Global inclination towards a skill-based and knowledge-economy has rewarded the educated rich more resources handsomely, raising their income. On the other hand, lowly skilled workers who are at the opposite end of the salary spectrum take the blow with the influx of foreign laborers that come with our government's pro-foreign labor policies.
The pull and push in wages at different end of the salary spectrum inevitably widens the income gap, as captured by last year's Gini Coefficient, at 4.73, it is dangerously close to the international danger mark of 5.
The Background Information
Prof Lim Chong Yah first presented his ideas for restructuring Singapore wages at a lecture organized by the Economic Society of Singapore on 09 Apr 2012. He said that Singapore now needs a “shock therapy to wake up its economy”
Prof Lim said that the key solution was to overhaul wages at the lower end of the spectrum, and that this would not have much inflationary impact because the bulk of the extra earnings would be consumed by retraining as well as retirement purposes.This will hopefully then force companies to raise their productivity levels in order to preserve profitability.
The malaise plagueing the lower income group has always been their meagrely low wages that have been kept low by an overly liberal foreign labour policy, as well as the government’s fear that Singapore would be uncompetitive without cheap labour.
As a result of the government’s foreign labour policy, the non-resident work force has increased from 300,800 in 1991 to 1.157 million last year, out of which only 1.7 percent earned wages high enough to pay income tax. As a proof of our increasing income gap, Singapore’s Gini coefficient, was at 0.473 last year, perilously close to the 0.5 mark, which according to Prof Lim is “normally considered a dangerous line to reach, far less to cross”.
In response to Prof Lim's proposal, there have been several opposing voices:
Labour Chief and Minister in the Prime Minister’s Office Mr Lim Swee Say is concerned about a premature increase in human capital costs without a corresponding increase in productivity will have dismal consequences. In my opinion, concerns over increase human capital costs which will make SIngapore an unattractive place is justified.But it is mitigated by the fact that high earners's salaries are not rising but instead set to stagnate for a period of 3 years.
This goes to show that the economic restructuring proposed by Dr Lim aimes to tackle rising income gap more than just a over simplified wage overhaul.
Minister of State for Trade and Industry Mr Teo Ser Luck thinks that economy should prosper first to create a conducive precondition for the wages to rise- that wage increase is only feasible if backed by increase in revenue. If not, he said, businesses would be hurt,especially the SMEs who can have their profit margin wiped off entirely. But I think being forced out of their comfort zone, SMEs will be more motivate to strive to achieve higher productivity.
Minister of State for Manpower (MOM) and National Development (MND) Tan Chuan-Jin admits that Singapore must have the strong will to tackle the low wage issue, but concedes that this needs to be supported by a collatory set of reforms, if not counter effective consequences may result.
MP Inderjit Singh felt the proposal is infeasible and too complex to implement. But if we don't try, we would never know.
DBS economist Irvin Seah said that industries that are relatively dependent on foreign workers will be forced to relocate, leading to structural unemployment for low-wage local workers. We need not worry about this, since singapore is not a low value-added manufacturing hub. Besides, the foreign workers that would suffer from structural unemployment would just have to go back to where they have come from.
My Stand
I believe Dr Lim is more concerned about the impact on social fabric and integration which are at threat now due to the widening income gap.
The wage increase is justified because it prevents our private sector to rely heavily on cheap foreign labour to achieve growth. Instead, it aims to push local businesses to move out of their "comfort zone" and focus more on innovation and efficiency to increase productivity.
Companies are not doing so mainly because they can afford to, given the abundant supply of cheap labour. However, it dampan the slightest motivation to increase productivity and this mindset should be arrested. Ecnonomic restructuring can be considered as a prudent approach,in this aspect.
How the wage increase is being put into practice?
Wage increase is picking up in the public sector or civil service sector where the increase will have minimal impact on the private businesses.
-NTUC increases the salaries of its staff by a general 15-20 % following an advice by the National Wage Council.
-SBS Transit has announced a wage increase for both Singaporean as well as foreign drivers
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