Renewed call for 'shock therapy' to raise wages

Expert urges NWC to again ask for specific pay rises for low earners

Prof Lim says he has "no fear" of high-earners leaving as the wage freeze he proposed in his "Shock Therapy II" is for only three years. -- PHOTO: LIANHE ZAOBAO

By JANICE HENG

VETERAN economist Lim Chong Yah has renewed his call for "shock therapy" to raise wages at the bottom.

Rising income inequality and a falling proportion of gross domestic product going to wages "are telltale signs that our inclusive growth policy requires a relook", he said yesterday at the annual Singapore Economic Policy Forum.

The former National Wages Council chairman praised the NWC's recommendation in May to raise pay by at least $50 for those earning less than $1,000 a month. It was the first time in decades that the council had suggested specific figures.

But quantitative recommendations should also be made in the next two years - and wages at the top frozen, said ProfessorLim, as he revisited the subject of "Shock Therapy II".

Shock Therapy I refers to Singapore's economic restructuring from 1979 to 1981.

In April this year, Prof Lim argued for a second round of restructuring, later tagged by the media as his "shock therapy" proposal.

His Shock Therapy II idea involved a three-year plan that included staggered pay rises for those earning less than $1,500 a month: 15 per cent in the first year, 15 per cent the next year, and 20 per cent in the third year.

He also proposed a three-year wage freeze for those earning $15,000 or more a month.

A public debate on his idea led "in the end" to the NWC's recommendation, Prof Lim noted yesterday. If the NWC continues to recommend specific figures, this would not only help workers, but also aid Singapore's effort to reduce its reliance on low-wage labour, he said. "If you have a quantitative increase for one year only, that does not have an effect on economic restructuring."

But if wage hikes are not a one-off, companies will be forced to be more productive, he added.

Raising wages is also preferable to more government transfers, he said, as the latter may require higher taxes.

Prof Lim also noted that his suggestion of a pay freeze at the top had not stirred much interest, despite it being important to rein in the "unconscionably" high salaries of top executives.

Persuasion, not compulsion, would suffice, he said.

"We can just call for a halt for three years."

Later, he told reporters he has "no fear" of high-earners leaving as the wage freeze is for only three years.

The Singapore National Employers Federation said the recommendations were best left to the NWC to consider.

But it noted "top executives are mobile, and bottling the wages of executives... for three years would lead only to other long-term problems".

Yesterday's forum was co-organised by the Economic Society of Singapore and Nanyang Technological University's (NTU) Division of Economics. Prof Lim is an Emeritus Professor of NTU.

In attendance were 200 economists, policymakers, students and guests.

But the strongest response to Prof Lim came from another speaker, Professor Augustine Tan of Singapore Management University. Help low-wage workers with direct transfers, but "don't interfere with wages", he said.

Higher wage costs could hurt companies or be passed on to consumers.

Meanwhile, NWC chairman Lim Pin said the council had been paying attention to low-wage workers for some years, but Prof Lim's suggestion in April "did contribute to the public discussion".

Labour MP Zainal Sapari added that when the National Trades Union Congress suggested the fixed quantum this year, "it was with the intention of recommending it for subsequent years".

Minimum wage a 'last resort'

IF WAGES at the bottom remain low in two or three years' time despite National Wages Council recommendations, Singapore "may have to think of introducing" a compulsory minimum wage scheme, said Professor Lim Chong Yah.

His proposal: at least $1,000 a month. But that might be too low if inflation is serious, he said. Assuming a 44-hour work week, this works out to $5.25 per hour. Prof Lim left open the question of whether this might be "too high or too low", but compared it with rates in other countries.

A $5.25 mimimum wage is about a quarter of Australia's, a third of France's, and half of Japan's. It is slightly lower than South Korea's but higher than Taiwan's and Hong Kong's. And it is three times the minimum wage in Malaysia.

The idea, however, has long been unpopular here. Yesterday, Prof Lim said he had proposed a minimum wage back in early 1972.

Then, the tripartite partners feared it would create unemployment, and preferred the flexibility of annual recommendations.

"But today, things have changed," said Prof Lim. Firms have become reliant on low-cost labour - a problem that a minimum wage helps address, he said. Yet he stressed it was a "last resort" only if wages cannot otherwise be raised.

Yesterday, labour MP Zainal Sapari said National Trades Union Congress "is not supportive of the idea", as it fears job losses. Instead, it feels "we should explore other possibilities" - such as the progressive wage approach, which suggests wage benchmarks workers can reach with further training.

JANICE HENG

Top of the news, The Straits Times, Friday October 26 2012, Pg A10