FT policy may have helped widen income gap: panel

Government policies to draw foreign talent into Singapore likely helped widen the income gap in Singapore, a study by the Institute of Policy Studies (IPS) found.

"Rising tide of foreign workers almost certainly impacted wage growth at parts of the income distribution and thereby worsened inequality," said Manu Bhaskaran, adjunct senior research fellow at IPS who chaired a panel on "Economics: Business as usual, no longer?" for IPS’ seminar on Monday.

Making a similar observation, Paul Cheung, director of the United Nations’ Statistics Division, said that while the influx of foreign talent and workers brought a significant boost to the country’s gross domestic product (GDP), it also indirectly contributed to greater income inequality, 

The top tenth of Singapore households in terms of total income saw such income rise from 27.4 per cent in 2000 to 29.4 per cent in 2010, whereas that of the rest dropped over the period, he said. Households in the bottom 40 per cent saw their total income decline by 1.6 per cent, he added.

Cheung questioned the desirability of Singapore continuing to rely on cheap foreign labour to remain competitive as he pointed out that heavy reliance on foreign workers will not lead to increasing wage shares for Singaporeans.

He also highlighted the challenges faced by highly educated Singaporeans. In 2010, one in three permanent residents (PR) were aged between 30 and 39 in Singapore, compared to one in five in the same group in 2000, and many of the PRs had tertiary education background.

Singaporeans in this age group can expect the employment landscape to be more competitive and find it harder to move from their current income level to another, Cheung said.

“There is a high degree of anxiety among young professionals on whether they can make it in Singapore (and) whether the government is prepared to give them a fair chance in this touch competition,” he said.

“If the middle-class feels that you work so hard and then you try to move up the income ladder but then lo and behold, you‘re competing with all these permanent residents – where’s the home court advantage?” he added. 

However, Chua Hak Bin, director of Global Research at Merill Lynch, said last year’s Budget has helped to even out some of the differences when the government imposed stricter immigration laws and higher foreign worker levies.

Chua noted that the income inequality gap remains large despite special government transfers. More measures are necessary to help the lower income group, he added. 

Also discussed during the panel was the adequacy of the current Central Provident Fund system to provide for Singaporean workers. 

Those in the lower income group are especially at risk as their CPF will not provide sufficient savings for them in their retirement, and the situation is made worse by major withdrawals such as housing purchases, said Professor Hui Weng Tat, associate professor at the Lee Kuan Yew School of Public Policy.

Assuming that HDB purchases made at age 30 at the maximum price supportable by CPF contributions with two spouses contributing to mortgage payments, the income replacement ratio would drop to between 17 and 28 per cent for the different wage groups, at the retirement age of 65.

This would mean that a person with post secondary education earning $1,500 as his starting pay at 22 years old can only expect to live on 45 per cent of their last drawn pay when they retire. If only one spouse is working and repaying mortgage, the effect would be doubled.