Singapore—Weighing in on the minimum wage issue recently debated in Parliament, academic Donald Low has highlighted the different facets of the problem, saying that it needs a “diverse set of tools” to address it.
Professor Low, who teachers practice in public policy at the Hong Kong University of Science and Technology, has said in a new article that while the ruling party has advocated for the Progressive Wage Model (PWM) over a minimum wage (MW), which the opposition has championed, the two policies have more in common “than is commonly acknowledged.”
He went on to write, “The PWM is essentially a ‘collection’ of industry-specific minimum wages; if it was extended to all industries, we would effectively have economy-wide minimum wages – with the key difference being that these are set by tripartite arrangements, and they vary from industry to industry.”
Prof Low goes on to explain that a mandatory minimum wage is not practiced in all wealthy countries, and that Sweden and Denmark, where minimum wages are high, have policies similar to Singapore’s, in that tripartism is strong.
However, because Singapore has a sizable population of low wage foreign workers, the effectivity of PWM becomes limited as employers bid for workers from the lowest wage countries. “Raising wages or expanding the scheme to cover more industries may cause employers to substitute foreign workers for costlier resident ones,” he wrote, as the PWM only applies to Singaporeans and permanent residents.
The PMW is also limited in that it can be unwieldy and time-consuming, even if it is “targeted and precise.” The intensive tripartite consultation and negotiations bring changes slowly.
However, implementing a minimum wage for all workers, including foreign employees, may not be the answer either. According to Prof Low, “the introduction of a minimum wage – as with the increase of PWM wages or its expansion to other industries – is likely to increase employers’ preference for foreign over more expensive resident workers.”
He then suggests that the best way to protect lower-wage resident workers is to make sure that employers pay more for foreign workers— the foreign worker levy added to the wage that locals in the same industry are paid. To exclude foreign workers from imposing a minimum wage “only entrenches a two-tier labour market system, with its attendant distortions and inefficiencies.”
Prof Low also highlighted an existing scheme that aids low wage Singaporean workers, the Workfare Income Supplement (WIS), which could increase cash and CPF top-ups to older, low wage workers, a scheme financed by taxes.
“The fear that minimum wages (whether of the PWM or the statutory variety) would raise prices does not apply in the case of a WIS increase. At about 0.1 percent of GDP, the WIS is also an efficient and affordable way to raise the incomes (and savings) of lower-wage Singaporeans,” wrote Prof Low. The WIS also covers self-employed workers, giving added protection to those in the gig economy.
Prof Low emphasizes that raising the salaries of low-wage workers needs to come from somewhere. For the PWN and MW, this comes from employers, who pass it on to consumers. For the WIS, it comes from taxpayers. He adds that all three policy tools are needed since each one addresses a separate issue.
Therefore, he suggests the Swiss Army Knife approach, which means expanding all three policies, as each one has its strengths and weaknesses.
“The PWM scores (relatively) well in terms of avoiding unemployment and cost pass-throughs to consumers, somewhat well in terms of raising labour productivity, but not so well in terms of equalising treatment of foreign worker, speed of implementation, ease of administration and coverage.
The MW is preferred in those areas where the PWM is weak but entails higher risks of cost pass-through to consumers and of reducing employment.
Meanwhile, the WIS performs well on avoiding unemployment and cost pass-throughs to consumers, speed of implementation, ease of administration and coverage, but it does not help foreign workers in any way and is unlikely to increase labour productivity by encouraging technology adoption.”
If only one policy is implemented, it would be forced to go beyond its capabilities. But as Prof Low writes, “there is no need to defend our preferred tool if it cannot solve a problem it was not designed for. No one should feel the need to defend the hammer for its inability to open a can or a wine bottle.
Rather, we should bring a “Swiss army knife” to tackle our labour market problems. Each tool of the Swiss army knife is designed to address a particular problem. It does not make sense to argue for the superiority of one tool over another without an understanding of the problem we are trying to solve.
We also need complementary tools – such as the foreign worker levy, grants to facilitate technology upgrading and process improvements, and efforts to increase the bargaining power of workers – to augment the primary ones.” —/TISG
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