Wed, Jul 16, 2008
The Straits Times
I AM baffled by what Finance Minister Tharman
Shanmugaratnam said in his address last Wednesday to some 500
unionists about being wary of wage-induced inflation.
He seemed to suggest that wage increment could contribute to
inflation.
First, Singapore is a net importer of goods and the rise in
prices is caused by the spike in world oil prices. The price
increase, as one may term inflation, does not necessarily mean
there is an increase in real demand for goods. Singapore imports
the goods and any increase in manufacturing cost in other countries
is passed on to us, even if there is no rise in demand here.
A rise in wages of a few percentage points is not likely
to add significantly to the cost of production here as that cost is
more likely driven up by the spike in fuel prices, which Mr Tharman
cited at 64 per cent. Given the statistics, it is a little
far-fetched to think a small increment in wages would stoke a
second round of inflation.
Raising productivity seems like a panacea to the perennial
problem of not losing that competitive edge. Productivity cannot
keep increasing without added costs. There is an optimal output
level and beyond that, diminishing returns set in.
Perhaps what should be emphasised here is having workers
understand why pay rises may not be a long-term solution as
employers have to manage smaller profit margins due to inflated
raw-material prices. It is a delicate situation, so workers have to
moderate their expectations to ensure the survival of Singapore
companies in a fiercely competitive world.
Hong Wai Leng (Ms)
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