Breaking taboos for wage increases

This year’s Budget demonstrate a more pronounced effort to tackle income disparity, and raise wage levels. 2 things in particular jumped out at me:-

a) Increase of Workfare Income Supplement (WIS) criterion from $1700 to $1900

b) Wage Credit Scheme

Well workfare is nothing new, but wage credit – WOAH – that’s half slaughtering a sacred cow. We’re subsidizing wage? But before I go into that, I’m more excited about the shifting of $1,700 to $1,900.

Workfare, if you understand how it works, is already halfway a subsidy to wages. You work, earn say $1200, then Government tops it up for you with a supplement. By raising the bar to $1,900 as the cut-off for WIS, more workers will benefit with this top-up. This is kinda like helping the 4-legged starfish get back to sea isn’t it? …  :)

I’m happy with this move, but just a caution that while we have put the 4-legged one back, there are the 3-leggeds, the 2-leggeds, and of course I have to stress, we should consider the bigger eco-system.

If we just blindly churn all these starfishes back to sea and forgot to watch the balance in the ocean, we are going to run into other issues as well. One I can immediately think of, is whether a wage-support scheme funded by taxes is sustainable in the long run, without fixing cost of living issues, and sustaining the overall growth engines of the economy.

Which brings me to the wage credit scheme. It’s breaking a long-considered taboo area in policy-making – giving a direct wage support and not shy to announce it openly. I mean, we’ve tried various ways to give wage support before, but usually in more subtle manners and always tied to some form of work performance targets.

E.g. there are schemes that put people into jobs first, get them trained in the first 6 months or so to get performance up to mark, and during this training period, a wage-support co-funded with company is given. There were also work-trial schemes where companies can ‘try-out’ a worker and during trial, wage is supported.

A wage credit, in the form of co-funding wage increases directly without any strings attached is unprecedented. I applaud this – it squarely puts the responsibility of wage increases on companies, and supports the company in doing so directly.

The assumption is (I assume), if company is willing to foot wage increase, worker must have met some form of performance target for the company.

Past funding schemes often only supports companies in making more money, and assume that if company grows, wages grow. But too often, these gains are simply passed to shareholders, to increased rentals, to utilities, and never wages. This scheme would therefore ensure gain-sharing through wage growth.

But this scheme can only work well if wage gain is sustained by actual growth of company and actual performance by worker. If companies have to raise wage simply due to labour shortage (which is happening too due to tightening of labour supply), and labour cost increases are not in the long-run offset by actual company growth or backed by worker skills, then we’re on a slippery slope.

It would be important, again, that we’re not just throwing starfishes blindly, but examine the eco-system of wage determinants, and plug the gaps as they occur.

It’s perhaps early to tell if the above efforts will work or cause other undesirable effects on the economy, but this reflects a determination by the Government to break out of its shell of policy taboos and tackle problems in more direct ways.


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