How to help low-wage earners break
out of poverty trap Chua Mui Hoong
IS THERE an underclass in Singapore?
Conventional wisdom would say no. After all, Singapore has had over
three decades of full-employment growth and rising incomes,
guaranteed to give a leg up to any poor worker.
A 1995 World Bank report showed that rapid growth from the 1960s to
late 1980s reduced income inequality in East Asia, including
Singapore, contradicting theories that rapid growth leads to income
inequality.
In Singapore, even if individuals are poor, chances are their
children will not be, as Singapore is a socially mobile society
which rewards merit and ability. Stories of children of cabbies,
hawkers or cleaners who make it good in the professions
abound.
But there are fears that an underclass may be emerging, consisting
of those who cannot cope with changes caused by economic
restructuring.
At a dialogue that union leaders held with Senior Minister Lee Kuan
Yew on July 23, one union leader noted the trend of structural
unemployment and asked: 'Can we find a group of people, underclass
workers, who will be living maybe around...the poverty line?'
Mr Lee's reply was that Singapore did have a problem with the
bottom 5 per cent of society.
Who are they? Mr Lee gave a snapshot: 'Many of them are not
solvable problems, especially women left without husbands and with
a family.
'How do you do it? Long term, educate the women so that in the end
they can get a job and look after themselves, and not have so many
children when they can't afford it.'
His remarks were revealing for capturing in a few sentences the
multi-faceted challenge involved in helping this group.
So, for example, help for such families must go beyond training
subsidies, or investments in education, and include support for the
family at home.
But first, a closer look at what the available data tells us about
income trends.
A Department of Statistics (DOS) report last year showed income
inequality has crept up over the years.
Overall, average monthly incomes have risen: from $3,076 in 1990 to
$4,943 in 2000.
But incomes at the top rose, while incomes at the bottom declined.
In 2000, incomes for the top 10 per cent of resident households
grew 8.8 per cent, while incomes for the bottom 10 per cent of
wage-earning households shrank 13.6 per cent.
This shrinkage would have been even greater - 54.1 per cent - if
households with no wage earners had been included.
The Gini coefficient - which measures income disparity in a society
- hovered around 0.44 in the 1990s, but expanded to 0.481 in 2000,
showing a rising income gap.
How does Singapore's wage inequality compare with other countries'?
Such comparisons must be done with caution, but a look at the
United Nations Development Programme's latest human development
report unveils some surprises.
Singapore's income gap is slightly larger than America's and Asian
countries like South Korea and Hong Kong.
The bottom 20 per cent of wage earners in Singapore command just 5
per cent of its national income. In South Korea, the bottom 20 per
cent's share is 7.9 per cent, and in Hong Kong, 5.9 per cent. Even
arch-capitalist America's bottom 20 per cent managed an income
share of 5.2 per cent, marginally higher than Singapore's. But then
again, many Singapore households own assets, which may not be the
case in some of these countries.
In Nordic countries like Finland, Norway and Sweden, where a social
consensus exists favouring high wages, high taxes and large income
transfers, there is a relatively equitable distribution of income,
with the bottom 20 per cent accounting for 9 to 10 per cent of
income.
Why has the income gap widened in Singapore? And will it continue
to widen in coming years?
One school of thought blames globalisation: Labour mobility results
in the highly skilled getting increasingly higher first-world
wages, while wages for the lower skilled compete in a race to the
bottom.
Globalisation advocates, however, point out that trade and
investments lead to rising national incomes, especially when
accompanied by investments in universal education.
What can be done about the rising income gap?
One option is to do nothing, and to leave market forces to do their
work.
This approach would work if there is high income mobility, with
those in the bottom 20 per cent today rising to the top 20 per cent
a decade later.
However, figures from the US suggest that this does not happen as
often as one might hope. Studies by the Urban Institute and the US
Treasury from the 1980s found that about half of the families who
start at either the top or the bottom 20 per cent, remain there
after a decade, and only 3 to 6 per cent rise from bottom to top or
fall from top to bottom.
Another option is to subsidise public goods and services,
especially education, but also necessities like transportation and
medical services.
During SM Lee's dialogue, one union leader asked him how workers
could accept wage cuts when costs of public services like transport
and medical care were rising.
Mr Lee's reply: 'We have to decide whether we go into subsidising
utilities and subsidising transport which some countries do. We
decided as a matter of basic principle that it's better to give the
man the cash and he decides what he's going to do.'
In other words, subsidise the low-income user, not the service.
Hence the use of rebates for utilities and service and conservancy
bills.
The third option is to design policies that target those who need
help.
To do so, it is important to distinguish between different groups
of low-income households, and target policies accordingly.
The DOS report, for example, divides the bottom 10 per cent of
households into those with a wage earner, and those without.
Households with no wage earners include those whose main
breadwinner has been laid off temporarily, but will find a job
within months, and retiree households sitting on a comfortable nest
egg.
For these unemployed households, the best social safety net is one
that provides medical coverage throughout their unemployment and
support for living and training expenses over a short period. This
can be done by changing the current employer-based retrenchment,
medical and training system, to an employee-based one that moves
with the worker when his job changes.
Chronic low-wage households - where the main breadwinner makes
barely enough to support the family - need different kinds of
support.
Traditionally, Singapore belongs to the 'teach them to fish' school
of social policy, emphasising education and skills training. This
approach must remain the cornerstone of policy, but a holistic
package that provides support to the family is also needed.
Training subsidies and education support will not relieve
low-income parents of their heaviest burden: that of juggling work
and caring for children, or disabled elderly.
Harvard academic Jody Heymann found that many low-wage families in
America were almost crippled by care-giving duties. In The Widening
Gap, which was published in 2000, she found that the children of
low-wage earners fared worse at school and had more health problems
than those of higher earners.
Low-income parents could not afford quality child care, yet were
trapped in rigid work conditions preventing them from fitting in
care-giving duties. They have limited sick and annual leave, and
tend to work shifts or long hours. Their children were 2.72 times
more likely than other children to get into trouble and be
suspended from school. A vicious circle sets in, with the poor
unable to acquire the skills that would enable them to escape
poverty.
America, of course, is not Singapore, but the general description
rings true. Policies targeted at low-income earners must support
them in their care-giving responsibilities. Such families must, of
course, also take responsibility and strive to help
themselves.
Family service centres (FSCs) now offer such family support
services, but on an ad hoc basis.
The Ministry of Community Development and Sports should coordinate
support for the structurally poor to ensure a comprehensive
delivery of services, working with FSCs, community development
councils and non-governmental organisations.
Just as attention is paid to structural unemployment, so too should
attention be paid to the structurally poor, whose numbers may grow
otherwise.
