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Why Singaporeans Should Support a Minimum Wage

This week there has been a lot of debate about the advisability of implementing a minimum wage in Singapore. Manpower Minister Josephine Teo kicked off with the jargon-filled nonsense that we have come to associate with her to mislead Singaporeans into the belief that the Government was actually acting in their interests. This was then followed by comments by Pritam Singh supporting a monthly minimum wage of $1300 and Parliamentary rebuttals by bottom specialist “Everybody has a car, we have two” Koh Poh Koon.

PAP are terrified of a minimum wage because it undermines the whole raison d’etre of their economic model which since the 1960s has been based on a simple economic model put forward by the development economist Arthur Lewis, “Economic Development with Unlimited Supplies of Labour.” Once the surplus labour pools in Singapore had been used up, particularly with the rise of the female participation rate to Western levels  by the 1980s, Singapore should have seen real wages rise as scarcer labour forced employers to pay more and substitute capital for labour. Instead the PAP decided to make it easy for Singaporean employers, principally the Government through its ownership of most large domestic companies, to import foreign labour from our neighbours in ever increasing quantities. Whilst  the economic benefits of immigration usually outweigh the costs, the benefits must be shared with the losers, particularly unskilled and less educated workers in the lower earnings percentiles. In any case Singapore’s foreign labour policy was never about immigration but only about exploiting the difference between what workers from poorer countries would be willing to work for and what Singaporeans would accept.

To share the benefits we should have had a minimum wage across the board, applying to foreign and local workers alike.  This would have prevented lower paid workers from being undercut by foreign workers. With a minimum wage there would be no cost advantage to doing so if the Singaporeans were already being paid at that level, It should also have been coupled with restrictions on employers being able to sack local workers to replace them with cheaper labour brought in from abroad.

However this would have required a Government that had as its central concern the welfare of Singaporeans. Instead the PAP leadership got greedy, seeing a golden opportunity to bamboozle gullible Westerners (though not Paul Krugman who even in the 1990s saw through the rapid economic growth numbers) with high economic growth rates and thus provide a strong argument for totalitarianism and a reason to re-elect them, while also lining their own pockets by justifying outrageously high salaries. More importantly, by depressing the wage share in GDP and thus consumption while increasing saving through a growing current account surplus the Government also was able to accumulate growing claims on foreign assets in the shape of the reserves. This provided yet another means for the top leadership to enrich themselves in managing that stock of foreign assets as well as the dominant and pervasive network of state-owned companies. The most egregious example of this is Lee Hsien Loong’s appointment of his wife to run Temasek and his refusal to tell us what she is paid.

A minimum wage removes a necessary condition for the PAP’s economic model to work. The obverse of the PAP’s addiction to cheap labour is low productivity because there is little or no incentive for businesses to automate or substitute capital for labour. The PWM was set up as a way of allowing the Government to pretend that it was doing something about raising the wages of the lowest paid workers while avoiding implementing a minimum wage policy. It only applies to three sectors (security, cleaning and landscaping) and is supposed to set a minimum income of $1,300 per month. Since it is a monthly figure there is no control on hours worked and employers could just up the number of hours to meet the minimum. On a per hour basis (assuming a work week of 45 hours in line with the average according to Ministry of Manpower (MOM) this equates to about $6.50 an hour. While Josephine Teo praises Workfare and the Special Employment Credit as raising wages by up to 40% this is doubtful. If the supply of labour is relatively inelastic compared to demand it may just act as a subsidy for employers who can easily substitute foreign labour for SIngaporeans and could react by reducing pay by the amount of Workfare which is relatively small anyway.

By contrast in the UK the minimum wage for over-25s is about $15 an hour and the US minimum wage is about the same. The Australian minimum wage is about $20 per hour while Geneva in Switzerland (remember Goh Chok Tong’s promise of a Swiss standard of living by 2000?) has recently mandated a minimum monthly salary of about CHF 4,000 or close to $6,000. The Swiss minimum is about that of France yet Switzerland has free movement of labour with the EU.

The PAP’s arguments against minimum wage are that it will raise costs for employers and also lead to higher unemployment for unskilled workers. The charge that it leads to higher unemployment is refuted by the facts. Both the UK and the US had record low unemployment rates (until the pandemic) despite minimum wages that had been raised considerably in real terms. In fact in Singapore a minimum wage will raise the incomes of the less well off (who save less) and likely lead to higher consumption and thus greater demand for domestically produced goods and services. While it may result in greater automation (which will boost productivity more effectively than any number of Government subsidies), having a minimum wage across the board will likely lead employers to cut back on their use of foreign labour and employ more Singaporeans since foreign labour will no longer have a cost advantage. This substitution effect may lead to lower unemployment among Singaporeans not less.

Reform Party has had a minimum wage in our manifesto since 2011 and in the last election we said we would set it at $10 per hour. Compared to other developed countries with similar levels of per capita income this seems relatively undemanding, even timid. This would work out to a monthly income of about $2000. That should be the minimum our low paid workers should get. However, as it would destroy the fundamental basis of the PAP’s economic model, the Government will keep on coming up spurious reasons why Singapore cannot afford it and how it will lead to economic collapse. Singaporeans should see through this as the usual PAP peddling of economic myths and fallacious reasoning, most of it to defend their elite status and outsize and unjustified  financial rewards. While some see a minimum wage as a moral imperative, I see it as merely sensible economic policy.

 

2 Comments »

  1. You don’t use minimum wage to counter employment of foreigners. It will not work. Minimum wage encourages laziness. It is communism in a small scale. The government must do a yearly gauge of Singaporean salaries for the various jobs. If a company then wants to hire a foreigner, the company must pay the difference between the foreigner’s averaged drawn salary and a Singaporean salary, plus a 20% premium as the levy. This is to ensure there is a wage penalty in hiring foreigners. This will also ensure there is no wage savings being used to distort the overall business costs.

  2. The problem is Singaporeans are generally in favor of minimum wage, but that it applies only to them, not universal and not the migrant workers or foreign domestic workers, who really are the ones deserving of minimum wage as they perform the critical and essential services to Singapore.

    Imagine paying a maid minimum wage? Will Singaporeans agree?

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