Saturday, May 17, 2014

How to determine a fair wage?

What is a fair wage? How is this to be determined? The answer to this question is important, as it sets the foundation for a fair and vibrant society. 

There are three main methods to determine the fair wage, as adopted by most countries:

a) By collective bargaining between the the workers and the employers
b) By government decree
c) By leaving to market forces

All of them do not work well. But it seems that method (a) has a better chance of working well, as shown is some successful countries, such as Germany.

Singapore follows method (c) and the results have been quite poor, leading to a high wage disparity.

In my view, the right answer is a combination of the three methods, and to use the modern tools to achieve it. A wage panel can be formed to determine the recommended wages for the various types of jobs, after considering the inputs of the workers, relative difficulties of the jobs, and adjusting the wages yearly based on supply and demand (i.e. market forces).
Employers are allowed to employ workers within a margin from the recommended wages.

1 comment:

Tan Choon Hong said...

Dear Mr Tan,

On the surface, SG is following “c) By leaving to market forces.” In practice, market forces have been curtailed by the government through the wholesale import of low wage workers to increase the supply of labour. Otherwise salaries of the workforce would have been much higher due to the limited population size and workers would most likely have achieved the promised “Swiss standard of living,” not just the elite. Also pro business policies and neutered unions do not help market forces to come into effective play.

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