Behind Singapore Inc. (Part I): The growing class of 'working poor'

Former GIC chief economist Yeoh Lam Keong shares his views on the cogs running behind "Singapore Inc.". (Yahoo! photo/Jeanette Tan)

In a wide-ranging interview with former GIC chief economist Yeoh Lam Keong, Yahoo! Singapore’s JEANETTE TAN finds out what he thinks are the key challenges Singapore faces in its quest for continued economic development. This is the first of a three-part series that dives into some of the country’s key policies and governance.
[Read Part II and III of this series.]

Could Singapore’s immigration policies over the past 15 years have created a separate, growing class of poor citizens?
Former chief economist to the Government of Singapore Investment Corporation (GIC) Yeoh Lam Keong believes that may be the case.
Using a term he calls “the working poor” — a term he uses to refer to the bottom 10 per cent of working household breadwinners, who hold full-time jobs, but yet find themselves entrenched in the poverty cycle – he said, “In other words, even if you’re fully employed, you may barely earn enough money to bring up a family decently or to improve your children’s economic opportunities.”
“It’s a poverty in work, as opposed to poverty because you don’t have a job,” the 54-year-old said during a recent one-hour interview with Yahoo! Singapore.
A seasoned economist, Yeoh understands more than most the interconnected nature of so many of Singapore’s policies, with the multitude of factors involved in dealing with employment and wages alone.
A former schoolmate of Deputy Prime Minister Tharman Shanmugaratnam’s at the Anglo-Chinese School, and later the London School of Economics, Yeoh spent almost all his adult life working on government  economic policies.

Involved in starting up the Economics and Strategy Department at GIC, Yeoh rose through the ranks to become chief economist, enjoying his work there so much that he stayed there for 26 years before leaving in June last year to spend more time with his family and his first love -- nature and the outdoors.

Zooming in on the hot-button point of the country’s immigration policy, Yeoh went on to explain that mass immigration of foreign unskilled workers has depressed the wages of working-class Singaporeans.

Industry-level salaries for these workers have stagnated against rapid inflation over the years as local firms hire more foreign workers who are willing to accept lower pay, and locals are then forced to accept little or no increases in their salaries to keep their jobs.
“Therefore this policy needs to be reversed. What we need to do is be much more stringent on admitting such unskilled labour,” he said. “We’ve really got no excuse to be so relaxed about this kind of immigration.”
Doing so, says Yeoh, will compel companies here to up their productivity levels through mechanisation, automation and re-organisation. This, in turn, will result in them relying more heavily on skilled labour, hence improving cost, productivity and more importantly real wage structures.
Helping the ‘working poor’ get by
Naturally, a process like this requires time — years of it, in fact — and Yeoh says some things can be done to help the working poor in the meantime.
For one, he advocates an immediate hike in Workfare payouts to allow all low-wage workers to take home at least $1,500 a month.
Currently, Workfare supplements are offered in proportions to the amount of income earned and the age range of the worker, ranging from between $360 and $600 annually for people earning $200 a month or less, to between $1,050 and $2,800 a year for those earning $1,000 per month.
The figure decreases as income increases, up to a threshold of $1,700 per month.
“What you can do is raise your Workfare payouts so that everyone takes home at least $1,500 and above (per month), and then gradually you can phase these out as productivity and real wages catch up in the longer run,” he suggests. “So you solve the poverty problem first by the government paying for it, and over time you let employers pay for it when they upgrade productivity and can afford to.”

This, he says, might be a more palatable option which achieves the same objectives set out by former National Wages Council (NWC) chairman Lim Chong Yah, who earlier this year proposed a “wage shock therapy” plan to increase the monthly salaries of low-income workers by 50 per cent over three years (a period that Yeoh feels is a bit too fast) while at the same time freezing wages of those who earn over S$15,000 a month.
Lim’s proposal drew the wage debate sharply into focus, with the government countering that his proposal contained serious hidden risks for the economy such as structural unemployment and higher cost of living due to higher business costs.
Yeoh said the additional cost from increasing the Workfare Income Supplement (WIS) should fall well within the government’s affordability range — a figure he estimates to be below 0.5 per cent of GDP per year.
“In this case, at least there is burden sharing,” he says. “The first instance, between labour and the government, and the second, between labour and company.”
Revisiting the minimum wage debate
This, though, is where Yeoh feels that minimum wage legislation may have to be introduced, to ensure that employers don’t cut back on pay in the wake of the government increasing workfare payouts.

The government has long opposed the imposition of a minimum wage, arguing that it would cause unemployment, although earlier in May, it accepted the NWC's proposal for workers earning less than S$1,000 be given a pay increase of $50. The council had also recommended firms to give a built-in pay rise to all workers this year to help them cope with inflation.
Yeoh, however, said a minimum wage does not necessarily create job loss “if it’s not an aggressive rise”.
“Most countries have a minimum wage, and it has not created unemployment significantly unless you make (the rise) too aggressive,” he said. “But what you’re doing here is not making it aggressive, you’re just making sure the increase in WIS (workfare income supplement) is not taken back by employers cutting wages. So that’s a different angle.”
He acknowledges the immediate challenges this will pose to local small and medium-sized businesses (SMEs) here, however.
“The problem is when you restrict foreign labour, the firms better able to deal with this will tend to be the larger firms — which tend to be foreign ones, and the smaller, local SMEs will tend to lose — so the economy will be hollowed out of SMEs and grow at their expense,” he said.
How to tackle this? Through “intelligent intervention” on the part of the government, Yeoh says.
“It needs to give them tax breaks, capital allowances; it needs to give them technology consultancy in terms of extension services, and setting up different industry centres to disseminate the technologies to them… because large companies have these facilities in-house already.
“This is a major adjustment process, so the government needs to facilitate this,” he says, referring, for instance, to the fact that workers lack unemployment insurance protection when they are transferred out of industries and companies.
“They’re not giving enough workfare so people can get up to that standard before the companies have a chance to adjust (to changing labour immigration policies)… They’re not supporting the workers, (or) the companies (sufficiently) either,” he said.
“So all they’re saying is, ‘Okay, turn off the labour taps!’ and they think that’s it, but that’s not it. There’s a lot more.”
In Part II of “Behind Singapore Inc.”, Yeoh talks about ways in which the government can tackle the current housing crunch, and improve the affordability of healthcare and education.