More productive = More Wage. Really?

 

Can productivity increase really lead to wage increase?

When there are employers like Douglas Foo of Sakae now offering $3,000 for cleaners, it hardly seems that wage has anything to do with productivity. While the offer by Sakae has been criticised as a publicity stunt, there is some truth to the labour crunch in the cleaning sector. At an average monthly pay of $850, for what many would regard as a dirty job, it is no wonder that employers find it hard to attract locals. There is definitely pressure to raise wages, whether or not there is productivity.

Our Government and unions seem to think that wage increase should only be based on productivity increase. This has been the key reason for defending their position of no-minimum-wage. The well-known principle for this is one of the free market:- that we should allow wages to be free to move along with market forces. Therefore the way to increase wage is to increase the value of the job, through productivity improvement. Supporting arguments include, that if minimum wage set too low it will lead to sticky low wages (wage will be stuck at the minimum level since that is the minimum expected), and if set too high, it’ll drive off investors because labours costs will drive up business costs.

On the other hand, proponents of minimum wage by opposition camps, or the famous “wage-shock” therapy proposed by Professor Lim Chong Yah, says that productivity don’t always drive wages. Professor Lim’s point is that productivity has indeed risen over the years for low wage groups, but wages have not caught up, due to depression by FWs. By setting some form of wage level, whether through legislated minimum wage, or a short-term wage shock, it can also drive productivity.

This logic can also work, because when cost per worker is high, business will be motivated to increase productivity to squeeze higher revenue or value from each worker. In other words, businesses can also innovate and adapt to higher labour costs. The question therefore seems to be, in today’s globalized world, where labour and capital are increasingly mobile, how much of labour cost increases can our economy stomache before we become uncompetitive?

I’m not an economic expert, so I’m attempting to discuss this from a layman’s perspective. The determinant of wage can be quite simply how much someone is willing and able to pay, in exchange for what a person is willing and able to put in as ‘labour’. So generally speaking, wage levels can be determined by the relative bargaining positions of employer vs worker. This is in turn determined broadly by (1) demand-supply, (2) productivity of labour, and (3) labour-employer relations.

(1) Demand-Supply

If we look at the demand and supply of labour, two things are happening with globalization. Capital flows easily from place to place so business are always on the look-out for cheaper, better and faster places to earn money. Labour, also flows easily as people can move more freely from places to places to work. So to give workers a stronger bargaining position for wage to rise, the Government should either limit labour supply, or find a way to lock in capital investments to keep demand for labour strong.

For the supply side, Government is already doing so, and the manpower squeeze is already yielding some results as we see pressure for wage at the bottom to rise, as seen rather clearly in the case of Sakae sushi. For the demand side, this depends very much on our investment environment. For now, Singapore still has competitive edge due to its connectivity and system integrity, but these are easily replaced by a hungrier competitor. It is also becoming increasingly difficult to run a business here, where land is scarce, raw materials are scarce, and now manpower will become more scarce. If we fail to keep demand for labour strong, even if we tighten supply, wages will still fall.

(2) Labour Productivity

In a rather direct manner, labour productivity increase does raise the value of labour to employer, therefore justifying higher wages. But even with productivity, and added value, if businesses’ bargaining position is strong and labour weak, business creams off the value. Or in Singapore, a common scenario is that the landlord creams it off eventually by raising the rentals.

To prevent this, I applaud the Government’s ingenuity in creating the Continuing Education and Training (CET) framework which sets basic skills standards for industries. By requiring skills for jobs, this limits the supply pool of labour, giving workers better bargaining position when negotiating for better wages. At the same time, this keeps Singapore competitive, keeping the demand for labour high.

(3) Labour-employer relations

In Singapore, we have a rather unique way of managing the bargaining powers between employer and worker, through what we call “tripartism”. Unions generally adopt the attitude that industrial actions will hurt Singapore’s economic competitiveness, and so should be avoided in the interest of keeping jobs. Bargaining rights are instead given through legislation, by signing of collective agreements with employers and requiring compulsory mediation/arbitration during disputes.

The advantage of this is that it gives workers a peaceful avenue to resolve grievances and negotiate for better employment terms. This works if labour always has something to negotiate with, and better productivity can be one of the bargaining chip. This is where, productivity improvements, either through better skills or raising the value per worker, will result in better wage.

The disadvantage is that workers’ interests may be compromised in the interest of upholding industrial peace. For e.g. in situations where productivity simply cannot improve unless the whole industry structure changes, the worker loses their bargaining chip. This is where, it is then important for the 3rd leg of the tripartite partnership – the Government – to step in to correct the industry structures.

So the way I see it, today’s debate over how to raise wages can be a little too simplistic without understanding how the pieces fit together. Whether Singapore workers can enjoy good wages depend on whether the various factors that affect bargaining positions of employers and workers are managed well. Industrial peace, tripartite cooperation, keeping our competitive edge, all plays an integral part.

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yana

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5 Comments

  • Hi Yanna,

    Thanks for writing this article.

    As a Singaporean who works directly as a cleaner and runs a cleaning business in Australia, I think more can be done for the cleaners working in Singapore, especially from a wages point of view.

    Singapore is known for its cleanliness being second to none, which is has made it a rather attractive place for tourists, professionals and businesspeople. Psychologically, the visual appearance of cleanliness also provides a sense of public safety, in my humble opinion. We need to give more appreciation and recognition to this job that has helped to transform Singapore from a small, developing “Kampung” nation to a sophisticated, high tech developed garden city.

    A cleaning job is indeed a dirty job and requires an eye for detail, not to mention physical exertion & dexterity and also efficiency. I can personally vouch for that and professional cleaning is by no means an easy task. I observe that many cleaning positions held in Singapore are performed by foreigners from developing countries and often,for Singaporeans working in such roles, they tend to be people above the age of 45 (but more so in their sixties and beyond). I can only imagine how physically tiring it can be for senior stuff. As a rather fit 33 yrs old female, my cleaning routine averages no more than 6 hours a day and that itself is tiring enough for me. I try not to work more than 5 days a week because the weekends are typically used to recuperate from my week of physical exertion.

    In Australia, there are minimum wages for cleaners but they may vary slightly for different states. There are also categories for different types of employments, which include 1) full time (38 hours/ week and full time employment benefits); 2) Part-time (ie less than 38 hours/week but entitled to a pro-rata annual leave benefits) and 3) Casual ( called to work when needed, no employment benefits but compensated with a higher hourly rate),

    On top of that, hourly rates for the 3 types of employment for cleaners will also be determined according to the following:
    – different levels of skill competencies (Level 1, 2, 3);
    – Day Shift vs night shift;
    – Working on a Saturday;
    – Working on a public holiday.

    The hourly rate ranges from the above from (as at 1 July 2011) A$19.06/hr to A$49.67/hr gross (including super and tax) depending on type of employment and days worked.

    However, the MINIMUM Wage in Australia stipulated for a basic Level 1 employee is a minimum weekly rate of $629.50 or $16.57/hr. Our business pays $20/hr and will look at a discretionary bonus to reward anyone who exceeds their performance. As part of the expansion plan to minmise staff turnover and award high performing staff, we have also planned to incorporate a sign on bonus post the 3-month probation of the new staff and look at giving an incremental sign on bonus based on the number of years the employee is willing to sign up with the company ie. 1 year or 2 year.

    A few months ago, I was surprised to hear from a friend in Singapore that she read about how an elderly lady who worked as a cleaner for more than 20 years in the same company had only a $50 monthly wage increment within the last 15 years up to her retirement. Singapore’s living costs is very high and being paid $850/month before taking out 20% CPF is NOT enough for anyone to survive, with daily expenses such as food, transport, miscellaneous and possibly rent. There will be NO room for savings which means to say the poor will always be stuck in a poverty cycle.

    I sincerely do hope that the SIngaporean government and the relevant groups will come together to work on a minimum wage agreement for cleaners who are so under-appreciated in our “CLEAN”” society and show some appreciation for the excellent work they have done to contribute to our “”first world, clean, safe and efficient” image internationally.

  • On “how much of labour cost increases can our economy stomache before we become uncompetitive?”, I would like to proffer this from a business owner’s point of view within the cleaning industry.

    I feel strongly on this one.

    At the heart it, the cleaning industry’s labour market is highly mobile due to a high turnover of staff. Why is that? As someone who used to work within the human resource sector in my recent past life in the corporate world, I think it is due to the following:

    – The cleaner is perceived as “replace-able”‘ in his/her position both by himself/herself and by the employer;
    – The cleaner found a better paying job that allows him/her to make ends meet better;
    – The cleaner feels unappreciated.

    Most businesses would agree that employees are their biggest asset. Without them, there is no enterprise. But many fail to relate that an employee’s productivity and hence a business’ profitability, is often related to the employee’s morale. I once read from the Gallup Review that people don’t leave their jobs, they leave their managers. What does that say?

    It means that often a person’s decision to switch jobs or leave their current employment is a highly EMOTIONAL decision. This is closely linked to how well they feel appreciated by their superiors and perhaps how well they get along with their colleagues. People don’t often leave their jobs for a slightly higher pay if they “feel happy” in their work environment.

    So with that said, a business should take a holistic view in the way they view the productivity and hence profitability of their business. Low staff turnover means greater stability and ensures a longer term success and viability of a business. To achieve that, creating a culture of rewarding staff for their good work (be it thru a competitive remuneration structure of yearly salary review, discretionary bonus, training opportunities, simply awarding a “Best Staff of the Month” badge to make them feel proud, team building day out or even massage vouchers as part of staff benefits) are ways to boost the morale of employees, leading to happy staff, which can lead to greater productivity and a more competitive business model.

    Not until a business is willing to invest or show appreciation to its staff and start taking genuine care of their interests, they will not be engaged or interested in helping the business grow. After all, it is every man for himself.

  • Tks DilettanteP for your comments. Indeed I hope we take a hard look at how to change the wage structure for cleaners, and give proper respect and recognition for the essential role they play in society. If the work can be dignified, I’m sure more people will be open to it.

    Minimum wage may still not be the solution, but at least if we look at how everything piece together, we can see that the debate isn’t one of whether there should be minimum or no minimum wage. It’s how to influence the bargaining positions, and then we examine what are the levers to use.

    For cleaners specifically, there may need to be more public education on the way we treat them, recognising the value of their jobs, and also give cleaners more bargaining power. The industry practices of cheap out-sourcing also needs to be curbed.

    And totally agree with Orange, dilemma!!

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