Addressing Income Inequality

The hard and only way

AS AN economics major at the National University of Singapore when Professor Lim Chong Yah was the head of the Department of Economics and Statistics, and now as chief executive of a company, I am amazed that Prof Lim thinks income inequality can be addressed ever so simplistically.

If that were so, income inequality would not be a major headache, not only for Singapore but also for many economies and societies across the globe, both developing and developed.

Not rewarding well-performing staff because they are already high-income earners, and being intent on significantly increasing wages of all lower-paid staff, whether this be warranted or not, is a recipe for certain disaster.

What is the message that will be sent to the labour force by doing this?

There is no short-cut to the process of addressing income inequality ('Pay rise without higher productivity 'dangerous''; Tuesday). Wages of lower-paid staff need to be increased on the basis of them doing more work and being more productive, or receiving training to do the types of work that are more 'valuable'. This is not just the hard way, it's the only way.
Wong Joo Seng

ST Forum, 5 May 2012

** Raising pay unconditionally doesn't work for all firms

MR XIAO Fuchun's reply ('Unconditional pay rise vital in tackling income inequality'; Tuesday) to my letter ('The hard and only way'; last Saturday) implies that what worked for the Fortune 500 company he works for will also work for most if not all other firms. While I applaud his company's innovative and bold approach, too many factors play a part in this outcome.

Mr Xiao did not state the type of industry his company is in: Is it in a growth industry (which can at times be more forgiving) or a mature one (which can be less so)? Does manpower cost take up a big proportion of overall costs or not?

Nor did he state whether his company's success was due to the extraordinary productivity of staff at the lowest end of the salary spectrum, or whether this came from more senior staff at the middle to higher end of the salary spectrum.

If it was the latter, what in his opinion would have happened if the company failed (or chose not) to reward those deserving staff? Would this not have been detrimental to the company?

Not all firms operate in the same environment and we should be cautious in advocating a uniform measure for all. Doing more work, working more productively or training to do more 'valuable' work remains the key to earning higher wages.

Rewarding the deserving is crucial and efficient; indiscriminately rewarding all is inefficient and counter-productive.

Let us also be clear about Professor Lim Chong Yah's proposal, which was not an unconditional pay rise for all workers or any comprehensive salary review.

He suggested doubling the pay of staff earning $1,500 or less (productivity aside) within three years and freezing the salaries of those earning $15,000 or more (even if they were productive) within a similar timeline. My disagreement was framed within this context.

While Mr Xiao apparently disagrees with me, nothing of what he has stated seems to suggest this, and nothing of how he states his firm has acted seems to evidence this either.

Wong Joo Seng

ST Forum, 10 May 2012

** Unconditional pay rise vital in tackling income inequality

AS AN economics major and chief executive, Mr Wong Joo Seng seems to have a surprisingly reductionist view of productivity ('The hard and only way'; last Saturday).

I work for a Fortune Global 500 company in Australia. We are expected to perform above and beyond what our official titles suggest. In other words, we do more and are more productive.

Our salaries were stagnant for a long time. We suffered attrition because many able colleagues quit for other firms, where they were treated as stars and earned higher pay. The circumstances put our productivity at risk.

Recently, the company undertook a comprehensive wage readjustment, and junior employees received significant pay increases. Many people joined the company, providing the crucial resources that enabled it to win more deals.

The company's profits did not decrease despite the higher labour costs.

Imagine what would have happened if the company had adopted Mr Wong's idea and demanded that staff increase output and productivity to justify raising wages?

In small and medium-sized enterprises in Singapore, as in multinational companies, productivity, or lack thereof, is an effect as much as a cause.

These companies are telling us that they have problems finding Singaporeans for certain jobs.

Is it not surprising that, while the law of supply and demand dictates that wages should then go up, we actually have a situation where wages are suppressed, exacerbated by handouts in the form of abundant foreign labour?

Having workers earning wages far below subsistence level indicates that companies are unable or unwilling to invest in increasing productivity.

With such wages, there is no incentive for workers to increase personal productivity, thus ultimately eroding the companies' revenues.

Obviously, the vicious circle needs to be broken here. So how about increasing wages to start with?

A few companies will close down, but others will strive to cope with the new reality by redesigning their work to become more efficient.

In short, an unconditional increase in wages is an insufficient but necessary step in a comprehensive approach to tackle income inequality.

Xiao Fuchun

ST Forum, 8 May 2012

Give it a shot
'It requires a bold strategy like Prof Lim's, and government verve to implement it, in order to arrest the widening income gap.'

MS THAM PUI YING: 'I hope Professor Lim Chong Yah's bold wage proposals will not be discarded now that Prime Minister Lee Hsien Loong has weighed in on the subject ('Pay rise without higher productivity 'dangerous''; Tuesday). It requires a bold strategy like Prof Lim's two-pronged plan to raise low-income wages and temporarily cap the pay of top earners, and government verve to implement it, in order to arrest the widening income gap. The cautious approach - via higher productivity - will not work, given the official aim to improve productivity by only 2 per cent to 3 per cent a year over the next decade. Prof Lim's shock therapy is worth evaluating if only because it shakes up the conventional government approach. At least set up a high-level task force to consider its implementation instead of dismissing it. Singapore has thrived because we have been bold in solving problems.'

ST Forum, 5 May 2012 

Consider plight of seniors as well
PROFESSOR Lim Chong Yah's 'shock therapy' proposal to help low-wage Singaporeans, while commendable, must inevitably result in businesses increasing their prices.

This could lead retirees into greater financial insolvency.

It is naive to expect professionals earning $15,000 a month or more to take no action to protect their interests.

Perhaps a better alternative to Prof Lim's suggestion can be crafted, one that will spare retirees further financial trauma.
Francis Zhan

Chief Executive Officer

AMCIS Seniors

ST Forum, 5 May 2012 

Hong Kong not a good example of income equality
MR PAUL Chan has neatly reconciled his admiration for Hong Kong's free market economy with Professor Lim Chong Yah's 'shock therapy' wage proposals to address the state of income disparity here ('Unlike HK, Singapore has easy access to cheap foreign labour'; April 27).

Hong Kong presides over the highest income gap in Asia, if not the world, despite its conservative stance on cheap foreign labour.

Hong Kong's cost of living index adjusted for purchasing power parity is stratospheric to the point that 20 per cent of its seven million residents reportedly live below the poverty line, defined as a four-person household living on less than US$800 (S$1,000) a month.

It does not make sense either to compare, as Mr Chan does, the wages of construction workers in Hong Kong with those of their peers in Singapore when few, if any, Singaporeans, choose it as a career.

Hong Kong's construction industry is clearly more productive than Singapore's for several reasons, including its decision to eschew an over-reliance on cheap manual labour. And, according to Mr Chan himself, this has translated to better salaries for its workers.

The average Singaporean worker should not be held to a lower standard with calls to increase wages in line with the prevailing cost of living, and before any improvements in output. Unlike their counterparts in Hong Kong, Singaporean workers have access to many government-sponsored schemes such as Workfare to upgrade themselves.

Recently, the authorities unveiled fresh measures to re-orientate the Singaporean economy and industries - including the construction sector - towards quality growth based on productivity instead of factor inputs like cheap foreign labour.

Singaporeans enjoy a social security safety net that is continually being reviewed for relevance. Singapore may not be Utopia but our system works at high speed and quality on a very consistent basis. With such good support, our workers can compete with the best. A fair number continue to do so and have gained financially.

Those who find it very difficult to climb the value chain, including the disabled and aged, deserve help. But those who wish to live the Singapore dream by leveraging on an inclusive and compassionate society without applying themselves should receive 'shock therapy'.

Standards must be maintained and those who make the effort to raise their game will reap the rewards. Pay increases should be driven primarily by improved creativity and productivity.
Toh Cheng Seong

ST Forum, 5 May 2012

Unlike HK, Singapore has easy access to cheap foreign labour
UNLIKE Hong Kong, the market forces of demand and supply do not apply here because of the abundant source of cheap foreign labour ('About that superior Hong Kong wage comparison...' by Mr Toh Cheng Seong; last Saturday).

The buoyant economy and slow productivity growth over decades discouraged mechanisation, and so the construction industry here lags behind that of Hong Kong.

We should not accept the widening income gap any longer. It is easy to insist that higher wages must be predicated with higher productivity and economic growth to meet global competitiveness.

But the reality on the ground suggests that the disparity must be tackled in a positive way.

What strikes me most is that despite the four times higher wages in Hong Kong for construction workers, they can still get a decent bowl of wonton noodles for HK$20 (S$3.20) and a plate of rice with mixed vegetables and meat for HK$30 at street stalls.

Fair wages should be commensurate with the prevailing cost of living and should precede productivity.
Paul Chan

ST Forum, 27 Apr 2012 

About that superior Hong Kong wage comparison...
I AM curious about Professor Lim Chong Yah's point that the wages of construction workers in Hong Kong are four times those of their peers in Singapore ('Wage hike not cost-free: Swee Say'; last Saturday). Is this due to a more productive construction industry in Hong Kong or the result of similar shock therapy measures that Prof Lim is proposing?

If it is the former, then wouldn't it give credence to government efforts to steer certain industries away from the importation of cheap foreign labour, towards the redesign of jobs and business processes, productivity gains, improved service and better salaries for local lower-income workers?

If it is the latter, I wonder what the many Hong Kong people who cannot even afford to buy a shoebox apartment, because of sky-high property prices there, will be thinking.

Either way, the rebalancing and restructuring of Singapore's economy are necessary not just for the viability of Singaporean workers in a far more competitive global labour market that is flush with new sources of workers from China, India and elsewhere, but also for the survival of those companies that hire them.

Prof Lim must know there is no such thing as a free lunch in this world.

Countries, companies and workers must constantly upgrade to stay relevant and earn their keep.

No one should expect handouts if they choose to coast along and not keep up with the rapid changes in the world.
Toh Cheng Seong

ST Forum, 27 Apr 2012