Paradox of Singapore Economic Growth: Economy has grown fast, labour income share remains dismally low
October 29th, 2009 | 
Author: By Abdul Gafoor, Social Correspondent
A closer look at the share of Singapore’s economic pie that goes to workers as incomes throws up another paradox. Singapore’s economy itself has grown more than 30 times.
Despite the fact the country has been working hard with full devotion to continually continue high economic growth rate for over five decades, employee’s income share in GDP, has only reached around dismal 41%. In 2008 it reached 44% but is unlikely to remain at that level. If one compares this with the developed countries, that is more than 50% and healthy levels are around 60% or more.
What basically this means is that despite the economy growing continually and rapidly, the share of labour income has not reached adequate levels. The government, politicians and policy makers for five decades have been naively and stubbornly believing that by growing the economic pie at a fast and high rate continually, workers will enjoy their rightful returns.
The government, politicians and policy makers may argue average incomes have risen very high over the same five decades. That is true but each of this serve a different purpose.
Achieving high average income will give a higher standard of living if the necessary set of outcomes, which I discussed in earlier article, are achieved. Achieving a healthy or adequate share of GDP as labour incomes will empower the labour with choices and stability.
It will also allow them to spend adequately enough to make them a strong contributor to domestic demand. The reason why the government has been refusing calls to give greater importance to domestic demand given the high volatility of external demand is purely because of this. The workers are just not getting enough of the pie they produce to become a force within the domestic economy to reckon with.
Singapore’s continued chase for high economic growth rates will not change this situation in another fifty years. What is required is major changes to the economy and labour force.
Instead of blindly and foolishly adding cheap labour in multitudes to the production process, the labour force requires quality labour who have higher productivity. Instead of having six $800 foreign worker waiters manning a restaurant, the employer should aim to have three $1,600 highly competent local waiters who can do all the jobs and work with ease and competency.
Employers need to restructure work and jobs so that each employer can achieve high output in given 8 hour work day instead of achieving high output over long dreadful working hours. Competency and marginal productivity is what employers should aim to seek from their employees.
On the MNCs front, the government must not just aim to draw in companies that invest big dollars. It must ensure the companies are able to hire locals for high skilled jobs and/or also compensate the workers highly according to the job done. If MNCs are to come here, hire foreign labour for the high skilled jobs and locals or also foreigners for the average skilled jobs and expatriate much of the profits, what real gain does Singapore and Singaporean labour really have?
Singapore companies, led by GLCs, government associated companies and government agencies also need to restructure their organisation structures and compensation structures. They have to shed the primitive top power centric, middle empty structure and bottom heavy where CEOs and directors are paid hefty sums and the average worker is underpaid. They not only need to rebalance power structures, they also need to rebalance compensation structures.
However all these reforms will never ever happen in the lifetime of the current government. The elites will resist it. The politicians and policy makers will never see any merit in it and will never want to change the status quo. Rather they will chant the mantra of continual high economic growth endlessly.
About the Author:
Abdul Gafoor is a researcher based in the United Kingdom. He hopes to return to the Singapore he once knew as a child one day.
Posted in 7 Responses to “Paradox of Singapore Economic Growth: Economy has grown fast, labour income share remains dismally low”
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Despite the high economics growth since the current PM took office, many people do not have any improvement in quality of life, In fact, the quality of life has come down due to high inflation and overcrowding.
The Govt is trying to create GDP growth 5%-6% p.a. and one of the key drivers is allowing the population to grow and more FTs.
If GDP growing is not benefitting the common citizen financially but at the same time, there is a crowding out effect our physical habitat, job opportunities and resident rights then shouldnt we be questioning why have the migration policy in the first place.
The only reason I can think of is that it allows the Govt to have more tax revenues, high land sales prices, and reasons to justify even higher salaries for our Ministers and senior civil servants.
The turncoat mentioned in the papers that one of the old people who is still working now is not poor and work out of her will.
They have made a check and this only serves to confirm that the remaining 5 to 6 cases brought up by the internet to be true and the govt didn’t do anything to help them.
What good is help at 300 dollars a month when you only get them when you have NO savings and NO flat.
The fact that the authorities didn’t detect the other 5 cases, show that the system is not working according to our general understanding.
The battle for a larger share of increased productivity between capital and labor has been around since the beginning of the free market system, this is not a new concept.
The problem lies not with govt policy but rather with the relationship that govt has with corporates, policy favorable to corporates is the natural result.
Take a look at the American system where corporations pay millions every year to lobbyists to cajole senators and congressmen to support policies favorable to their scope of business.
Take for example the recent bailouts where banks were granted billions in taxpayer money, it is no surprise that the banking sector had paid millions to ‘lobby’ for those bailouts.
The ‘beauty’ of the singaporean system is that govt favors businesses by default over labor based on their guiding policy of high employment. Thus it is no surprise that capital (business) has been able to capture the greater share of productivity (corporate profits grow faster than real wages).
While these policies have been effective in the past, the situation is now very different. Rather than attempting to compete on cost, where we can never beat the chinese/indians/vietnamese/…etc we should instead take a page out of the current Israeli economic model.
Cost competition CANNOT work for singaporeans, but may work for the singapore inc, singaporeans need to take a stand or risk becoming the frog in the kettle.
trickle-down economics theory by the supply-sided economists.
the problem is the trickle is too slow and too little and there are blockages all around.
what we need is a bottom-up economy so that the cake can be bigger and yet will be more fairly distributed
@cy
“what we need is a bottom up….. fairly distributed”
I do not think our govt has any intention on achieving a fair or equitable distribution of wealth. Rather social order through low unemployment is the driving principle.
Look at NTUC and GST.
In the age of diminishing labor power, labor here has even less bargaining rights as the only legal union is beholden to political interests.
GST is regressive, and increasingly so, not just because the GST is increasing in absolute terms but also that when basic living costs take up a larger portion of an average workers income the flat GST eats a larger portion of disposable income. As real wages here fall, GST becomes even more regressive.
Until we suspend GST for basic necessities like food and energy, the argument that taxation here is progressive and that singaporeans enjoy low real taxes cannot be made.
With a possibly regressive tax regime and lack of labor bargaining power it is reasonable to project that wealth will accumulate at the top regardless of the overall level of prosperity.
As long as the income/wealth gap does not adversely affect social stability, i believe the govt is unlikely to bother with structural reforms to return labor their bargaining rights and move to a more progressive taxation regime.
REDUCE GST!
IT WOULD GO ALONG WAY TO HELP THOSE WHOSE DISPOSABLE INCOME
DOES NOT ADEQUATELY REFLECT THE INCREASE IN COST OF LIVING!
JUST TAKE A SIMPLE EXAMPLE.
if a lower income family buys a sgd 2000/- television set.
he pays gst say 7 pct, that is an addtional sgd 140/-
IF A HIGH INCOME WERE ALSO TO BUY THE SAME SET,HE ALSO PAY
SGD 140/ FOR gst.BUt what is sgd 140 to a RICH SINGAPOREAN
HE WOULD PROBABLY SPEND IT ON SOME xo DURIANS!
to the por singaporeans,sgd 140 can go a long way for their monthly expenditures!
SO NARROWING THE INCOME GAP IS MORE THAN JUST A MERE TOKEN INCREASE IN POOR MEN’S WAGES.IT IS VITAL TO CONSIDER THEIR COST OF LIVING!
…medical,educational,household and some others!