Minimum Wage – The Good, the Bad and the Truth
November 27, 2009 by admin
Filed under Columnists, Damon Yeo, Economics, Opinion
By Damon Yeo
The Bad about Minimum Wage
The term “minimum wage” can almost be labelled as “dirty” in Singapore. For a long time, the government had insisted that having a minimum wage in place could do more harm than good. In a recent Straits Times report, MM Lee had noted that every country that has set a minimum wage over what the market will bear has found that the move cuts jobs and that Singapore’s aim is to create as many jobs as possible.
In the world of economics, the view is subscribed by many economists.
The purists argue that minimum wage laws are distortions to the market equilibrium and will theoretically increase unemployment. Adam Smith’s famous invisible hand theory will mean that artificial setting of price (wage) floors makes allocation of resources inefficient.
In Singapore’s context, the administration of any minimum wage policy will have spill-over effect on our immigration policies. Minimum wage policies cannot apply solely to Singaporeans, as this will make employers turn to cheaper foreign labour. However, if these policies were to be applied to PRs and migrant workers as well, we will see a further influx of foreign workers to our shores, since they are expected to pick up even higher pay then before.
Another area of concern is inflation. For 2008, inflation was 6.5%. A minimum wage policy is likely to have a bigger impact on construction, food and the general service industry (these industries are generally where workers are paid less). Prices of houses, food and most household items are likely to increase as cost of the labour providing them goes up with minimum wage.
The Good about Minimum Wage
Naturally, minimum wage laws have their supporters as well.
The loudest of voices on this side of the debate comes from those who fight to increase the standard of living for the poorest and the most vulnerable class in society. A minimum wage policy will ensure that the so-called “bottom” ten percentile of the society will still be able to earn enough to sustain a respectable lifestyle. Naturally, this will reduce the income gap between the richest and the poorest of the nation.
Others have noted that a minimum wage law does not add burden to the government. Unlike welfare benefits, cash payouts or tax credits to the poor, this policy will not require the government to increase its spending.
Some have argued that a minimum wage will improve the work ethic of those who earn very little as the higher pay helps motivate them more. It also encourages employers to have a tougher labour screening process, ensuring that better quality staff is hired as they now have to pay more for each employee. In Singapore, this may help raise the quality of the service industry – an area which had particularly deteriorated over the years.
The Truth about Minimum Wage
The first ever minimum wage policy was set in state of Victoria in Australia way back in 1824. It was enacted in 1904 and the British were the first to conduct studies on the effects of the minimum wage in 1907. United States, the symbol of big conglomerates and capitalism, first introduced the Federal minimum wage in 1938 and it has been in place ever since.
As of 2009, Singapore is only one of 10% of the nations in the world not to have any law or regulation of some sort in terms of minimum wage. It may come as a surprise, but even countries like war-torn Afghanistan, Iraq and the Democratic Republic of Congo have some sort of national law to set the minimum wage employers must pay (whether they are actually enforced is another matter).
And amongst those that 10% of nations that do not have a national law on minimum wages are all of the Scandinavian countries and others like Switzerland and Germany. However, in these countries, trade unions are renowned to be particularly strong (and definitely independent of any government influence) and wages are usually set by collective bargaining between the unions and the employers. It is worthy to note that in most of the Scandinavian countries, the disparity between the rich and poor is the narrowest in the world.
While acknowledging that there are studies out there to prove otherwise, there has been extensive research done to show that in fact there is a positive correlation between (a higher) minimum wage and level of employment (ie unemployment went down in places with a higher minimum wage). From a behavioural point of view, it can be argued that people are more motivated to find work if the minimum that they can earn is higher.
On the argument on reduction of competitiveness with a minimum wage, let’s not forget that while Singapore is the third most competitive economy in the world without such a policy, nine others in the top ten have some sort of minimum wage policy or notably very independent and strong trade unions.
Furthermore, a minimum wage policy is unlikely to affect a majority of the industries where Singaporeans are employed by multinational overseas companies. From an international perspective, there is little to suggest that such a policy will hurt our competitiveness. After all, it is not the lifestyles of high-earning lawyers, bankers and accountants that will be changed by such a policy – it is that of lowly paid cleaners, hawker assistants and construction workers.
In the United Kingdom, the minimum wage first became legislation in 1999, under the Labour government. There was much debate from the public, unions and the Opposition prior to its implementation, but research afterwards has showed that this new Act definitely did not increase level of unemployment in the country. Let’s also not forget that over the decade just passed, London surged ahead of her European counterparts to become a leading global financial centre (something Singapore is aspiring to be).
The people who first came about with the idea of a minimum wage had one motivation in mind – to protect individual workers from being exploited by factory owners for the benefit of more profits. From whichever angle you look at this, you must admit that this motive can only be a good thing, akin to the abolition of slavery.
With Singapore slowly creeping up the list of the most expensive cities of the world, the time is now for us to relook into enacting a minimum wage policy to start protecting those who might have already been exploited, even if not intentionally, by circumstances.
Sources:
1) David Card and Alan B. Krueger, “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania,” American Economic Review, Volume 84, no. 4 (September 1994), pp. 774-775.
2) www.ilo.org/public/english/protection/condtrav/pdf/infosheets/w-1.pdf
3) Waltman, Jerold. “The Politics of the Minimum Wage.” University of Illinois Press. 2000
Other articles by Damon Yeo:
>> HDB’s 2 billion dollar deficit: More questions than answers
>> DBS and a series of ‘unfortunate events’
>> Sale of Chartered – An Anatomy
>> 3rd most competitive nation in the world and what it means to the average worker
About the Author:
Damon is a proud graduate of Nanyang Technological University in 2004 with a degree in Accountancy. He is currently working in the finance department of a UK Bank. He is also a regular contributor at redsports.sg.
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fair and square on Fri, 27th Nov 2009 4:12 pm
there is now in this globalised wolrd a PARADOX OF WAGES!
the more grossly paid a CEO,the more “value” he is presumed to have even if such an idiot has fouled up his previous company!
on the other hand,the CHEAPER a worker is the BETTER he is supposed to be!
no offence to the Filipino radiographers,for instance,but i still think that our own locals did a far better job and they were not really that much more expensive!
when will we ever learn?..where has all the wise men gone?
long time passing…
Elementary My Dear Watson on Fri, 27th Nov 2009 4:56 pm
fair and square
That was absolutely brilliant and original !
End of the year is approaching and it’s the time where bonus is the magic word. And guess what ? Now the word “bonus” has so much social stigma when attached to CEOs and big timers, so it has been replaced by euphemisms … one typical example which is being used by the Singapore government here is the famous ..”one-off payment”.
Tok Tok Mee on Fri, 27th Nov 2009 5:24 pm
Without a minimum wage, how can a person survive? Wages are getting lower and lower and the costs of goods and services are going higher and higher.
Lehman Brothers on Fri, 27th Nov 2009 9:39 pm
“However, if these policies were to be applied to PRs and migrant workers as well, we will see a further influx of foreign workers to our shores, since they are expected to pick up even higher pay then before.”
I would argue that having a minimum wage would actually reduce the influx of foreign workers. Foreign workers from countries like India and China are currently more attractive to firms in Singapore even though many of their jobs can easily be done by Singaporeans. This is because they can support their families with lower pay through the favourable exchange rate. Implementing a minimum wage would remove this unfair advantage that they have over Singaporean workers.
One negative point that was not mentioned by the article can be seen from the case of Australia, where shops close at 5 – 6 pm every day since it raises the variable labour cost of running the business. If minimum wages are implemented, it is very likely that 24 hour shops would disappear, while fast food outlets and coffeeshops would close at around 8 pm latest.
We will also have a problem with regard to wages for domestic helpers, since most of them are paid below $400 a month, and there will be difficulty in defining their working hours, since many of them wake up before 6 am to wake the children up for school and sleep at close to midnight, making it an 18-hour work day.
Overall, I do think that the benefits of a minimum wage outweigh the costs, but many issues still have to be ironed out before implementing such a system.
Leon C. on Fri, 27th Nov 2009 10:15 pm
I for one am not a proponent for minimum wage system.
Like the PAP always say, Singapore do not have resources and other than manpower, we do not have much else to export. This is to keep the competitiveness in place.
BUT, rather than giving out work permits and PR like early Christmas, The incumbent government should have been more prudent to have made the middle to higher level jobs very difficult for foreigners to qualify.
And to help the less fortunate families, the current welfare system should be thoroughly overhauled with the central philosophy of TRUST and a deep desire to make sure EVERY citizen is living a dignified life.
The current social security net is next to non-existence. And whatever welfare that is available is huddled around a “kiasi” attitude. Discouraging the applicant with tons of paperwork and reels of red tape. It is a very detrimental system that pushes people to a distressful corner and only drip feed scrapes when it sees people are down to their wits.
On the contrary, Aid should be an automatic entitlement to all needy citizen regardless. Unhindered by bureaucratic shortcomings, disbursed in an expeditious manner.
Preventing from abuse, is the core of our welfare system now. This should be pushed to the back stage and let the administration department weed out unfit applicants – out of oversight or selfishness, and claim back the money plus interest. This should not amount to a crime for it will prevent the real needy from seeking help.
Any contest can always be brought to the court singapore is so famous for. Or else, there is always CPF.
People may argue that making welfare so easy will develop a clutch mentality. I stand for otherwise. I believe that when people are educated positively, they always want to become better. And getting off welfare and getting on ones’ feet is always better.
And for people who are chronically lazy, the civil service can always take them in and force them to be useful.
But unfortunately for the disabled, It is the duty of the country to pick up the tab for them if they cant take care of themselves. If the ministers always says the truth, this is what the GST is for right?
TL on Fri, 27th Nov 2009 10:31 pm
Minimum wage is required in Singapore especially now with the large influx of foreigne workers. How can a person survive in an increasing expensive Singapore while receiving a salary that is good enough for a third world economy ? While the government is receiving a salary that is few hundred % more than the leaders of developed nations, they are expecting the citizen to survive on a third world salary. This greedy and yet under performing government does not deserve our vote!!!
Karma Went on Exile on Fri, 27th Nov 2009 10:50 pm
Its a commonsense that there should be minimum wage to protect workers.
The real question to ask is WHY is there no such thing?
Minimum wage is not to make employers pay more or spend more on labor. Its a salary to give dignity to the lowest paid labor in the country. Its to prevent abuse of workers by offering as-low-as-employer-like salaries. If all employers do this, there is no company left for such workers to go to for a more decent salary. If there is min wage, this can be stopped.
Min wage is still the min wage and not about paying the lowest paid worker MORE than they deserve.
I am all for change.
Gosh on Sat, 28th Nov 2009 9:38 am
You know how the gov harps on about singaporeans shunning certain jobs? Although I believe that’s all a load of bull, if it were true and there are some jobs singaporeans shun, minimum wage would have solved that problem eons ago.
I live in Victoria, Australia. Our garbage men are locals, road works men are locals, builders,plumbers, electricians, mechanics, tradesmen in general are mostly locals. Yup ANG MOHS!
How come? Minimum wage. Not only is minimum wage good for your overall lifestyle, it presents a sense of DIGNITY, something absent in most Singapore workers minds. Everyone gainfully employed in this country, regardless of the job they do, is proud that they are working.
Simply because it’s that much easier to make ends meet when you’ve got a job. A school kid working in Macdonald’s earns an average wage of $15 an hour, minus tax that’s $10 in his pocket. That’s $7 an hour more then what I was earning in Singapore at Maccas when I was a kid and $5 an hour more than I was earning in Singapore in my last job before packing up and leaving.
I’m no high flyer now either, I don’t hold a degree. I’m just a lowly tradesman. But for my experience and qualification, minimum wage dictates my hourly wage at $35 an hour. Maybe for some lawyer or doctor or minister mentor that’s not much but for a guy from a below average singaporean background, it’s amazing.
My fellow Singaporeans, PLEASE, PLEASE, PLEASE WAKE UP AND SMELL THE ROSES. SINGAPORE COULD’VE BEEN A PARADISE FOR EACH AND EVERYONE OF US – If only people like my parents give up the notion that LKY is the father of Singapore. In my opinion he’s the undertaker. My decision to get out was the one proper decision I ever made.
I never got the chance to vote – walkover. It’s in your hands, you have a right to lead a dignified, comfortable life. If not for you, think of your kids. Vote for change, or pack up and leave if at all possible.
Singapore should never have let immigrant workers in for the continued well being of their ruling elite. Things could’ve been fixed long ago.
Italian Big Sausage on Sat, 28th Nov 2009 10:47 am
Industrialization, commercialization, economic progress means nothing to me if the human touch is missing. If the respect for human dignity is missing.
F1 or F9?
Anonymous on Sat, 28th Nov 2009 10:56 am
@ Lehman Brothers on Fri, 27th Nov 2009 9:39 pm
Just to update me, Lehman Brothers since you are in Australia now.
I thought that there IS MINIMUM WAGES in Australia (for over 18 years of age) except for non-adults or those in skilled trade apprenticeship graduated pay scheme.
I recall that former Aussie PM, John Howard, tried abolishing over time pay, minimum wages etc by introducing enterprise bargain and elimination of unfair dismissal law called the “Work Choices” reform as recommended of labour market reform preached by the stupid IMF.
But the electorate won’t bite. After the Haneef affair, and lots of stumbles evidencing a government tired of fresh ideas and solution, the seemingly every popular John Howard was buried under a rubble of a landslide election defeat in 2007. The Liberal-National Country Party was shattered and in this week locked in crisis over ETS revolt against Malcolm Turnbull.
From history, the mninimum wage in Australia has NO ADVERSE IMPACT on local employment which one poster here suggest would bring in an influx of foreign workers displacing locals.
That argument is FALSE PROPHETS of “priesthood” lies akin long-held practice of not asking and not telling of history of pedophile sins within religious order.
The reasons are obvious
- Australian does not let in the quality of ZYY or lesser materials of kind in its migration imports
- best of all, Singapore can apply minimum wages ONLY for Singaporeans, foreigners excluded because NTUC need NOT represent foreign workers. Only Singaporean workers can join NTUC but local labour laws apply to all in relation to employees rights. Already foreigners has lower CPF rates than Singaporeans, SO WHY IS IT NOT WITHIN LEGAL PRECEPTS TO EXCLUDE FOREIGNERS AND PR FROM MINIMUM WAGE LAWS?
-And if PR meets required standard of approved migration, the minimum wage would be way below their earning power in any case.
The whole migration and immigration floodgates opened without careful screening brought us an BASOLUTE MESS, including bringing many of those capable of doubtful and criminal tendencies. You know that countries like Australia require foreign PR to meet the character test of no criminal records in their home countries and also once landed and living in Australia cannot fail the “character tests” and if convicted of crime face real prospect of deportation. SINGAPORE HAS MORE LENIENT LAW APPLICTION FOR FOREIGNER IT SEEMS TO BE FREQUENTLY NOTED BY POSTERS ON THE NET.
It is a failure of Government’s social,political and economic agenda that needs to be thoroughly rework through. But who is looking and admit layers and layers of public policy incomptencies when election is waiting on the horizon???
Lehman Brothers on Sat, 28th Nov 2009 11:48 am
Yes, most of your points are correct. there are minimum wages in Australia. It’s around A$16.50 per hour in my state if I remember correctly. It is also true that there has been little evidence of an adverse impact on unemployment in the long run. All that happened was that firms were forced to use labour hours more efficiently, or in some cases, close shop earlier.
Anonymous on Sat, 28th Nov 2009 12:33 pm
Lehman Brothers on Sat, 28th Nov 2009 11:48 am
Thank you very much for your information confirmation.
contrarian on Sat, 28th Nov 2009 11:57 pm
On Damon’s point that 90% of countries have minimum wage, it is not difficult to put one in place. On closer examination, a minimum wage can be some really low figure that most workers earning that will really be close to broke anyway.
e.g. USA’s US$5.15 an hour (has increased since a few years ago), Vietnam’s 650,000 dong a month (about US$40).
Check for yourself what the minimum wage is in many other Asian countries and compare it to the GDP or household income and see.
nomishog on Mon, 30th Nov 2009 1:25 pm
The current min wage in Aus is $14.31 per hour, doesn’t matter which state you’re in.
Lehman Bros, I think you are referring to the Award rate of $35 for tradesman, yes?
Lehman Brothers on Tue, 1st Dec 2009 11:59 am
I was referring to the actual minimum wage, but didn’t remember the exact figure except that it was between 10 and 20. I stand corrected then.
Hazel Poa on Wed, 2nd Dec 2009 4:56 pm
There is a discussion forum organised by the Reform party this saturday 5 Dec, of which minimum wage is one of the items for discussion. Interested parties are warmly invited to come share your views. More details in the Reform Party’s Facebook account, where you can register for the event, or email tonytanlt@yahoo.com.