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There has been a call, paved with good intentions, for “
” law to be passed in Singapore. This article, equally fueled by good intentions, wishes to address holes in the arguments for it and present the reasons against it, including alternatives measures. Hear me out, hop on board this unnecessary journey with me, and let me have your thoughts.
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If we had it our way, as in the way of most beauty pageants, there would be no poverty and world peace. So let’s (hypothetically) heed the call and pass a law on minimum wage
oh, what a beautiful concept! and help out the lowest rung of society; working-poor. Because:
higher mandatory salaries = happier families
increased spending = more robust economy… Right?
Wrong.
1. The comic in Economics
Quick lesson in Economics here on this throwback Thursday.
Q: Wages are determined by…?
A: People
(individuals attempt to sell their labour to the highest bidder, and employers seek to purchase skills needed at the lowest available price)
Q: Wages vary according to…?
A: Demand & Supply
So for real wages to rise, there is only one real way: Workers must become more productive – either be through education, experience and effort, or if employers increase investment in production. Now if a law on minimum wage is passed instead, without increase in productivity, then you haven’t achieved wealth creation; what you have created, instead, is wealth redistribution.
2. So Who’s Really Paying for it?
Great, you say. That’s like a pretty cool Robin Hood move right there, no?
Again, wrong.
Once you peg a dollar sum to every hour of labour, the very people you set out to protect look set to get in trouble.
What will likely happen to: –
– The Young
Logically speaking, the employer will then favour experience. Young, first-time job seekers will not get employed and in turn not gain experience – a viscous cycle. Or they could be exploited – they could be paid more, but are not because hey! There’s a minimum wage I only need to pay!
– The Experienced
Those who have surpassed the pay-bracket face the chopping block and their productivity will be called into question. Or déjà vu they could be exploited – they could be paid more, but are not because hey! There’s a minimum wage I only need to pay!
– The Discriminated
Say two people with same skill-set apply for same job, without being able to use economics as a criterion, employers may exercise non-economic preference. Remember how you always suspect your hot friend got the job because he/she was, well, hotter? Well.
– The Unproductive
They will show up like semen stains under a forensic UV light and be wiped out; made redundant. Get prepped to face an increase in unemployment figures.
– YOU
Inflation alert. Setting a wage base will push up the costs of individual businesses. If they are unwilling or unable to absorb this cost, especially if these costs don’t lead to productivity or value – it will be passed on flatly to consumers in the form of higher prices.
3. So we have ended nothing, and started something
What’s next?
Then we’ll have to set up a policing team to see that companies don’t try to game the system with “indie contractors”, “overseas outsourcing”, “extended probation”, “exploited interns”, “unpaid overtime”… because if Singapore is truly such a nasty place that we have to enforce a minimum wage, then those are the next likely steps of nasty businesses.
On top of that, might the Government then justify a withdrawal of funding for community projects/ outreach programs?
And then in a few years, when the minimum becomes the barely minimum, do we simply increase it again? (And history has shown us that we don’t just increase it without a bit of social disturbance, or violence)
4. At the end of the day, could it be Political Rhetoric?
In a paper published by American economist and policy analyst Matthew B. Kibbe, he states:
“Minimum-wage legislation is and always has been the result of special-interest politics. Behind the rhetoric of economic justice and fairness lie purely self-serving political considerations… The simple truth about the issue is that any minimum-wage rate that is forced onto the market will have only negative effects on the distribution of economic justice…”
He concludes by saying:
“… Governments cannot create wealth by simply passing new laws… In such a world, everyone could be a millionaire. But ours is a world of scarcity, and wealth is a product of the market process, not of legislative fiat.”
Minimum Wage is a romantic concept, truly. Once you hear these 4-syllables, you cannot unhear it. If you’re a true people-lover, it even becomes a mission. It’s an ideal. It’s utopic. And the fact that historically it has been used as a political tool monopolizing the ethical high ground is just absurd. Or is it not?
5. Less Discussion More Solution Please
I hope I have been able to express how dangerous it might be when we invite governments to hold the joystick to determining market forces.
Will they do a better job than industry experts? I doubt. It’s like sending a juvenile caught stealing to the supreme courts. It is too high-level/extreme a solution for a community issue. Pressing the powers to be to come up with a number – a specific dollar sum deemed decent for every hour of work – is a tall order. What is a good number? $4/hr? $8/hr? $15/hr? I honestly don’t know. Do you? After all, they are lawmakers, not economists, and they are, brutally honestly, not realistically in touch with how 1% of society might be struggling to make ends meet. But let’s face it, neither are you nor I. But assuming we all wish to do good, and love fanning that kampong-spirit fire, perhaps what we can do instead, is encourage (pressure) the powers to be to come up with tailored measures to meet specific objectives.
In Singapore, proponents of minimum wage
have yet to put an actual figure or an implementation plan forward, for the obvious reason: it’s easier to be an armchair critic. To borrow two chinese idioms that come to mind, we have to stop 纸上谈兵 (discussing war tactics on paper) and对症下药 (offer a specific prescription for a specific diagnosis).
Imagine the govt as the shrink counseling the relationship between you (employee) and your spouse (employer) Nothing more. Not your parent, not your mistress, just a shrink. They can’t tell you what to do, but they can enable and facilitate discussion amongst relevant experts, actual players and workers, and solutions might form, for example:
1. Instead of Minimum Wage
– which I liken to issuing a blanket to all without checking the temperature, I much prefer a system that forces employers to pay more than a minimum. To pay progressively more as one matures in a job – A more tailored warmth program for those in the cold. Those who need mittens get mittens, those who need scarves get scarves. (Editor: Read our articles on “Progressive Wage”)
2. Incentivize companies who employ at the recommended rates and quota. Build a robust security for those in that 1% bracket. E.g. review their pay-raise scheme, their exit clause, their health insurances, etc.
3. Bring in the unions I say! And seriously entertain and deliberate industry-specific recommendations by union leaders.
3. A more complex algorithm approach. Review all low-income jobs provided they are held by the elderly, and/or diabled, and/or head of households and set up an incentive program to make sure the lowest wage meets livable standards.
4. The proposed minimum-wage legislation is a shortsighted policy that cannot truly achieve the stated goal of raising the real income of the poor. But do we stop trying to help each other out? Absolutely not. Any other suggestions?
[plinker]
