Tan Kin Lian's Blog: Minimum wage in Sydney

Sunday, May 22, 2011

Minimum wage in Sydney

I spoke to a staff at the restaurant where I had breakfast on Sunday. She is a student from overseas and is allowed to work 20 hours a week. She earns A$15 on weekdays and A$20 on weekends. I calculated that she must have earned A$1,500 a month on the part time work. She said that she has to pay taxes but I was told that the rate of tax is only 10% at her salary level (revised).

This is a good income for part time work. Many students are able to earn an income to pay for their education fees and also to have money to spend. They are hard working and provide courteous and good service. The high wage results in higher prices paid by consumers, but as the customers also earn a high income, they find the prices to be affordable.

The tourists may find the prices to be high, but this is also contributed by the high exchange rate. If the country is too costly and uncompetitive, the exchange rate can come down and the competitiveness can be restored.

A minimum wage ensures that all workers can earn an adequate income and have a good standard of living. It reduces the gap between the high and low income earners in the country. It is likely that a high wage country will have lower prices for their properties, relative to the income level - so the consumer prices may not increase as much as the wages.

I find that Australian system, with a high minimum wage and control over the number of hours that can be worked (e.g. by students) to be better in distributing the work opportunities to those who are willing to work. I believe that a minimum wage helps to make a better society - which is why many countries decide to have a minimum wage.

Singapore is one of the few advanced countries that does not have a minimum wage. Although we have the workfare income supplement, I think that the minimum wage system works better.

Tan Kin Lian

6 comments:

From Down Under said...: Mr Tan,

For someone who earned $1500 per month (or $18,000 per year) in Australia, the current net tax rate is only 10%. According to australia taxation office, the current individual income tax rates is : 0 - $6K 0%; $6001 to $35,000K is 15%.

so the nett monthly income for her is $1350.

On top of this, there are many other rebates that you can claim at end of the year. She may even be paying no tax at the end of the year.

I used to work part time in Sydney many many year ago. I didn't have to pay any tax, though at that time i did earn much less than her now.; May 23, 2011 9:36 AM
Kelvin Au said...: I don't suppose we can use this one example to provide a basis for minimum wage (i.e. one positive example doesn't mean that the system will work in general). Here are some possible reasons - specific to Singapore - why minimum wage will not work viz-a-viz your example:

(1) She's a student who needs the income for her overseas studies - she is motivated, inherently. She has a specific purpose that she's seeking out in Australia - her part time work supports her full time studies.

Implementing a minimum wage structure in Singapore - unfortunately - will encourage minimum effort. It will not encourage progress. There will be those who take advantage of the system - and increasingly, you will see (those of lower education / technical skill sets) sitting at minimum wage for a long time - shuffling between minimum wage jobs, and not progressing. I don't want to generalize - will it happen to all/everyone - no. But it will happen enough (in Singapore). This will eventually widen the income gap in 10 years.

Minimum wage continues to push the costs of living up, without having the required progress, development of new & better resources (in Singapore's context - skilled & highly educated workforce). There will come a time we will be arguing about the ceiling of minimum wage, about who is entitled to minimum wage - instead of seeing how we can develop people, businesses etc - the debating / arguments will eat into our efforts for 'real' progress & innovation.

(2) It is simple to say "lower exchange rate" to offset the high costs for tourists - I'm sure you will know better than I do, that it's not so simple to lower interest rates (just) to offset the costs for tourists.

For one, weakening your currency makes it more expensive to import - therefore, your imported foods (which Singapore relies heavily on) will become more expensive - and shops will transfer this costs along. The result is a vicious spiral.

There are many other ill effects of artificially manipulating our Forex which may not help the big picture.

(3) Minimum wage is too dangerous to implement especially in Singapore's context where we're small, and highly dependent on an educated/skilled workforce.

Our progress as a nation (w/o natural resources) has largely been attributed to education, and development of manpower/workforce. A high focus on education from a young age, and subsidized education all the way to tertiary levels is key.

Singaporeans cannot have the back-stop, knowing that they can still survive on minimum wage if they "don't make it" in school etc. I may be presumptuous, but I don't think many will disagree that this is a strong possibility.

I am not ignoring the poor/destitute/homeless in our midst - there is an urgent need to not leave this group of people behind - but in my honest opinion, minimum wage will not solve the issues (we really want to address), and may in fact cause us to regress as a nation.

(4) The jobs that will entitle people to minimum wages are not the jobs that Singaporeans really want to do. Minimum wage jobs will probably fall under the category of cleaners, waiters etc. These are the very jobs that Singaporeans shun, and are actually increasingly done by foreigners. And because of this, the ironic situation is that EVEN MORE foreign labour (where their local wage < our minimum wage) will come here in search of jobs. Of course we could make minimum wage available only for locals - but then as a business owner, why should I then hire locals?

I really can't see minimum wage supporting Singapore. The day Singapore implements minimum wage is the day we've take 2 steps forward, and 1 step back.; May 23, 2011 7:32 PM
Unknown said...: i know nuts about economics but my friend who's a JC economics teacher said that a minimum wage will drive away investors because they would go elsewhere to look for cheaper labour. what's your take on this, sir?; May 23, 2011 10:46 PM
hanglian said...: For discussion purposes, I have a few questions to raise on Kelvin's comment:

1) A minimum wage is to protect the low income earners. I'm not sure how this group of people can progress as far as their jobs are concerned, I'm suspecting that they are not progressing even without a minimum wage. The old aunty/uncle cleaning the toilets or hawker tables are mostly very motivated from what I see, but will employers pay them fairly and promote them? So who's taking advantage of the system here? Is there justice for the low income earners?

I tend to think that a minimum wage will indeed push up the cost of living, but that's more for the rich, the thing is those low income earners now can't even earn a life to start with. Their income simply can't support the cost of living today.

2) I'm under the impression that the exchange rate is never free floating, ie. it's controlled by MAS. Is that not artificial?
http://www.mas.gov.sg/resource/publications/monographs/exchangePolicy.pdf

3) Not sure how a minimum wage can affect the educated/skilled workforce, I don't think they come under the consideration for a minimum wage. The education system must be able to produce and cater to people of different capabilities, which unfortunately is very hard to achieve, some people will fall through the cracks. Does that mean these citizens do no deserve a reasonable quality of life?

4) I believe people are more willing to stand on their own feet if given the choice. But a group of people don't have that choice, earning $600 a month clearing tables or cleaning toilets for 12 hours a day is not sustainable.

Finally, I wonder why this obsession with "progress"?

Another comment about driving investors away with a minimum wage. I'm no economist, but I don't think it's a good idea for Singapore to compete on the basis of "cheap labour", especially in SE Asia. How to compete with say Vietnam who even China can't compete on cheap labour. (Sorry Mr. Tan, I voiced my opinion on this question directed to you.); May 24, 2011 8:50 AM
Kelvin Au said...: Firstly, I just want to state that I'm not denying the fact that there are people out there who don't make enough to make (basic) ends meet. What I am saying is that minimum wage is not the way to solve this.

(1) OK, let's say we implement minimum wage so that lower income earners can 'make a living'. As business owner (of say a restaurant, factory etc), my costs go up, so I raise prices. This will continue, until the costs of living reach a level where the lower income earners can no longer make ends meet - and we're back where we started.

Do we then raise the minimum wage levels again?

The cycle will continue - and the people who will be impacted most are not the well to do (this increase is marginal a/g their income), but more against the poor.

(2) My point on exchange rates is that it should not be wielded as a tool to manage costs of living (as suggested by Mr Tan), per se. There are so many other implications to consider, that this cannot be a tool / solution to manage costs. I've mentioned in my earlier note of the possible effects of lowering your interest rate. There are pros, and there are cons of doing so.

(3) Minimum wage offers an alternative back-stop: There will be people who might take advantage of the system. "why study / work hard - anyway there's minimum wage?" type mentality is risky to the nation. You'll be surprised how many people out there who would hinge on this life buoy. This group will always be stuck in this rut, thereby increasing the income gap even more.

(4) I would like to believe people would like to stand on their two feet as well - although from my experience with people from various walks of life, the scary fact is there might be those who don't think the same way. I dare say that once you introduce a minimum wage system, the propensity to lean on / rely on it will increase.

Also, once minimum wage is introduced, the only way is up. There is no way you will ever reduce or dare I even suggest - remove it.

I'm not obsessed with "progress" - but I think it's fundamental to our survival. It's a very tough world out there. We just need to be complacent for a couple of years, and we may find it impossible to catch up with the other nations around us. It will ultimately affect your way (and quality) of life.

I know where your heart is - and I agree with you that something needs to be done to help those who have fallen through the cracks.

I am saying that minimum wage is an "easy" way out - it might solve the issue in the short term - but not in the long term.

I don't have a solution to this problem - but I feel that any long term strategy or solution that does not add or generate value is not going to be the right one.

I don't really understand your last paragraph.; May 25, 2011 10:29 PM
hanglian said...: Thanks Kelvin. You have some points there. Without implementing the system, we can't tell what's really going to happen. It's not a new idea anyway, there must be some merits since many countries, especially developed countries are implementing a minimum wage.

I'm not a Singaporean and I now live in a place where minimum wage is implemented. Apparently I'm not seeing the cost of living spiraling out of control as a result of the minimum wage here. But I can't say it won't happen elsewhere.

The last paragraph was a view on another comment (not by you, but by yingzhi @ May 23, 2011 10:46 PM).; May 26, 2011 9:40 AM