May Day Rally 2012: Prof's wage proposal won't work, says PM Lee

It could make things worse for workers, he warns
By Leslie Koh, The Straits Times, 2 May 2012

PRIME Minister Lee Hsien Loong made his first comments yesterday on prominent economist Lim Chong Yah's bold proposal for 'shock therapy' to increase wages in Singapore.

He said he appreciated Professor Lim's good intentions, but warned that it could make things worse for workers in the long run.

The proposal to raise wages rapidly by 50 per cent over three years would not work in the current economic situation, he explained.

'We must do it gradually. If we do it too sharply without improvements in productivity, we will make things worse. Lower-wage workers will be worse off,' he said.

Prof Lim, an eminent economist and the former chairman of the National Wages Council had last month floated a proposal that called for quick and substantial wage rises for workers earning less than $1,500 a month.

Called Economic Restructuring II, it was dubbed 'shock therapy' as it envisioned shocking employers into raising productivity more quickly to save costs. The proposal also called for the salaries of top earners to be capped.

Many workers cheered the idea, which also fuelled calls by government critics for more to be done to narrow the income gap. Yesterday, for instance, Singapore Democratic Party politicians made the income gap one focus of their May Day rally speeches at the Speakers' Corner.

But economists and employers have also warned of the potential consequences of Prof Lim's proposal. Among other things, they said it could inflate business costs, cause firms to move out of Singapore or even close down, and fuel inflation.

The Prime Minister said that he had decided to address the proposal at the May Day rally because the idea had drawn much attention and raised expectations.

'It is important for me to spend some time today to explain to you why we have to move carefully, why a drastic approach will not work, why we should not confuse our workers,' he said. 'Better to aim for what is sustainable - don't take a big risk with short-term jumps in wages.'

He made the same point in his Chinese speech, using an idiom to liken it to trying to help a sapling grow by pulling it up, only to kill it instead.

Said PM Lee: 'I share his concerns over this group of workers, but I do not agree with this drastic approach.'

He noted that Singapore had made a similar move in the 1980s, raising wages sharply in a bid to help poorer workers.

At the time, the situation allowed for this, PM Lee observed. Singapore was growing rapidly and competition came only from three other 'dragons' in the region - South Korea, Hong Kong and Taiwan. Multinationals (MNCs) were coming into Singapore and creating thousands of jobs.

But, PM Lee went on to say, 'even then, we ran into problems'.

Wage rises far outstripped productivity gains, causing companies and the country to lose competitiveness and even contributing to the 1985 recession.

In the end, the Government had to reduce wages through Central Provident Fund cuts so the economy could recover. 'The older unionists will remember,' he said.

Today, PM Lee noted, the situation is different. Wages are dictated by the forces of technology and globalisation, and no longer by the National Wages Council.

Export companies are facing much tougher competition from a rising China and India, he noted, with bidding for projects getting more intense.

'You even get factories in the same MNC (bidding for the job), and if you are 5 per cent out of line, the job falls to somewhere else.'

Any cost increase, he warned, could therefore lead to companies shifting out of Singapore and retrenching workers to cut costs.

Small and medium-sized enterprises (SMEs) would suffer even more, as they employ more low-wage workers and enjoy smaller profits than MNCs. They would then have to pass the higher wage costs to consumers, fuelling inflation, or worse, closing down.

That is why, concluded PM Lee, low-wage workers could suffer more if wage rises are not backed by productivity gains.

The general secretary of the Singapore Industrial and Services Employees' Union - one of the biggest unions here - noted that PM Lee's comments came at a right time.

'There's been a lot of pressure to raise wages,' said Mr Lim Kuang Beng. 'We understand that low-wage workers don't see their wages rising. But SMEs must be able to afford the wage rises, else it's not sustainable.'