Minimum wage is one hot controversial topic. Whether in the NSM or MSM, there will be robust and sometimes emotional discussion on this topic. I’ll attempt to give my two cents worth. I’ve been thinking about this topic for quite some time since it affects most of us – directly or indirectly.
I am no economist nor an expert on wages. I will just use some common sense to say my piece here. When I was in school more than 30 years ago taking Economics at A level, I was quite impressed and persuaded by the concept of “Price Mechanism” or “The Law of Demand and Supply” in the market place. “The Law of Diminishing Returns” is another interesting concept I learnt in my Economics class. Until today with so much changes in our modern society, those economic concepts still hold true irrespective of political ideology or thinking.
The fascinating thing about the Price Mechanism or The Law of Demand and Supply in the marketplace is that it’s an universal eternal law throughout human existence. This fundamental economic theory remains one of the most fascinating concepts since the dawn of civilizations when man started producing and trading openly in the market whether it’s within their own community or across borders. Tons of literature have been written about this subject. The concept is especially pertinent in modern times where the world we are living in becomes much more compact and globalized with the advent of modern technology and instant communications.
I’m not going into the details of the Price Mechanism or The Law of Demand and Supply. I may end up writing a textbook! Suffice to say that our economy is plugged into the global market place. Hence whether we like it or not, we are subject to it. We are literally at the mercy of those inhuman economic laws. We can’t change those laws or control the invisible hand of the price mechanism where everything and everyone is subject to.
Let’s say that in a desert where nothing is produced at all. Vast empty useless lands with nothing to offer. If those natives living there start printing money will it make any sense? Money in itself is useless if it can’t buy or exchange for any goods or services. Money is only sought after if it can buy you lots of stuff. Only if your money you print can buy lots of things, then other people outside your community will demand for them in order to buy your things or services from your community. Imagine this empty useless land suddenly found lots of oil underneath. Since oil is a much sought after item by people all over the world, obviously others will demand for your money to buy your oil. Your money becomes valuable.
Why some countries’ money is worth much more than others? Why our currency (money) is worth so much even though we do not have any natural resources at all? (like oil in the given example). We are even worst than that barren desert country. That is becuz our 710 sq km is able to produce so much goods and services in the economy that others demand for our money. Our GDP – total of goods and services produced in our tiny country that make our currency (money) so strong. What if one day, we no longer able to produce so much goods and services like before, will the value in our money remain strong and much sought after? If you think it is a God given and an unchangeable fact, then I’m afraid you are making a big mistake!
Different societies handle the market mechanism differently. Some resort to extreme measures to address the inherent harshness of the invisible hand of the price mechanism on its people, whilst others leave it with minimum intervention. On one extreme end is the once upon time Karl Marx’s communist ideology where everyone is guaranteed an iron rice bowl against greedy capitalists. Clearly this ideology is not successful cuz even China has abandoned it for the free market economy. Click the link to read the article written by me when I was a student. What about the laissez faire type of model? Obviously in a democratic country where the government of the day is expected to provide a decent standard of living for the electorate will never adopt such a model where the weak and disadvantaged will suffer under the merciless effects of a free economy without any intervention from the government.
Every economic student is aware of the fact that too much government intervention in the economy will stifle growth and lead to economic decline. Too little as in the case of Hong Kong will result in a widening income gap and more hardship at the lower bottom of the population.
To legislate minimum wage whether across the board or industry based is a form of government intervention in the free market mechanism. The long term effects will inevitably lead to the erosion of productivity and economic decline.
Let’s take a look at France. When Francois Mitterrand of the French Socialist Party won the popular vote in 1981 to 1986 with huge majority and again in 1988 to 1993, they nationalized not only public sector services such as utilities like gas, coal, electricity, water, postal services, transportation such as railways, buses and airlines but also thirty six banks, two finance companies, twelve industrial conglomerates. All these come directly under the state accounting for about 30% of industrial exports. More than half of the workers are directly under state employment. Based on one man one vote system and a strong desire by the electorate to change the system i.e. Nationalization ( government direct intervention of the economy ), the socialists won by landslide victory and implemented their election pledges. Fast forward to today, France is one of the worst economy in Europe. If you compare it with Germany, the standard of living and the poor pathetic situation is one of the worst. That’s the result of too much state intervention in the market mechanism.
I’ve not been to France. But I’ve heard horror stories about France even in Paris. I met a French lady, Mrs Mao who is married to a local Chinese man for more than 30 years. She could speak and write few languages including Mandarin. She told me all kinds of shocking pathetic happenings in her country of birth. For example – If you go overseas, vagrants or the homeless Parisians could just break into your house (in France) and live there. The police could not even do anything at all. There are so many homeless and unemployed wretched roaming in the streets of Paris. It is quite shocking for us to hear that from a French citizen. I just can’t believe what I heard. My German friend Uncle Bodo also ever told me that fortunately Germany did not go the French socialist way under President Mitterrand where untold damages have already been done. The controversial but competent President Nicolas Sarkozy could not undo or repair whatever damages already done. Now another Socialist President Francois Hollande is in office. More misery will befall the French. Sigh!
I quoted France as an example to show the severe long term damages inflicted on the economy. To nationalize everything – which is direct intervention in the market mechanism – seems to be very ideal and serve the commoners well. Sadly it is not the case as seen in so many past failures in so many other countries.
I believe that the elected government of the day should come into the picture not to intervene excessively but to cushion the side effects of the free market mechanism. The government should play the crucial role of calibrating any adverse effects of the free market economy by helping the disadvantaged, lowly educated, lacking in skills etc to fit into the economy. Certain basic services such as medical, education and housing should be provided by the government.
In our case, we do have a good model ( though it’s not perfect ) of tripartite arrangement with the employers, workers and government coming together to discuss and work out solutions in a win-win situation to improve the economy. They must understand they are all in the same boat and everyone in that boat must survive in the global marketplace. There will be bad weather, treacherous storms and uncertainties beyond our control.
In many countries, the 3 major factions in the economy ie Govt, Workers and Employers don’t always work together. They are quite confrontational at times leading to wild cat strikes and crippling the economy. Once they refuse to budge in a negotiation, workers just go on strike causing much inconvenience to the public. A sector goes on strike will also affect other sectors of the economy.
Out of the two models described, I would prefer the model that seeks peaceful negotiation without resorting to any industrial action. Our current model of tripartite partnership I feel is not quite effective even though it’s an excellent model to uplift our workers. I’ll talk about it next time.
Let me continue with why minimum wage is not the solution to uplift our workers in terms of productivity and sustainable long term earning power.
I’ll cite another simple illustration. A plate of Char Kway Teow easily costs $2.50. Why some customers willing to pay more even up to $10 per plate of Char Kway Teow. Consumers willing to pay higher price cuz there are more ingredients and definitely taste better. They feel it’s worth the $10 especially if there is XO or abalone added? So there is a demand and supply even though it’s expensive. What if the government decides to set a minimum price for a plate of Char Kway Teow? If the price is set at $2.50, it serves no purpose since the cheapest Char Kway Teow is already set by the free market mechanism at that price. What if it is set at $5? Now you can only eat a plate of Char Kway Teow at $5 by “legislation”! Many hawkers selling Char Kway Teow will have to close shop unless it is worth the $5 consumers willing to pay. Nobody will want to eat a plate of $5 Char Kway Teow if it’s not worth that amount. Those consumers will just switch to other food instead of Char Kway Teow. On the surface, it appears that setting the minimum price of Char Kway Teow is helping the poor Char Kway Teow hawkers. Do you think it is so?
Now let’s take another direct example. Currently security officer is paid at about $5 per hour. 12 hours is about $60. If the minimum wage is raised to $7 per hour, there is no incentive for him to upgrade his skills in terms of his job scope. Why should he? It is better that the security officer made effort to upgrade his skills to earn that extra and hence become more productive. If he is well trained and able to perform his job professionally, most employers are willing to pay the extra dollar. There is also the incentive for him to upgrade his skills to match that extra dollar. From $5 to $7 is about 40% wage rise which also enables him to cope with the inevitable inflation and rising costs of living. The WorkFare Wage Supplement given out every quarterly by the government to low wage workers is another laudable scheme. My mother working as a cleaner in a local supermarket is a beneficiary.
If you look at some of the countries, not all adopt the minimum wage policy. Austria, Denmark, Finland, Germany, Iceland, Sweden, Switzerland are some of the countries without minimum wage. Why do they refuse? There must be a reason for that.
For these countries without minimum wage, they usually have a union for collective bargaining therefore wage levels maybe different depending on union/sector/industry (in whichever way that they are structured).
In Singapore as well, the unions negotiate for better wages through collective bargaining and in cases where there are less than 50% of the workforce joining the union, the union will negotiate for a Memorandum of Understanding. A recent example would be the Attractions Resorts and Entertainment Union (AREU, Link) whom conducted a recruitment roadshow for workers of Marina Bay Sands and unable to reach at least 50% of their 7500 workforce. Link to news
On top of collective bargaining for our rank & file workers, they also work to cover low wage workers who may not be union members. And they use the tripartite relationship to negotiate with industry players, government agencies and specific unions to work out the details. Their focus for these two years are “Clean, Green & Safe” – targeting the cleaners, landscape professionals & security sectors. Progressive Wage Model is the key in lieu of minimum wage across the board.
“Progressive Wage Model not only gives our workers better wages, it also up-skills workers and give them a career path. For employers, it enables companies to better their productivity ensuring a sustainable growth for the industry thereby creating better jobs for better workers.”
The idea is that people should be paid more for:
2. Productivity (tools are provided by the employers, and they can apply for grants from NTUC under the Inclusive Growth Program grant which is $100m to be disbursed …. Here’s an example of a productivity tool under IGP and this gave the operators of the machine 13% increment.) Link
3. Career (develop workers so they can climb the career ladder and be paid more)
4. Wage ladder (with annual increments recommended by NWC)
Examples of wage model:
Here are some success cases on Progressive Wage Model:
Most recently, SMRT adopts PWM for bus drivers (November 2013):
Healthcare workers (August 2013):
Various other new reports:
Cleaners (since 2011/2012) (google Progressive Wage for school cleaners, Town Council Cleaners etc … there’re lots of success cases)
Changi Airport group Trolley Handlers Link
I hope this gives you a better understanding of what NTUC is doing for low wage workers in Singapore, and they are avoiding the pitfalls of minimum wage …. for example in Hong Kong, the minimum wage is HK30/hour and each meal costs more than HK30 …. In Singapore, if we take S$1000 as the least a worker can earn, the hourly rate is about S$5.6 – which suggests that our low income workers work less than 1 hour to earn a meal, while Hong Kongers have to work more than 1 hour.
Bottom line is to enable business enterprises with better productivity so that wage increases can be sustainable in the long run to create better jobs for productive well deserving workers.