Tan Kin Lian's Blog: Minimum wage

Tuesday, May 25, 2010

Minimum wage

The government leaders have been telling the people that a minimum wage will cause the jobs to be lost. This is only partly true; largely, it is false.

A minimum wage is necessary to ensure that the worker earns enough to pay for the cost of living by doing a full day's work. If the wage is below the minimum, the worker has to work longer hours. This will cause other people to be unemployed. For a stable society, we need to have most people, who are able and willing to work, to be able to find a job and earn enough enough to raise a family and be a contributing member of society.

A decent wage, as opposed to a sub-minimum wage, does not cause the loss of jobs. Wages are only one component of the total cost of production. The other components are cost of property (i.e. rental), government taxes and shareholder profits. If wages are too low, more of the cost goes towards rental and profits. The imbalance, between wages and rental, is one factor leading to the high property prices in Singapore.

Many of the jobs in a country are in the service sector. They are part of the domestic economy. They have to be done in the country and cannot be lost. Examples are education, health, transport and personal services. A minimum wage to these sectors affect all businesse and will be added to the cost of providing the service. It can be kept low, if the other components, such as rental, taxes and profits, are kept at the fair market levels - and are not inflated due to the failure of the market, e.g. if there is a near monopoly.

Many global businesses come to Singapore to enjoy the low wages contributed by foreign workers who work in Singapore. The social cost of these foreign workers have not been properly factored - i.e. the overcrowding and the strain on the public services (i.e education, health and transport). If these are properly accounted, the strategy of low wages, i.e. no minimum wage, in creating jobs in Singapore is not compelling.

I believe that it is time for a minimum wage to be introduced in Singapore and for the market in labour to find its new level. I believe that we are among the few developed economies that do not have a minimum wage.

Tan Kin Lian

21 comments:

Anonymous said...: "Many global businesses come to Singapore to enjoy the low wages contributed by foreign workers who are willing to come and work in Singapore....."

Mr Tan, I totally agreed with you. Rather, these foreign setups are at the expense of interests of both foreign workers and the local Singaporeans. Their interests have been exploited.....

Similarly, if one were to look at the Chinese economy, it is considered 'competitive' at the expense of environment protection and consumers' interests....etc.

At the end of the day, it is a 'zero-sum' game after all.; May 25, 2010 10:24 AM
Anonymous said...: If someone in high positions earning super-high salaries, they will make those in low positions earn super-low salaries. Minimum wage scheme will never happen in Singapore as long as our leaders enjoy super-high salaries. They have to exploit those powerless low position worker in order for them to enjoy super-high salsries.; May 25, 2010 11:15 AM
Anonymous said...: When we compare the two statements:
1. Minimum wage will cause us to lose jobs.
2. We have to pay millions to prevent our ministers from being corrupt.

Singaporeans should by now be waking up to the reality of the two statements put together.

When it comes to Singaporeans, lower wages are good for them.
When it comes to the decision makers, higher wages are good for them.

Which is true, Singaporeans better wake up and decide.; May 25, 2010 1:35 PM
Anonymous said...: REX comments as follows,

re. para. 2 quote "If the wage is below the minimum, the worker has to work longer hours to enough enough. This will cause other people to be unemployed" unquote

I don't agree. Firstly it is not possible for a worker to work extra hours to the extent of 100% more time to earn more money. At most he can put in extra 10% or 20% overtime. There are only 24 hours a day, and he already worked 9 to 5. How can working 10% more daily cause other people unable to find job? It is only incremental work in nature, not sufficient for full time new worker.

Secondly, some jobs are not hourly rated. Say, security guard, or cable jointer. So the pay is low. But the work is fixed, it is not factory assembly line. Even if the security guard wants to work overtime he can't there is nothing to do other than the fixed assets he is assigned to guard. Same with the cable jointer. Cables dont fail all the time. He is paid fixed salary, low pay. Even if he want to work 10% more overtime, he can't unless there is a once in a blue moon high demand due to broken cables. Therefore, how can low wages lead cause others to be unemployed?

Having said that, i do still agree that a minimum wage is something good for Singaporeans if and only if the government can legislate and demand that rentals must be reduced, and company taxes must be reduced, as pointed out already in the thread.

In the absecne of the above measures, I feel that the government's theory that minimum wage will cause job losses, (due to employers unfavourable reaction), will definitely come true to a large extent.

Therefore, everything is in the hands of the government. The impending job losses can be entirely prevented by the above corollary measures. Tax reductions howver means less revenue for the govenment. How can the million dollar ministers allow that?
In summary if everybody work together for benefit of more people i think we can strike a balance. The question is whether the govt can accept it or not given their record for enjoying high salaries themselves.

rex; May 25, 2010 2:36 PM
Tan Kin Lian said...: Hi Rex,

If a company employs 8 peoples each working 10 hours a day, the same company can employ 10 people each working 8 hours a day. The additional 2 hours of work, often without overtime pay, causes 2 persons to be unemployed.

Due to lack of job security, many people are putting in more hours in the workplace to appear indispensable. So, it is quite common for many people to work until late in the evening.

Even people who completed their work on time dare not return home early, as they may be vulnerable to a retrenchment exercise.

I hope that this bad situation can be corrected.; May 25, 2010 3:28 PM
Concerned said...: "Many global businesses come to Singapore to enjoy the low wages contributed by foreign workers who are willing to come and work in Singapore. The social cost of these foreign workers have not been properly factored, in - i.e. the overcrowding and the strain on the public services (i.e education, health and transport)"

These social cost is not only not factored in, but funded by Singaporeans who paid the taxes ( in the past and present) to build the schools, hospitals, transport nfrastructure and the operating expenses in terms of salaries and daily maintenance and also to bear the discomfort of overcrowding in their daily lives.; May 25, 2010 3:44 PM
Anonymous said...: Who say that there is no minimum wage in Singapore? The government has set a minimum wage for themselves as all the ministers annual salary are not lower than 7 digits.

So who say there is no minimum wage in Singapore? The sad thing is that in Singapore the minimum wage is to protect the elite instead of the majority poor and underpaid workers. Uniquely Singapore indeed!

Merlion; May 25, 2010 4:38 PM
Anonymous said...: Most of the jobs lost due to minimum wage policy will be foreigners, as there will no longer be any wage discrepancy for employers to exploit.

Minimum wage will remove the C from the C B F equation. As for B & F, better and faster, don't make my toe laugh. Only at most 3% of foreigners are better and faster than citizens, and these foreigners are the ones holding senior or very specialist positions, earning at least $15K/mth and staying in D9, 10, 11.

Most foreigners are just capitalising on 2 factors to beat citizens to jobs:
1) lower salaries, including no or lesser CPF;
2) younger age which also helps lower companies' medical, life & workman compensation insurance rates.; May 25, 2010 4:59 PM
Anonymous said...: I thought someone ever mentioned by 1999 we are already acheived that kind of "Swiss living standard"!and "more good years" ahead of us??? if we continue to vote for the man in white?
How come today in Singapore, we are still compaining money no enough??; May 25, 2010 5:26 PM
Anonymous said...: REX comments as follows,

hi mr tan,
i see your point now. although one worker putting in 10% more time cannot possibly affect a company decision of employing another person, when more workers are involved, the pooled effect is accumulated, and it is possible that your theory is correct, low wages result in some people getting unemployed, as per your numerical example above.

But on the other hand, if the wages are high, we are back to square one. If the wages are high the bosses don't even want to employ 8 people to work 10 hours. He might want to employ only 7 and force the 7 to do overtime to give the effect of 8 persons!!

So actually I think the wages and the number of employment, have no simple relationship. Because as you have said, the other key componets, RENT and TAXES must be taken into consideration.
Employment = f(wages, rent,tax)
(mathematically)
So to be fair it would be rather meaningless to say, low wages result in more employment or high wages result in less employment. because
the entire equation must be taken as a whole and we can never look at it two-dimensionally.

The solution to this dilemma is really TAX reduction and RENT reduction, which will pave the way to new regime of minimum wage.

But this paradigm shift, is taboo for PAP goverhment... they have positioned themselves on absurd salary levels with quadrauple redudancy (MM PM SM DPM) and they just have to keep the revenue going.. They will never accept reducing Government Revenue. Many people have said, they are running a Corporation, this is not a Country.

It is very sad that the ordinary folk have to pay for the excesses of the elite.

rex; May 25, 2010 5:50 PM
Anonymous said...: These days, kopitiams wishing to do 24 hour business will employ 2 shifts of assistants, each shift 12 hours long. This kind of working hours is ridiculous, but is the norm because it is cheap for the employers and there are always people willing to work such hours. So every day these people just work sleep work sleep, no time for anything else.

I rather see them employ 3 shifts, each shift working 8 hours each. Give these people some personal time...; May 25, 2010 8:06 PM
Anonymous said...: Goh Chok Tong was actually talking about Swiss standard of living for the ministers!!; May 26, 2010 12:28 AM
Anonymous said...: Come on! In many countries, wages are based on the 'toughness', difficulty' and duration of the jobs. The reason why some professionals prefer to do labour intensive jobs than white collar professions in those countries.

The majority of nations work on eight hourly cycles. The work/family and leisure balance has to be appropriately arranged and rightly legislated for a society to have healthy and happy citizenry.

Born right at the start of the 50s, my first 20 years or so of livings were much happy and enjoyable. And it was especially so as me was staying in the countryside.

Just want to repeat again that under the Colonial Rule, many issues were handed by the locals. Kampong leaders and elders were appointed to mediate and arbitrate over many domestic and municipal affairs within the communes. Such autonomy is non-existent now.

The most inexplicable phenomenon now is that with a so-called First World Leadership now, the People in SIN are facing rising hardships by the day.

Something is very very wrong, think about the cause and reason and decide yourself.

patriot; May 26, 2010 11:15 AM
Alex Tan said...: the current low wage employment system prices out professionalism, increases staff turnover, devoid of work ethics, discourage value-addedness and literally overstretch workers' income.

remuneration is not in tandem with inflations for most of them and it will only be a matter of time the people will wake up to the inefficiency of NTUC(most people don't even know there's only one workers union for everyone!) and the deliberate yet seemingly ignoramity of the PAP Government.

you think they don't know?
or you think they don't care?

the PAP Government knows and is deliberately making life harsh for Singaporean workers because they know they have the mighty backing of the Singapore Judiciary System to arrest and put away any one who resort to workers strike.

you think Singapore workers don't know they are exploited?

they do, but they are afraid. the use of fear to keep the lions tame and subservient is constantly held on to in everyone's mind: both foreigners and singaporeans alike.

how often have I heard "alex aren't you afraid of getting caught?" from almost everyone who knows what I'm up to.

fear is very real, and yes i can only fool myself not to be wary of the draconian laws here, after all I've been victimized before.

still, it won't stop me for taking what's necessary to bring down this regressive system of governance that is bringing Singapore backwards. there are only so many good people left, but the vocal ones? mostly dead heroes. why am I joining them then? because this is a sense of urgency for a Change in our systems, for I know if we continue what we are doing, our country is in peril.; May 26, 2010 1:32 PM
Anonymous said...: Mr Tan,
Agree with the min. wage policy. Nowadays, the more pple work, the less they get in return. And they expect the company to grow in revenues and profits! The equation of motivation, productivity, remuneration, work/life balance is so simple to balance, yet the whole govt is totally blind to it!; May 26, 2010 6:02 PM
Anonymous said...: I agree that we should have minimum wages although if it is ever to be implemented, we will expect initial job losses. However, the job losses should mostly go to the foreign workers who were hired on the cheap in the first place. This will result in more hiring of s'poreans, force employers to improve/increase productivity and reduce the income gap.

Anyway, minimum wage will never happen while PAP is governing S'pore.

Freddie; May 27, 2010 12:07 AM
Anonymous said...: REX comments on Freddie's post 12.07 am

Perhaps you missed the point. Minimum wages can be implemented yet with no job losses, provided that RENT and Taxation reductions are conditionally given to the company implementing it.

I think this is the only positive way in which we can transtion from 50 years of mistake. We need to institute a mechanisam for example to reward companies which adopt minimium wage principle, they get tax rebate and rent rebates - BY LAW!! Compulsory! Else kena Fine. This is strong tactics to change a 50 year system.

Then once the wage level of "dirty" jobs goes up due to the minimum wage policy, more locals will apply for these "lowly" jobs because the pay can be $1,500 or more, good pay. The foreign workers will disappear through natural attrition over a period of time, because we must implement a new law so that employers are obliged by new legislation to terminate their contracts on expiry, when ever a local singaporean with suitable qualification and passion, applies for the job.

I think this is do-able. It is not so difficult. All it takes is for King to say YES then tomorrow, everybody will be YESMAN and say, how smart King is to admit mistakes, blah blah blah. Chain reaction, because we are Kingdom. Must first make King happy mah.

rex; May 27, 2010 6:25 PM
Anonymous said...: The Transition that Rex proposed above is indeed do-able. Just one problem or obstacle.

The Unionists will say You are going against their PHILOSOPHY of cheaper, faster and more productive. These Unionists have to be removed and replaced first.

patriot; May 27, 2010 9:29 PM
Anonymous said...: Dear Mr. Tan,

Under the PAP, we will only have "Minimum Wage" of million dollar annual salaries for the Ministers and not for the lowest income earners.; May 28, 2010 1:02 AM
Ghim Moh Resident said...: Hi Mr Tan,

Based on your argument below:

If a company employs 8 peoples each working 10 hours a day, the same company can employ 10 people each working 8 hours a day. The additional 2 hours of work, often without overtime pay, causes 2 persons to be unemployed.

If thats the case, the 10 people will get a lower pay on a per hour wage basis because they work 8hrs instead of 10hrs. Isn't minimum wage suppose to prevent that? And what should an employer do if the lower pay on the 10 people falls below the minimum wage threshold required? Will the employer cuts headcount in this case in order to remain profitable in the business? Or the employer maintain the 10 headcount and incurs losses or lower profits in business?

Minimum wage hurts the poor the most, especially the low paying jobs. Thats how many low paying / low skilled jobs in the United States went to Asia like China and Vietnam. Minimum wages laws is one of the reason why unemployment is so high in the United States and Europe.

Its the poor and lowly-skilled that got hurt the most.

I hope it never happens here.; May 30, 2010 4:56 AM
farrid-hudah-journal said...: I totally agree. I have a brother in law who is a Norwegian. He came to singapore with a Master's and worked here for a few years. He was earning merely $3000+. He got fed up, and decided to go back to his country and because of the minimum wage policy that Norway has, He is now earning 10 times the amount he use to get while working in Singapore. Norway is an expensive country, and the government help the people to ease the financial crunch for families and individuals by having the minimum wage policy. Australia too has this system. Singapore is one of the most expensive asian cities and wages for its people are not enough to even sustain them for the month. What about couples who just tie the knot and trying to build up a family. More mouth to be fed with the same or less pay. It is very inhumane for not giving our people the pay they deserve. Some have to work 2 to 3 jobs just to make ends meet. Family friendly? Work life balance? All these policies don't mean shit if people are not earning enough to sustain themselves or even their families. minimum wage policies should be imposed by the government. It would be much better that just giving all those gst credits and incentives for babies. This policy should be on top of all that.; September 08, 2010 9:43 AM

Tuesday, May 25, 2010

Minimum wage

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