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COMMENT: Is a minimum wage really that bad for Singapore?

Labourers work on a building construction site in Singapore. (AFP file photo/Roslan Rahman)

Minimum-wages is a “zero-sum game” and “an easy solution”. At least that’s what Minister in the Prime Minister's Office and National Trade Union Congress chief Swee Say says.

While more than 90% of countries, ranging from developed nations such as the US to neighbouring countries like Malaysia, have seen merits in implementing minimum-wages, policymakers in Singapore continue to insist that such a system is not suitable for the island state.

We look at some arguments commonly brought up against minimum-wages, and explore whether they are really relevant to Singapore.

1. Minimum-wages will cause some sectors to go bust…

Unknowingly, advocates of this statement indirectly support sectors (or businesses) that are so irrelevant, they apparently cannot even afford to pay minimum-wages.

If a sector (or individual businesses within a profitable sector) is so unproductive from an economic standpoint that it cannot even afford to pay the minimum wage without going bust… then it really should just go somewhere cheaper.

Let’s be realistic. Singapore is both an expensive country to live and to do business in. You cannot choose one yet ignore the other. If companies cannot even afford to pay $1600 a month to an employee, how do they expect the employees to take care of themselves? The bills for housing, transportation, food, medical, childcare, education and other daily necessities will not just take care of itself.

Simply put, our view is that with Singapore being such an expensive country to live in, a company that cannot afford to pay the minimum wage (be it $7 an hour or $1600 a month) should not operate within it. And let us not get into nonsensical debates of how $1000 a month is sufficient to allow you to own an HDB flat.

2. Minimum-wage discriminates against low wage, low-educated workers.

According to people who say this, DollarsAndSense.sg discriminates against the older and less educated citizens in Singapore. We disagree.

The same people conveniently ignore the fact that companies who hire low wage employees can innovate, and will do so if business environment forces them to.

Take for example maintenance work done on our roads. Frequently, we see three workers needed to help direct traffic when lanes are undergoing maintenance work. Two workers would stand on either side of the road holding signboards, while the one in the middle would coordinate. Surely that can’t be the most productive use of labour?

If the costs of employing workers increase, companies will find it more cost effective to utilise technology rather than have a larger but less skilled workforce. This results in the same job function needing only one worker in the future, a three-fold increase in productivity, and hence the increase of worker wages being rightly justified.

So if higher productivity of workers leads to less overall jobs being created…

3. Will minimum wages lead to lesser jobs being created?

The more accurate question to ask is… creating fewer jobs for whom exactly?

An article from Bloomberg last year reported that about 70% of all jobs created in Singapore went to foreigners. The remaining 30% that went to “locals” included PRs as well, meaning actual percentage point that went to citizens is even lower.

So while minimum wages may naturally lead to fewer jobs being created, will Singaporeans actually be the ones losing out? Or would we just be creating fewer jobs that would have gone to foreigners anyway.

Having minimum or higher wages in some sectors may even encourage Singaporeans to reclaim jobs that have in the past decade gone to foreigners. We know of Singaporean friends of ours who are happy to work in the service industry while schooling overseas as there is a minimum salary of about $12 per hour (after tax). These Singaporeans will not consider taking on the job in Singapore because the pay is too low.

The simple truth is that foreigners coming from developing countries such as India, China and the Philippines can afford to take jobs that pay lesser due to the lower cost of living in their home country. Singaporeans cannot compete with them. The average monthly wage in the Philippines is about $280. Do we really want to compete with that?

Disclaimer and conclusion

We are not xenophobic and the point of our article is not to advocate shutting down the foreign workforce in Singapore. Neither are we claiming that minimum-wages by itself will solve all our income inequality problems overnight.

We do however want to highlight some frequent arguments made against having minimum-wages, and give you our opinion on why the effect of implementing minimum wages here might have been exaggerated.

We know there will be many clever people who will disagree with us, some of whom will be economists and professors who can easily cite empirical evidence to disprove our pointers. We will let you, Singaporeans, be the judge of it. At the end of the day, it is not like we are trying to fix a system which isn’t broken, Singaporeans think it is broken, and this is one solution.

Timothy Ho is the co-founder of local finance website DollarsAndSense.sg. This edited article was first published here.

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