Sunday, January 16, 2011

Minimum Wage: Another Perspective

For several months now, there is a debate on the issue of minimum wage on the local blogosphere. While many advanced economies has minimum wage as a bedrock of the national wage structure, the Singapore government has thus far refused to follow suit. Many proponents of the implementation of a minimum wage structure (almost exclusively bloggers and opposition leaders instead of speakers in our Parliament) in Singapore have given pretty valid and convincing analysis of the benefits of such a policy but the government's response has been disappointingly repetitive, almost irrelevant and unreasonable in the view of many.

While there are variants of responses from the multitude of government agencies on the subject of minimum wage, the central theme of all these counter-arguments is as follows. The increase in labor due to minimum wage will render doing business in Singapore expensive and inefficient. Companies will leave Singapore en-mass and with that exodus, economic and financial Armageddon will descend upon our shores. Overpriced local properties would then halve in value overnight while unemployment soars. "...we have to invade them else they are going to attack us with their nuclear weapons hidden in bunkers underneath their huts......we have sufficient evidence to conclude the weapons are there.....". Sounds familiar?? Sometimes the easiest thing is sell is fear and the only thing to fear is fear itself.

In this post, I propose a slightly different proposition to having minimum wage in Singapore. While there are definitely some benefits to some parts of our populace by institutionalizing a minimum hourly wage in Singapore, I propose that such an implementation will have effects that goes beyond enhancing the meager income of low-wage workers in Singapore.
I believe that a good proportion of Singaporeans are not directly affected by the absence of a minimum wage structure in Singapore. They are already earning above that minimum income level anyway and the implementation of an income floor do not directly affect people earning way above that floor. The absence or presence of minimum wage in Singapore has nothing to do with them, or so they think.

One of the biggest social problems countries like Singapore, China or India is the income disparity between the rich and poor in the country. A wide income gap presents a threat to the social harmony of a country. I believe instituting a minimum wage will go some way in elevating that problem. Singapore is a fully-fledged capitalistic economy. Free enterprise is encouraged and the desire to accumulate wealth is a celebrated trait in such an economic system. As such, we cannot and should not penalize the top earners of the country for getting ahead in our capitalistic society in a attempt to reduce the income gap. Instead we should try to elevate the income levels of the lowest earners in the country and instituting a minimum wage is obviously a positive step in that direction.

However, I believe that a minimum wage policy will have limited success in pushing up the lower limit of the national income gap. Other more robust and wide-ranging policies will have to be put in place for a more significant rise to be effected. Instead the major effect of a minimum will be to relieve the downward pressure on this lower income limit. Simply, it may not help push low incomes up, but it would certainly help in preventing low incomes being depressed even lower. Let me explain.

I actually agree with the government's analysis that some companies would transit out of Singapore when a minimum wage structure increases labor costs. Some industries may even leave Singapore all together for good. But if such moderate wage increases cannot be adequately compensated by Singapore's other economic virtues (like superior infrastructure, stable governance, geographical convenience, financial sophistication etc.) so as to render these industries commercially in-viable, then we can conclude that these industries must be labor-intensive, sun-set industries that are lower down in the value-added chain, industries that the government claim to want out off, more than 10 years ago!!! The departure of these industries cannot be such a disaster, can it?

While there will be some pain involved in such transition where some out-dated industries are phased out (temporary structural unemployment), in the longer run, there are potential benefits aplenty. I believe by implementing a minimum wage, Singapore will be sending a signal to foreign companies that Singapore is not an the place to engage in cheap, low-skilled work. Over time, the demand for such jobs will reduce and with that the supply of such workers will also disappear. Think of the current fury over the indiscriminate importing of foreign laborers and low-skilled workers. Would they still come when there are no longer $3-$4/hour jobs all over Singapore?

Naturally with the absence of these low-waged, cheap propellers of the economy, GDP may fall below the record levels we see today. But such stellar GDP figures tells little of the true economic well-being of the common citizenry. Powering a country's GDP with brute-force, no-brainer drivers like wanton condo-building and infrastructure projects is akin to pumping the economy full of steroids. It looks good now but it can never last and a crash is just round the corner. Instead, instituting a minimum wage is the first step towards priming Singapore's economy for a more sustainable and desirable evolution into a truly first-world one.

Economics has proved to be a dismal science in the past decade. We need to understand that any prediction of any economic policy is more of an art than science. My projection of the potential benefits of implementing minimum wage may never come to pass. Similarly, the government's prediction of economic disaster from such a policy may also be just conjecture. At least, for the thousands and thousands of workers slogging at McDonald's for $4 a hour, my suggestion gives them a couple of dollars more an hour for their efforts and a happier cashier when you next buy an Extra-Value Meal.


  1. Agree with your arguments. Unfortunately,

    "More importantly, continuing with this strategy [of relying on cheap labor] makes it harder and harder to turn from it. Leaning on a crutch all the time causes the muscles to atrophy. We had the opportunity to raise productivity in years past and in doing so, the wages of the low skilled worker. We ignored it in favor of continuing with cheap foreign labor. Like a country that has long subsidized petrol, we have failed to invest in fuel economy, and as result, every other car on the road is a gas guzzling SUV. In this case, every other company in our economy relies on cheap labor.

    But I don't expect changes from our illustrious government officials anytime soon. As Upton Sinclair once said, "It is difficult to get a man to understand something when his salary depends on his not understanding it."

    extracted from

  2. You've not mentioned Workfare anywhere in your blog post. Doesn't that already achieve the objective of increasing the income of the lowest earners?