Minimum Wage

Since I became leader of the Reform Party in April 2009 I have made the introduction of a minimum wage in Singapore one of our main policy pledges (see the link below for RP’s 19 main policy pledges): http://votingrp.wordpress.com/about/

Why?
Since 1998 the average incomes of the poorest 20% of households have fallen by around 20% after inflation. However this is undoubtedly a substantial underestimate of how far real incomes have fallen for poorer households.

The government measures inflation by the change in the consumer price index (CPI). This measures the change in the prices of a basket of goods consumed by the average household. This basket represents the items that the average family buys in the course of a week. However the basket of goods consumed by the poorest 20% is very different from that consumed by the average household. Food, transport, housing and other basic necessities represent a much bigger percentage of household income for poorer households. These items have risen in price much more than the average over the last ten years.

Also the CPI fails to capture the rise in housing costs because in Singapore our statistics department uses a notional equivalent rent for owner-occupied housing. The UK and other countries have moved away from this to a method measuring the change in the costs of an average mortgage and also incorporating a measure of depreciation costs. Since all HDB flats are on 99 year leaseholds and the life of an HDB block may be no more than forty years this needs to be reflected in the CPI. If we take an average HDB property then it loses one year of the remaining lease with each year that passes or 1/x where x is the number of years remaining on the lease. As the prices of HDB flats rise and the average lease gets shorter depreciation costs rise as well.

Taking these factors into account, average incomes of the poorest 20% of households may have fallen by up to 30% since 1998.

Why has this been so? Here the blame must be laid on the PAP’s open-door policy towards the employment of foreign labour. What should have been a way of attracting workers with special skills that Singaporeans lacked instead turned into a means of preventing wages from rising as rapid economic growth used up the pool of available workers. As a deliberate result of PAP policy, Singapore’s potential labour supply increased from our population to include most of Asia’s unemployed and underemployed masses. Far from rising, real wages of the lowest 20% were significantly depressed. Price signals were prevented from working as they should have in a market economy and there was no incentive for employers to invest in raising the productivity of the workforce. As a result our productivity performance over this period was one of the worst in the developed world. Real GDP per hour worked grew by only 1.1% p.a. over the period 2000-2008 while US GDP per hour worked grew by 2% and South Korea grew by 4.2% over the same period.

By adopting a minimum wage the Reform Party is ensuring that there is a floor below which real wages cannot fall and that employers focus on boosting productivity rather than relying on ever cheaper labour. Asia has a huge pool of underemployed and unemployed workers and without this protection real wages of unskilled labour in Singapore could continue to fall for years, if not decades. As leader of the Reform Party, I also want to couple a minimum wage with caps on the number of foreign workers, who compete directly with Singaporeans for jobs. Exceptions will be made for those with special skills that Singapore lacks. My own philosophy is pro-market and pro-business, as is the Reform Party, and we are certainly not opposed to economic growth. The Reform Party just wants to ensure that we are focused on the right measures, e.g. growth in real median incomes or in output per hour worked, rather than just on a crude GDP measure which has no relationship to the welfare of ordinary Singaporeans.

What sections of the population would it cover?
The Reform Party intends that the minimum wage should cover everyone, with the exception of foreign domestic workers. We may have a lower minimum for students and young workers and for those over the age of 55. The incomes of the latter can then be topped up through our proposed Guaranteed Minimum Income, just as they are now by Workfare.

What level would it be set at?
The Reform Party would want to conduct further research and consultation before it set the level. A possible initial level is around $5-$6 per hour though this could be raised over time in line with the CPI and the growth in average wage rates and taking account of broader measures of unemployment among the resident labour force.

Arguments against the Minimum Wage
Recently there has been a lot of discussion in the Main Stream Media of the arguments for and against a minimum wage. Again this follows a pattern that has been established since the PAP government’s Productivity Budget of 2010. Since 2009 as leader of the Reform Party I had been pointing out the productivity problem and stating that it was to a large extent due to the PAP’s cheap foreign labour policy. When the Budget came out it ignored what we had been saying and presented it as the government being aware of the problem all along and now moving swiftly to correct it. As usual there was no credit given to the Reform Party or acknowledgement that without political competition or an Opposition mistakes by the government would never get corrected.

Thus it is no surprise to see discussion of the merits of a minimum wage in the MSM given that I have made it one of the Reform Party’s main pledges since last year. It is also not surprising to see Minister of State Lee in his blog on the Ministry of Manpower website rejecting a minimum wage on the grounds that it may hamper the employment of low-skilled workers. However I find his arguments misleading given the fact that the labour market in Singapore is not restricted to Singaporeans but in fact encompasses much of low-wage Asia. On our house to house visits we meet many older workers who are unable to find jobs anymore because of competition from younger cheaper foreign workers and reduced to driving taxis. These people may not be directly helped by our minimum wage proposal though they would be by our proposed curbs on foreign workers where their skill set is already readily available in Singapore. Many Singaporeans who have been discouraged from looking for work may come back into the labour force once wages stop being artificially depressed by the foreign labour influx. And employers will have a greater incentive to use labour-saving machinery and automation, thus raising productivity.

The Minister says that low-skilled workers are better helped through Workfare. However the Workfare scheme is not only costly for the taxpayer. It is not related to need as it increases directly with earnings from employment in an effort to preserve the incentive to work. Most of it goes into CPF so it does nothing to help lower-income workers immediately who may be struggling to get by. The Reform Party prefers a minimum wage which preserves the incentive to work and puts a floor under wage costs for employers rather than perversely providing an incentive for employers to cut wages further. The Minister also mentions the Workfare Training Scheme. The Reform Party has put increasing spending on education and training at the forefront of its policies and we would continue to expand schemes for the retraining of low-skilled workers provided they could be shown to be of real benefit.

Conclusion
Without a minimum wage the real incomes of the bottom 20% of households could continue to decline. In addition the effects of the PAP’s liberal foreign labour policy are being felt only by this group but by all those below the top 20-40% of households.

The Reform Party is committed to the introduction of a minimum wage. We also want restrictions on the entry of foreign labour where Singaporeans already have the necessary skills.

The coming election will probably be a watershed. Which vision of Singapore do you prefer?

• The PAP vision which increasingly seems to be of Singapore as a low-cost low-wage economy run as a company where the population of foreign workers outnumbers substantially the Singaporean element. Though the government talks about a limit on total population size of 6.5 million, it is clear that the dynamic of the PAP model requires that our population continue to expand indefinitely; or

• The Reform Party vision which is of a high-wage high productivity economy where less emphasis is put on GDP growth and more on increasing GDP per hour worked. A country not a company where the welfare of Singaporeans comes first. It‘s up to you to decide. Vote wisely.