LABOUR chief Lim Swee Say yesterday called a proposal by a veteran economist to raise wages at the bottom by 50 per cent over three years a 'very risky' move.
Giving the labour movement's position, he warned that Professor Lim Chong Yah's suggestion could result in job losses and structural unemployment if productivity did not go up by the same quantum in those three years.
Prof Lim sparked a debate this week when he called for a 50 per cent wage hike for those earning $1,500 and less and a wage freeze for those earning $15,000 or more, over three years.
In his speech on Monday to the Economic Society of Singapore, he argued that such 'shock therapy' would force companies to raise the productivity of low-wage workers and close the income gap between the rich and poor.
Yesterday, at a press conference in the NTUC building, NTUC secretary-general Mr Lim took pains to explain why he believed it would be better to drive wage growth through productivity gains rather than the other way around. The first is the approach that the Government, unions and employers have taken to date. The second is Prof Lim's idea.
Mr Lim said: 'My concern is this: Yes, we can give wages a shock but in the process, are we also able to give productivity an equal shock?'
If not, he feared that Singapore could become stuck with high wages and low productivity, which in turn will lead to job losses and structural unemployment.
But he conceded that driving wage growth through productivity gains would take time.
'We all agree we need to speed up the transformation of the economy, especially for the low-wage workers,' he said, adding that labour and business leaders would have to find ways to speed up productivity gains.
Wage hike not cost-free: Swee Say
Labour chief warns that higher salaries without productivity gains could lead to job losses
By Lydia Lim, The Straits Times, 14 Apr 2012
THE unionists who cheered an economist's proposal to raise wages at the bottom by 50 per cent over three years may not be aware of its potential costs, labour chief Lim Swee Say said yesterday.
On Tuesday, a union leader told The Straits Times that Professor Lim Chong Yah's plan to hike wages at the bottom and freeze those at the top was 'a real morale booster' and 'long overdue'.
Yesterday, Mr Lim, NTUC's secretary-general, cited this comment twice during an hour-long press conference. He said it was understandable that union leaders would support a plan to raise workers' wages if they believed it would be cost-free.
'If you can up the wages of workers by 50 per cent with zero downside, I think union leaders, of course, will welcome it. But I also think that there are many union leaders who understand that nothing comes free so there must be some downside,' Mr Lim said.
The labour chief himself was sceptical that wages could be raised in the manner proposed by Prof Lim without workers and consumers paying a price.
Yesterday, NTUC's Mr Lim said: 'This approach is very risky. What is at stake are jobs and structural unemployment. You can push up the wages of low-wage workers by 50 per cent in three years, but you cannot improve his skill, his productivity, his employability by 50 per cent in three years.'
After criticisms from other economists, Prof Lim mounted a defence of his proposal in an interview on Wednesday with The Straits Times.
Responding to worries that the plan would drive away foreign talent and raise unemployment, he said Singapore would remain attractive to talent, and that Singaporeans who lost their jobs could be retrained and re-employed, given the tight labour market.
He conceded his plan might raise prices but said it would be all right as long as Singapore kept its rate of inflation at about half the rate of the world's inflation.
Yesterday, the NTUC chief dwelt at length on why he doubted that Prof Lim's 'thought-provoking' proposal would be as cost-free as claimed.
The first Cabinet minister to comment on the wage shake-up plan, Mr Lim warned that if productivity gains did not match the 50 per cent hike in wages, workers would pay a price in the form of job losses and structural unemployment.
He also gave a rough estimate of the size of the wage bill that would result from Prof Lim's proposed wage hike for low-wage workers - $4.56 billion. To arrive at that figure, he assumed a base wage of $1,000 and a pool of 400,000 low-wage beneficiaries.
He warned that someone would have to foot the bill. If the low-wage workers were from domestic sectors such as cleaning, the hike would mean a higher cost of living for Singaporeans, in the form of higher service and conservancy charges, for example, he said.
If the workers were in the export sectors, their companies would have to bear higher costs, and if they should become less competitive as a result, the outcome would be job losses, he added.
At the press conference, Mr Lim stressed he was merely stating his position as labour chief, not issuing a rebuttal to Prof Lim or stating the Government's position.
Prof Lim, who was chairman of the National Wages Council from 1972 to 2001, also argued that Singapore's high-wage policy of 1979 was effective in driving up productivity.
Asked about that yesterday, the NTUC chief said there was no consensus that the policy was a success.
His own recollection was that Singapore came to the conclusion that the policy, which led to wages outstripping productivity, resulted in the 1985 recession.
That was why Singapore abandoned it in favour of a policy centred on productivity and innovation, which remains in place today, said Mr Lim.
He also said that in today's globalised world, jobs and manpower are far more mobile than they were 30 years ago. 'In the early days, I can make a mistake but if the world is less mobile, I can still get away with my mistake. But in a highly globalised world, a slight mistake can lead to serious repercussions.'
'Foreign worker-centric focus poses challenge'
By Lydia Lim, The Straits Times, 14 Apr 2012
ONE roadblock in the drive to raise productivity is an excessive focus that employers and workers have on foreign workers, labour chief Lim Swee Say said yesterday.
Employers tell the National Trades Union Congress (NTUC) that to solve their manpower shortage, they need more foreign workers.
Union leaders, on the other hand, say that for wages to go up, the number of foreign workers needs to be reduced.
Lamented Mr Lim: 'Today, our challenge is that we are too foreign worker-centric.'
The secretary-general of NTUC added: 'I, as secretary-general, feel that we need to get everybody to shift their attention... what we really, really need is to apply our minds to productivity, innovation and skills.'
Productivity gains are key to the Government's push to raise incomes across the board and ensure inclusive economic growth. Progress on this front, however, has been patchy, with the productivity of the local workforce hardly growing last year.
Asked if the Government could meet its target of raising productivity by 3 per cent a year over the next decade, Mr Lim said he believes that ongoing efforts to persuade employers to raise productivity and wages will yield faster results in the next three to five years.
The reason: the Government's measures to slow the inflow of foreign workers.
It used to be 'an uphill task' for the labour movement to persuade companies to take the tougher path of productivity improvements, but employers now have no choice, as they can no longer turn to an unending supply of cheap foreign labour, he said.
Call for big pay rise too drastic, say SMEs
By Yasmine Yahya & Gan Yu Jia, The Straits Times, 14 Apr 2012
BOSSES of small and medium-sized enterprises (SMEs) say the big wage increases advocated by Professor Lim Chong Yah are too drastic.
They told The Straits Times that hefty pay rises could cripple their operations and hurt the job market by making Singapore less competitive.
There is also a strong feeling that pay rises should be linked to performance.
Mr Nick Chong, general manager of E-Steel, which sells piping and related products to energy firms, said the measures proposed by Prof Lim on Monday seem to be an 'overkill'.
'The direct impact will be on the salary costs. And probably the salary cost accounts for 40 to 50 per cent of the total operating costs,' he noted.
'So my question is this: In a short period of time, how do I grow to achieve that additional margin (to offset the costs)?'
Mr Chong, whose firm has about 35 staff, added he would prefer salary to be tied to performance.
Prof Lim proposed on Monday that those earning less than $1,500 should have an effective pay rise of 50 per cent over three years, while people earning $15,000 or more a month should have their wages frozen during the same period.
Mr Chan Chong Beng, president of the Association of Small and Medium Enterprises, said yesterday: 'Having to raise salaries by at least 15 per cent for three years straight will kill a lot of SMEs.'
Such a move would be an additional burden to firms, which are already struggling with the Government's recent decisions to lower quotas and raise levies for foreign workers, he noted.
'For the first year, I think it would be OK to force everyone to raise the lowest salaries by 15 or even 20 per cent. I would support that,' added Mr Chan. 'But for the second and third year, we should let market forces decide.'
Mr Lawrence Leow, the chairman of advocacy group SME Committee, said many SME bosses he has spoken to would prefer that any wage increments were pegged to performance. 'Linking the salary increment to performance would motivate workers to be more productive,' he said.
'If you implement a wage increase across the board and companies cannot sustain the cost for three years, they may just collapse and, in fact, that would be a more dire situation for Singapore.'
Asia Polyurethane chief executive Erman Tan echoed his views. 'That kind of increment is possible, provided your costs can match your revenue income or your productivity goes up,' he said.
'For SMEs, that's difficult to achieve.'
Mr Tan added that Prof Lim's measures may only worsen two perennial challenges facing SMEs: insufficient funds and difficulty in attracting talent.
Mr Tan said his company, which has a headcount of 30 here, would 'still be OK' if the wages of lower-income workers were raised, but noted that Asia Polyurethane is not as labour-intensive as other SMEs, which would have a harder time coping.
Mr Melvin Tan, managing director of construction firm Cyclect Holdings, said the proposal was 'aggressive' and he would have to charge his clients more. 'That would mean Singapore is less competitive in construction and cleaning and manufacturing,' said Mr Tan, who estimates that around a fifth of the 400 to 500 workers in his company earn less than $1,500 a month.
Singapore needs to be careful about raising wages: Lee Yi Shyan
By Olivia Siong, Channel NewsAsia, 12 Apr 2012
Minister of State for Trade and Industry, Lee Yi Shyan said Singapore must be careful about raising wages without a corresponding increase in productivity.
Mr Lee was responding to media questions about Professor Lim Chong Yah's recent wage restructuring proposal on the sidelines of a community event.
Prof Lim had said a wage revamp is needed to address the issue of growing income inequality.
This includes progressively raising the pay of low income workers and freezing the wages of top earners.
Prof Lim suggested that those earning below S$1,500 a month should have their pay increase by 50 per cent over the next three years, and freezing wages of those earning S$15,000 or more a month, for the same period.
Prof Lim was one of those involved in Singapore's economic restructuring exercise in the late 1970s.
"In a free market system, for it to work well, we have to be very mindful of the interventions we introduce and if you artificially raise it too much... there are consequences and some of these consequences are not what you want to see," said Mr Lee.
"So I think by Prof Lim's proposal, if I understand him correctly... I think this is a very drastic way of raising the wages without corresponding increase in productivity and that will have a wide impact on the economy," he added.
Prof Lim defends 'shock therapy'
Ex-NWC chief says radical wage restructuring plan is workable and more sustainable
By Aaron Low & Melissa Tan, The Straits Times, 13 Apr 2012
PROFESSOR Lim Chong Yah responded yesterday to critics who have dismissed his radical wage reform plan as unworkable.
He gave a stout defence of his ideas, which have sparked a debate in the business, economics and trade union circles.
'We need people to support that we need restructuring if we want a better society. If we want a society where we depend on our neighbours for cheap labour, well... some people like it. I don't like it.'
His proposal, unveiled in a speech on Monday, calls for another economic restructuring, similar to the high-wage policy started in 1979.
To reduce the income gap and raise productivity, those earning less than $1,500 should get a 50 per cent or more wage rise spread out over three years.
People earning $15,000 or more should have their wages frozen during the same period.
This 'shock therapy' as Prof Lim terms it would force companies to raise their productivity while closing the wage gap between the poor and the rich.
Scaring off foreign talent
CRITICS have said that the notion of freezing wages at the top will cause foreign talent to relocate and put Singapore at a disadvantage in the global competition for skills.
Prof Lim, who will be 80 next month, dismisses the idea: 'I don't think they will leave just because they will not get 5 per cent more every year.'
He added that his proposal is far milder than the super taxes that other countries such as the United States are proposing to levy on the rich.
At the same time, Singapore is still an attractive place, with its clean and safe environment, he noted.
'Where would they go? America has not fully recovered. The unemployment rate is still very high in Europe. And Hong Kong, if they wanted to go, they would have gone there already,' he said.
'If they want to leave, we have no choice. But if they want to return, will there be positions for them?' he said.
Soaring unemployment?
SOME business leaders and economists have warned that unemployment could soar if wages are raised without a boost in productivity first.
Not so, argues Prof Lim. This is the best time to implement tough measures, as Singapore is at full employment, with the jobless rate at 2 per cent.
So if labour-intensive firms shut, workers can be absorbed into other areas of the economy with the right training, he said.
But the process, while critical, will not be painless, he admits, warning that 'it will not be 100 per cent plain-sailing'.
Inflation threat
PROF Lim also addressed concerns that his plan would fuel inflation.
He pointed out that most of Singapore's inflation stems from external sources; 80 per cent of goods here are imported.
If higher wages generate more demand, Singapore can simply import more, he said.
And with the currency remaining strong, there would be 'nothing to worry about', he said.
Inflation hit 5.2 per cent last year, the second-highest rate in 30 years.
He acknowledged that domestic inflation could rise as a result of his plan but said that government agencies can do their part by not raising fees and charges during the restructuring period.
'We have to live with a degree of inflation. As long as our rate of inflation can be about half the rate of the world, that is not a problem,' said Prof Lim.
Implementation issues
THE devil is in the details, say critics, but Prof Lim maintains his plan would not be difficult to implement. As they did in 1979, the Government, trade unions and employers - through the auspices of the National Wages Council (NWC) - can help push through major wage reform.
As it is, the public sector and government-linked companies together make up a third of the workforce, he said.
Add in the unionised sector and Prof Lim estimates that about 60 per cent of the workforce can be covered by the NWC alone.
Employers of the remaining 40 per cent can be gradually persuaded to join in: 'We're doing moral suasion. Employers also have pride... that's our experience in Singapore.'
And for those who refuse to comply with the recommendations, part of the wage increase will be channelled through higher Central Provident Fund contributions, which employers will have to pay, he said.
Why now?
ASKED why he is speaking out now, Prof Lim said he was concerned about falling productivity.
He noted that over the years, instead of becoming more productive, Singapore seems to have gone 'backwards because we can employ cheap labour'.
He cited the car wash: Previously most car washes at petrol stations were done with a machine but now there are legions of lowly-paid workers doing the work.
'As long as we can get cheap labour, I don't think we'll think about raising productivity,' he said.
Asked to comment on the professor's proposals at an event last night, Minister of State for National Development Lee Yi Shyan warned that pushing up wages artificially ahead of any increase in productivity could lead to workers becoming uncompetitive, and jobs being lost. This has happened in China, where wages in some sectors have risen sharply, prompting some companies to relocate, he noted.
Workers could be in for a rude shock
Editorial, The Straits Times, 16 Apr 2012
PROFESSOR Lim Chong Yah's idea of using shock therapy to breathe life into stagnant incomes at the bottom of the pyramid will no doubt resonate with many workers. Which worker earning less than $1,500 a month would not welcome a 50 per cent pay hike spread across three years? It would be like Christmas come early. Business leaders and economists, however, are less enamoured of the plan, which many have dismissed as well-meaning but unsound.
The problem of inequality that Prof Lim is trying to address is a global one. Since the 1980s, the share of profits in national incomes has grown, while that of wages has declined, almost everywhere. Gains from productivity improvements have gone more to shareholders (and employees who have stock options) than to workers.
Singapore cannot fight this global trend with home remedies. What it can do is to try to boost labour productivity. Contrast South Korea and Singapore. Between 2000 and 2010, the ratio of real wage increases to productivity growth - representing the share of efficiency gains that went to workers - was the same in both countries. But because productivity growth in Korea was a lot higher, real wages there grew 2.1 per cent annually, compared with just 1.3 per cent in Singapore. This is where efforts should be focused. Quick fixes are elusive here; raising productivity is a long, hard grind.
The professor's proposal also calls for a three-year wage freeze on those earning $15,000 a month. That will mean a cut in inflation-adjusted real wage - a sure-fire disincentive for mobile senior talents, both foreign and local. Addressing inequality with a wage freeze at the top end calls for clarity on how much of the income of the ultra-rich here is actually from high wages, and how much of it accrues from asset ownership. There's also the question of whether global firms would, with the need to hold on to talents, pay much heed to the kind of moral suasion the professor calls for to curb pay increases for their best people. These mobile talents will have to be kept motivated to keep minds wondering, or worse, feet wandering after better prospects.
In 1979, when the National Wages Council, then led by Prof Lim, embarked on a three-year wage increase of the type he's recommending now, half of the world's workers could not participate in the global economy. China was just opening up, India was still closed and Eastern Europe was behind the Iron Curtain. Today, workers globally not only compete with one another but also with a vast technology network that has automated many services that used to require humans.
Wage policy may have been a handy device when Singapore wanted to move to higher-value-added exports by rendering uncompetitive once-useful semiconductor assemblies in which workers were less skilled than barbers, as then Finance Minister Goh Keng Swee had quipped. But in today's Singapore, it's not the export-focused industries but retail trade and restaurants that have seen real wages and productivity decline in recent years, a study by Trade and Industry Ministry economists has shown.
Nominal wages are 'sticky downwards'. They don't fall quickly in an economic slump. It took deep cuts in Central Provident Fund contribution rates, after the 1985 recession, for workers here to regain competitiveness. There was much pain felt at the time, but memories of it seem to have faded. Singapore's economy is now too sophisticated for policymakers to use blunt tools. If better income distribution is the goal, fiscal policy can do the job with fewer distortions. Wage policy is like a bulldozer. Just because it might be faster in clearing obstacles in its path does not mean it should be deployed in place of more painstaking, but ultimately more effective, options.
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