Friday, 17 January 2014

Mandatory wage ladder a clean sweep for workers

Moral suasion and accreditation didn't work but a new scheme with the weight of law will lift cleaners' pay
By Toh Yong Chuan, the Straits Times, 16 Jan 2014

FROM September, a new wage system will govern cleaners' salaries. Cleaning companies will come under a new licensing scheme under which they have to abide by some wage guidelines.

These guidelines offer workers a kind of wage ladder. All cleaners must be paid at least $1,000 each month. Those with higher skills are assured at least $1,400 and supervisors, $1,600.

The Government calls this a "progressive wage model", which assures cleaners of a $1,000 starting pay and provides a "wage ladder" where cleaners can get higher salaries as they gain better skills. Something similar is being considered for the security sector.

This new licensing-cum-wage ladder system announced last week is the boldest attempt yet by the Government to raise persistently low salaries in the cleaning and security sectors. Industry players, it appears, have suppressed wages in order to submit price-competitive bids to provide cleaning and security services.

It came after persuasion and leading by example failed. In 2011, a voluntary accreditation scheme was introduced for cleaning companies. The Government specified that only accredited companies could bid for government contracts. But as government contracts covered only 11 per cent of cleaners, the move failed to lift wages across the sector.

The latest move, however, is different and goes further than any past measure to lift wages for cleaners, whose wages have stagnated or fallen for years.

Industry experts and analysts think that this time, the compulsory licensing scheme and the wage ladder guidelines will result in raising cleaners' wages. They cite four reasons.

Forceful, yet practical

FIRST, it has the full bite of the law, even though a higher wage is not directly legislated.

Cleaning firms must have a licence to operate, and a key requirement of the licence is that they use a progressive wage model, or a wage ladder, to pay their workers.

The licensing condition itself will not spell out the salaries on the ladder. Instead, a committee of government officials, unionists and employers will negotiate the salaries. Cleaning firms that do not follow the tiered wages set by the committee can have their licences suspended or revoked.

Four labour economists interviewed by The Straits Times were unanimous that the new rules will work to raise cleaners' wages because it is legally enforceable and cleaning companies have no choice but to comply.

Second, the move is backed by the Government, unions and employers.

Raising salaries of less-skilled workers while helping them become more productive is in line with this Government's priorities.

As for the labour movement, it has been pushing for measures to raise low-wage workers' pay for years. Deputy Prime Minister Tharman Shanmugaratnam credits the labour movement, National Trades Union Congress, for coming up with the idea of a progressive wage model, adding that it is now a "tripartite approach".

Employers of cleaners too are not averse to the move. Previously, some bosses had said they would like to raise wages of cleaners but were unable to do so unless other cleaning companies did likewise. Otherwise, they would not be able to put competitive bids for cleaning contracts.

Mr Milton Ng, president of the Environmental Management Association of Singapore, which represents cleaning firms, says compulsory licensing will raise standards in the sector. "It levels the playing field and firms cannot undercut one another."

Mr William Peh, operations director at Eng Leng Contractors, which has some 1,000 cleaners, agrees. "Firms that pay workers lower salaries can definitely submit cheaper quotes to get the jobs but now that everyone has to pay at least $1,000, it is fairer."

Third, timing favours this new move to raise cleaners' wages. For the past few years, the curbs on foreign workers in the cleaning sector have started to bite.

Foreign workers can form no more than 40 per cent of a cleaning firm's workforce now, down from 45 per cent last year and 50 per cent two years ago. Firms also pay higher levies for foreign workers since 2010.

This means that firms have been trying to raise productivity by buying more cleaning machines in the past few years, says Mr Sunny Khoo, sales director of Clean Solutions, which hires some 2,000 cleaners.

But those familiar with the industry warn that the new licensing move will almost certainly lead to a shake-up in the cleaning industry.

Companies that had signed longer-term contracts to provide cleaning services for a fixed fee would have to absorb the cost of higher salaries, or find some way to recoup that extra cost.

One cleaning firm with a six-year contract locked in more than four years ago, has been "discussing with the buyer to make some adjustments", its boss told The Straits Times.

Some companies that cannot or do not want to be subjected to the licensing conditions will exit the trade, says Mr Woon Chiap Chan, country managing director of ISS Facility Services, one of Singapore's largest cleaning firms with over 6,000 cleaners.

The fourth reason why the wage ladder-cum-licensing scheme will work: It's a practical move that raises salaries for the lowest-wage earners without adding on costs to businesses as a whole.

Describing the move as "pragmatic", labour economist Randolph Tan, an associate professor at UniSIM, says: "I believe the Government views the cleaning sector as probably the safest sector to implement such a policy, that is, in that sector, there should be more consensus than for any other sector that workers deserve help to advance their lot."

But some economists are concerned about the Government's heavy hand on business through legislating licensing requirements, which have the effect of mandating a sectoral minimum wage.

The best way to boost workers' welfare is still through creating jobs and generating economic growth, said Singapore Management University economics professor Hoon Hian Teck, who is hoping the mandatory wage ladder model will not be extended beyond the cleaning and security industries.

But several questions remain: Will raising wages of cleaners raise cleaning costs for companies? Will business tenants pay more for cleaning of premises? Will households in Housing Board flats and private condominiums see higher conservancy fees for cleaning services?

Several cleaning companies said their profit margins are thin: at between 5 per cent and 10 per cent. Wages amount to up to 80 per cent of total cost, so a spike in wages will certainly raise their costs. Cleaning contracts are typically for two to three years. Contracts due for renewal in the coming months could see costs rising up to 30 per cent, in line with wage rises in recent years, cleaning companies say.

Apart from the worry about rising costs, the biggest uncertainty lies in the details of the new wage model and licensing framework. Are in-house cleaners and companies that provide cleaners for private residences governed by this framework? What other penalties are there apart from loss or revocation of licences?

Answers will hopefully be forthcoming on Monday when the Government tables changes to the law to allow for this licensing-and-wage-ladder scheme to be introduced.

For most policies, the devil is in the details. This time, though, while details still matter, the broad outlook is already clear: Prospects of lifting cleaners' wages have never looked better.

Is the progressive tiered-wage model a form of 'minimum wage'?
By Toh Yong Chuan, the Straits Times, 16 Jan 2014

THE Government calls it a progressive wage model, or a "wage-skill ladder". But economists say the way the new wage scheme for cleaning companies works, it is a form of legislated minimum wage - albeit for a specific sector.

Nanyang Technological University economics and industrial relations professor Chew Soon Beng says: "It is a minimum wage in the cleaning sector for each category of jobs."

From September, cleaning companies need to be licensed. To get a licence, they need to abide by wage guidelines set by a tripartite committee of officials, unionists and employers.

These guidelines specify a starting wage of at least $1,000 a month for cleaners, with salaries going up to $1,400 and more for higher-skilled cleaners, and from $1,600 for supervisors.

Labour economist Randolph Tan, who is an associate professor at UniSIM, says: "If it were not a minimum wage, there would have been no need to mandate the wage floor." "Instead, it would have been sufficient to provide for the rate of progression from, say, the existing wage levels."

Associate Professor Hui Weng Tat from the Lee Kuan Yew School of Public Policy, who is a proponent of implementing a minimum wage in Singapore, says the latest move is a "recognition that there needs to be intervention in the form of minimum wage".

An aversion to the use of the term minimum wage may have led the Government to do things differently, in a more indirect manner, he surmised.

Does it matter if it is called a minimum wage or something else? In a way, yes, because calling it a minimum wage creates certain expectations.

First, a minimum wage usually refers to a legislated minimum wage across the economy. Singapore's wage scale for cleaners applies only to the cleaning sector.

Second, it is not legislated directly. It comes in the form of wage guidelines set by a tripartite committee. Although these guidelines are binding in that companies face penalties for flouting them, the arm's-length relationship does shield the Government from the charge of direct intervention in setting wages. Letting a tripartite committee conduct wage negotiations is not new for Singapore: the National Wages Council has done this for decades.

Singapore Management University economics professor Hoon Hian Teck points out: "We are trying to take advantage of the record of negotiation in some sense to carry through (the progressive wage model)."

And third, unlike a traditional minimum wage, Singapore's wage floor is the first rung of a scale. Wages go up and do not stay at the minimum. In the end, perhaps it doesn't really matter what it is called, so long as it works.

As Singapore Management University law academic Eugene Tan puts it, the move shows "the Government's resolve to do something for the sectors that have stagnant wages, high staff turnover and low productivity".

Minimum wage debate will go on
Advocates have reason to cheer Singapore taking small step forward by making a change for cleaners
By Han Fook Kwang, The Sunday Times, 26 Jan 2014

The debate over whether there should be a minimum wage in Singapore has just taken a new turn.

This, after the Government announced new laws it would be introducing that will ensure cleaners earn at least $1,000 a month.

It would be the first time in Singapore that employers will have to pay a minimum salary to workers backed by law.

Does it signal a change from the Government's previous position opposing the setting of any form of minimum wage?

Will it lead to more workers being similarly protected?

What does it mean to Singapore's overall approach in helping low-income workers?

These are interesting questions that will continue to fuel the debate, even as the Government was quick to add that this latest move was different from having a national minimum wage.

First, it was highly selective, affecting only the cleaning industry, with security guards next on the list.

Second, it was arrived at through negotiations between the government, employers and unions and not mandated by fiat.

It must have felt it necessary to make clear these points lest Singaporeans ran away with the mistaken idea that it had changed its fundamental position on the issue.

But the move should gladden the hearts of those pushing the minimum wage case. It might not have been the complete victory they wanted, but the defences appear to have been breached.

It has been some time coming.

When the Government dismissed the idea not too long ago, many people felt it was too quick to do so without giving the matter the proper study it deserved.

Even the labour movement chief appeared in too much of a hurry to declare his opposition to the idea, leading many to wonder why, as the ultimate protector of workers' rights, he was so dismissive.

The arguments made then were that a national minimum wage wasn't the best way to help these workers as it would discourage employers from hiring and lead to unemployment.

It was argued that that was what had happened in countries with such laws, including many European countries currently suffering from high unemployment.

Instead, Singapore's approach of using Workfare, in which the state topped up the wages of low-income workers, was said to be superior as it did not add to employers' cost.

These arguments didn't satisfy the critics because the economic literature isn't conclusive, one way or other. You could probably find as many economists arguing the case for having minimum wage as those in the other camp.

Indeed, this debate is still very much alive all over the world.

Hong Kong, supposedly the freest economy in the world, introduced a minimum wage in 2010 and announced it was increasing the amount last year because of the benefits the new law had brought.

In the United States, there is now a raging debate over whether to raise the minimum wage, with Democrats for it and Republicans against.

President Barack Obama, who is for the increase, has argued that there is no evidence that doing so will cost jobs.

Nobel laureate in economics Paul Krugman wrote in the New York Times last month: "When it comes to the minimum wage, we have a number of cases in which a state raised its own minimum wage while a neighbouring state did not. If there were anything to the notion that minimum wage increases have negative effects on employment, that result should show up in state-to-state comparisons. It doesn't."

Germany will soon introduce a minimum wage, the result of an electoral pact between Chancellor Angela Merkel's ruling party and the Social Democrats.

So, the issue is still very much alive, and not just in Singapore.

This isn't surprising because income inequality is rising everywhere, and many see a minimum wage as one answer to it.

Singapore hasn't quite accepted this but the latest move shows that it isn't as ideologically opposed to it as it was before.

One important difference between a minimum wage and Workfare is the effect it has on employers.

When the state tops up workers' wages, employers have less incentive to increase salaries on their own or raise productivity to match the higher cost.

But when they have to pay the increased wages from their own pocket, it is more likely they will want to make sure their staff produce more.

Hence a minimum wage works better than Workfare in restructuring the economy by raising productivity and forcing employers to make better use of workers.

Singapore's approach to do it selectively and through negotiations isn't a bad move either because it leverages on the country's strength in getting unions and employers to work together through the tripartite partnership.

In fact, it is not unique in doing this.

Italy, Sweden and Denmark - and Germany before its latest move - have no mandated minimum wage but have sectorial minimum wages arrived at through negotiations.

Because the economic evidence is inconclusive, the minimum wage question is more a political than an economic issue, and is ultimately about the sort of society people want to live in.

That has been the case in other countries, with Germany being the latest example of politics trumping economics.

It will be no different here.

When you see a cleaner hard at work and whom you know earns only, say, $600 a month, do you say:
- It's a free market. Her employer is willing to pay her only that much and since she's willing to work for that pay, what's the problem?
- That's just unacceptable, taking into account the salaries of all the other people - office workers, teachers, managers, etc - and the cost of living here. Everyone doing an honest day's work should have a decent standard of living, which is only possible with a wage of at least $X.
For a long time, Singapore operated in the first mode.

But with the income gap widening, and an increasing number of Singaporeans thinking in the second mode, the Government has had to move accordingly.

It might not want to call it a minimum wage - a "progressive wage model" is its preferred label - but the ground has shifted from under its feet.

It is about time.


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