Thursday, 14 March 2013

Drawbacks of Minimum Wage

It hurts those it's supposed to help

I CONCUR with Deputy Prime Minister Tharman Shanmugaratnam that we should not implement a minimum wage ("'It takes time before gains can be seen'"; last Saturday). Wages should be dictated by free market forces, which are some of the most effective arbiters of productivity, competitiveness and sustainable results.

Implementing a minimum wage will affect small and medium-sized enterprises, in particular, as they compete with their rivals in similar economies.

If the minimum wage is not in line with productivity and results, it will increase their overheads unnecessarily. As a result, they will become less competitive, leading to a reduction in their demand for human resources. This is a vicious circle that will ultimately hurt the lower-skilled workers the minimum wage model is supposed to protect.

Also, it may lead to the introduction of unemployment welfare programmes that further erode our economic competitiveness. A minimum wage model will be difficult to withdraw once it is implemented.

Perhaps the more important focus is to increase workers' productivity through more training, job enhancement programmes and productivity improvement tools.

At the same time, the Government can continue to fine-tune the Workfare scheme and foreign worker levy for different sectors, in response to market changes. These are indirect ways to help workers who need the most assistance and to calibrate an equitable wage level.

In short, the current system can be enhanced to achieve the same positive outcomes without the downsides of a minimum wage system.

Patrick Liew Siow Gian
ST Forum, 13 Mar 2013

Cost of living goes up for all

LABOUR chief Lim Swee Say is right to reject renewed calls from MPs for a minimum wage system ("S'pore wage model better: Swee Say"; last Thursday).

I have lived in both Hong Kong and Singapore, and have seen how the implementation of a minimum wage in the former resulted in a vicious circle.

The intention of implementing a minimum wage in Hong Kong was good as it stemmed from a desire to lift wages at the bottom. But most of my Hong Kong friends lament that the cost of living has gone up for everyone.

When a minimum wage was implemented, people faced an increase in the cost of labour, and food prices went up, lowering the real spending power of low-income workers. The next course of action was to seek another minimum wage increase.

In short, the minimum wage policy in Hong Kong was unable to achieve the desired result of helping the less well off.

I agree with Mr Lim's statement: "With the WIS (Workfare Income Supplement), WTS (Workfare Training Support) and the progressive wage model, we believe we have now a minimum wage model - in fact, it is more than a minimum wage model - whereby we can actually maximise the upside for the low-wage workers, and at the same time, minimise the downside."

Singapore should find a policy that works best for the country instead of mirroring what other countries have done.

Our forefathers built this nation on the belief that Singapore can never become a welfare state, because we cannot support it. We do not have any natural resources; people are our only resource. So, offering assistance if one is willing to work will be a better option than just handing out more money.

Ng Yan Ling (Ms)
ST Forum, 13 Mar 2013

'It takes time before gains can be seen'
Period of painful economic restructuring before increase in productivity, says Tharman
By Fiona Chan, The Straits Times, 9 Mar 2013

THE painful process of economic restructuring will last a while before productivity picks up, according to Finance Minister and Deputy Prime Minister Tharman Shanmugaratnam.

But he warned that raising productivity is the only route to higher incomes and a better work-life balance. "In all experiences, if you look at the relatively developed countries, there is a long lag before productivity finally improves," he said in an interview with Bloomberg TV last week, which was aired in full yesterday.

Mr Tharman, when asked why Singapore's measures to improve productivity have failed to bear much fruit so far, noted that "restructuring takes some time", and pointed out that countries such as Sweden and Germany also took a while to lift their productivity. "You have got to go through some pain of restructuring first before you get the top-line growing," he said.

This is eventually achieved with having the "more dynamic firms", with better brands and products, gain market share, labour resources and office space at the expense of other, weaker firms.

The Government is providing "very strong" support to help smaller firms upgrade, but "not everyone will be able to take equal advantage of it". Those that do will emerge as winners in a "stronger and revitalised SME sector", Mr Tharman said, referring to small and medium-sized enterprises.

"That is important not just from the point of view of diversifying our economy and making sure you've got small firms as part of the picture, it is also important socially because they are basically Singaporeans."

He also pointed out that the important social goal of improving Singaporeans' work-life balance will be achieved when workers become more productive. Productivity is "the only path to improving standards of living", which means not just higher wages but also "better work-life balance at the end of the day".

Workers in developed countries with high levels of productivity enjoy a good work-life balance, whereas Singapore's working hours are long now because of low productivity, he said.

"If you fail to raise productivity, then you accept that your standard of living would not be as high. This is not an option we have chosen," he said in reply to what "Plan B" would be if the drive to raise productivity fails.

On the perennial topic of why Singapore has been so reluctant to implement a minimum wage, Mr Tharman replied that most countries with such a system also have unemployment rates that are not "socially acceptable" and have to make up for that with "hidden subsidies".

"We want to make sure that people don't lose their jobs by us artificially setting wages in the market," he said, noting that this would be a risk especially for older workers.

Singapore's version of the minimum wage is the Workfare Income Supplement, which tops up the pay of low-wage workers, Mr Tharman added.

He called Workfare a "sustainable" way of mitigating income inequalities, and a system that also encourages workers to cultivate a "sense of pride" in the workplace.

Mr Tharman added that countries that have a minimum wage "have got quite an unimpressive unemployment rate and there are lots of hidden subsidies in their system that compensate for that".

He also touched on the challenges facing younger political leaders in Singapore, saying that the type of leadership needed evolves along with a country's social and economic development.

"Once your society is more educated, which is probably the most important shift... it requires a different skill in political leadership," he said.

"Not too top down, not so much Government knows best, but constant listening, constant sensing of what people want, weighing out how to deliver it in a way that ensures that you stay together for the long term. It is a very different set of skills.

"And I think the younger leaders are doing quite a good job. They spend a lot of time on the ground... but you know it is a society that is changing. Singapore is not a society that will defy the way that all the other societies have evolved."

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