To combat low wages, we have a work income supplement called “Workfare”. In time to come, we will see stronger support for low wage workers via Workfare. Have you wondered why Workfare continues to be supported while we continue to shy away from minimum wage? Isn’t minimum wage an easier tool to use? Well, maybe not quite.
The introduction of a minimum wage will invariably result in increased levels of inflation and unemployment. I explained this phenomenon in my article “The Attractiveness of a Minimum Wage” in The Expository back in August (link). In that article I also asserted that a minimum wage is attractive because it confers benefits to a larger pool of individuals at the expense of a weaker minority. As a result, it is an undesirable policy option that should be rejected on both economic and moral grounds.
I faced some criticism as a result of that article from several readers who believed that I was too dismissive of the policy and had failed to consider the economic empowerment of low-wage workers that could result from it. It is important to first clarify that I do not suppose that the minimum wage policy is devoid of any merit; I merely find the across-the-board initiative put forth by the main proponents of this policy to be unacceptable. In this article, I hope to provide a more nuanced stance towards the issue.
A minimum wage policy can result in economic empowerment for a disenfranchised, low-wage minority who face a combination of little negotiating power and very low wages. However, to avoid its potential harms, several things must be taken into account.
First, if a minimum wage were to be implemented, it must not be, in both perception as well as in practice, a populist response to public pressure. Instead, it must be accepted as a calculated policy decision reached at by the government only after a period of intense scrutiny. This clarification must be made from the start. If the government adopts a mentality, or introduces a trend where imposing a minimum wage becomes simply a matter of acquiescing to the demands of the majority, there will be a significant propensity for the policy to become a populist tool, aimed at attracting votes and possibly leading to severe economic consequences. The practice of raising the minimum wage to win votes is widespread in many western countries. We should ensure that we do not tread down that path.
Second, it cannot be across the board, but targeted so as to accomplish certain pressing social objectives. The minimum wage, if implemented, should only be to help the most vulnerable in society. This group does not consist of all workers, but workers in industries that consist of mainly elderly, poorly-educated Singaporeans who are most at risk of abuse from their employers. Many of these elderly workers have played a part in Singapore’s economic transformation and restructuring in the last half century. Sadly, it is the exact same economic restructuring they helped engender that rendered their skills obsolete and pushed them to the lowest end of the economic spectrum. A minimum wage, in this case, will no longer serve as an economic tool but a social one, a sort of redistributive apparatus that protects individuals who have been left behind as a result of the rapid economic transformation that benefitted the rest of society.
Third, if a minimum wage were to be introduced, it should not be too high such that it exceeds its purpose in protecting low-wage workers and begins to distort the market, leading to an increase in unemployment.
Fourth, the minimum wage system must never become a convenient way to evade the fundamental issues that threaten our economy. The policy merely alleviates the symptoms of these underlying problems but do not solve the problems themselves. Productivity and the deflation of wages due to foreign labor are examples of issues that still need to be addressed.
Finally, there must be counter-measures to protect low-wage workers from unemployment. The negative consequences of higher inflation levels from a limited minimum wage system will be a small concern compared to low-wage unemployment that will most likely result. Possible options include the creation of greater awareness of employee rights, increased support and involvement from NTUC and the NWC and making legal aid more accessible for low-wage workers.
In conclusion, Singapore can gain from a targeted minimum wage system. However, if this were to be implemented across the board, or if the minimum wage were to be raised over and over again due to populist pressures, or if people begin to see it as an entitlement, there will be severe consequences for the Singapore economy. Unless we are able to find a system that maximizes the benefits of a minimum wage, and minimizes the costs, then we are better off not having a minimum wage at all.