November 27, 2009 by admin
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By Damon Yeo
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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.
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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
