situation by bringing in more birds via influx of foreigners. More does not equate to better performance nor does it bring us to the swiss standard of livings. Our living condition became less pleasing to the eyes due to uptightness and stress the crams created

    The most active bird will find it hard to perform under such condition, not to mention being inhumane to squeeze the people out in this manner. There is not enough bird seeds to share and the existing bird is eating lesser and getting skinnier. Similarly, it explained why our wages are depressed and we can never earn enough to survive in a highly suppressive & compressive state. As such, how does PAP sleep at night when the people are screaming discomfort in this tiny island?

    We should not punish Singaporeans workers using productivity as an excuse, the onus is on employer’s sincerity and this govt’s will to make things right. My cousin salary was $1500/mth in 2001 when he worked in a labor intensive manufacturing company. He is now drawing $1800/mth doing multiple tasks in a high-tech manufacturing firm. Even if he chooses to upgrade his skill, it has no added value to his existing work which very much relied on-the-job training. Yet Singapore 3-room HDB flat was around $120,000 10 years ago and soared to nearly $400,000 now. How can my cousin afford such priced out flat relative to his mediocre salary? He just hope that he will not be out of job with so many cheap foreigners willing to take his job for $1200/mth or even less. This tempted his employer who might consider such attractive option to up their bottom line profit and sideline Singaporeans who have worked their butt off to put meal on their table. Is Singaporeans wage depressed because we are less productive or was it because there are plenty of cheap labours squatting from dimly lit corridors to our brightly lit skyscrappers serving like buffet to spoil the employers? This is not a rocket science.

    I wonder what Lim Swee Say means by ‘CAN BE DONE” which “COULD HAVE BEEN DONE” decades ago. He did not elaborate further what wizardry he is going to perform this time in order to up our wages other than making empty slogan to brighten PAP day on labour day. It is a huge joke coming from our naive leader to tie productivity with wages which contradicted the situation my cousin faced today. Here I am also not just referring to the predicaments of blue color workers but white collar Singaporeans are facing similar dilemma with reckless influx of foreigners.

    Who should be fully responsible for the unpleasant situation caught in Singapore now – my cousin, the employer or this clueless govt? When LKY said this is the best way to spur the people and improve productivity so that Singaporeans can live a better (Golden) life? It is totally rubbish and away from reality from the ground because we are not getting a good dose of competent govt.

    My advice to PAP and employers is to stop pushing the blame on Singaporean workers who have locked in world record hours to bring Singapore from 3rd world to 1st world. It is time we bring their salary to match the wealth of this country as LIm Chong Yah rightly put it. It is not wishful thinking, it is long overdue and they deserve to be well paid for the sake of Singapore future.

  39. 73 Din 11 May 2012 at 12:09

    Singapore is essentially a rentier economy. All entities (govt, private sector and even individuals) just want to earn economic rent. That’s one big factor why workers in S’pore will never earn an honest day’s pay for an honest day’s work because such a disproportionately high costs of doing business goes into paying rent. Most rentier economies in the world derive their revenues from natural resources; in S’pore, the model derives revenue from squeezing the last drop from the human resources (thru very weak unions, influx of cheap labour, etc) and constantly harping and creating a mirage of scarce land resources to keep land prices astronomically high!

    NTUC’s main job is to promote the management’s scare tactics i.e. to scare workers/members that wage increases will result in job losses and businesses moving out of S’pore! F&B, healthcare, personal services and so many other businesses cannot move out of S’pore!! Their customers reside in S’pore. LOL

    • 74 octopi 13 May 2012 at 09:54

      I agree. Singapore’s mentality is too much about growing the economy through value extraction, rather than value adding. That is why our economy is sick and cannibalistic. We need to shift our focus towards science and technology, services, manufacturing, logistics, transport, etc etc. To the extent that our economy is about being a financial hub, we can’t help it if we’re on the same island as those leeches. We can only tighten regulation and enforce disclosure.

      Otherwise “productivity” is merely a measure of how well company A can screw company B.

      The culture in Singapore is one that glorifies making money. We need to change that to a culture that glorifies people making each others’ lives better, and if you earn a tidy buck in the process, that is merely a good bonus.

  40. 75 Din 11 May 2012 at 13:28

    Read this Economist article and the paper mentioned in it – CEO pay and the top 1%
    http://www.economist.com/blogs/graphicdetail/2012/05/ratio-ceo-worker-compensation?fsrc=nlw|wwb|5-10-2012|1713030|36631195|

  41. 76 Alan Lam 20 May 2012 at 20:24

    1. Salary is determined largely by supply and demand, as stated in one of the comments

    2. FEW businesses will pay over the market rate

    3. Hence to help “lower-income” workers, would a government PAID and ENFORCED skill upgrade program be fruitful? (example: folks are paid to complete IT courses, culinary art, communication skills etc)

    Otherwise I fail to figure another way to increase salary without compromising product/service value, business re-investment (like IT system) and/or shareholders compensation. It’s truly challenging to deliver on all front, but that’s business, and probably belong to another discussion…

    We are in a global economy, and perhaps, the dynamics in play here are beyond our shore but really global capitalism at work

    Thoughts?

    • 77 stngiam 21 May 2012 at 21:42

      Unfortunately, govt subsidy for IT courses, culinary arts, communication skills may end up driving down wages in those occupations by 1) increasing supply and 2) reducing the average skill level of workers in those occupations because people who did not actually have an interest or talent in those fields took up the courses because of the subsidy.

      There was another comment earlier about automation raising wages. BS. The purpose of automation is to dumb down tasks so that even lower skilled (and cheaper) workers can be used. If productivity rises due to the contribution of Capital (investment) then the returns should flow back to the owner of the Capital as profits. Why would they flow to Labour ? All the policy makers, analysts, think-tankers and business school professors who argue otherwise clearly prefer fantasy to common sense.


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