Don’t horse around with wage legislation

 

 

Minimum wage is a beast. And it comes in a wide variety of species.

Each species has a character and a personality a government must manage. If you want to ride a horse, you cannot just jump on a wild stallion and expect it to respond to you. It will throw you off and kick you in the face.

It is not useful to get into a technical debate about the pros and cons of minimum wage because there are sufficient studies to support both sides of this argument. The further you argue, the more it becomes a belief rather than a science: the more it becomes politics.

And which version of wage legislation to use then? In some countries, unions lead wages through collective agreement (a practice that Singapore has done for so long). In others, they practice sectorial minimum wage. Germany simply makes it illegal to pay an “immoral wage”.

Which of these minimum wage species would Singapore need for a vigorous labour shake-up?

The NTUC has chosen to adopt one that is called “Progressive Wage”. Minister Tharman has made very clear – the country is not adopting a national minimum wage. We are not irresponsibly trying to mount a wild horse, one which we cannot tame. One that may pose risks to the nation, its taxpayers and injure the very people we are trying to protect.

We are adopting a beast that we can control: sectorial specific, bargainable by unions yet with enough legislation to provide a quick wage lift… and progressively increasing salaries after that.

I have read callous responses toward minimum/progressive wage from opinions on the internet. Here is a small collection of some of them:

Minimum Wage/ Progressive Wage will lead to inflation

Not necessary. A strong effect of minimum wages on inflation is not always found. Studies have demonstrated that with a 10% rise in minimum wage, the increase in prices is between 0.2% to 2.16%, with most estimates falling below 0.4%

However stand alone wage hikes (without productivity gains) had lead to unjustified expenses and on a national scale, affects GDP negatively as demonstrated in the mid-1980s when Singapore experienced its worst economic recession then.

“Labour cost will increase”

It amuses me when interviews with employers turn up this quote. Of course labour costs will increase.  What were they expecting? But so does rent, year after year. And as a worker, would you prefer your salary to go up or your landlord’s salary to go up?

These new wage laws have nothing to do with me – i’m a middle income earner

As wages gets lifted at the bottom, a domino effect will occur along the labour chain. It will, in time, cause middle income wages to increase also.

Minimum Wage has/has not caused economic problems in XYZ country

It is good to understand what is occurring in some other countries, to learn of their mistakes and what they’re doing right. But if becomes an intellectual battle between two parties, then we’ve fallen into the trap that has ensnared some other countries – a game of politics, instead of a means to help the poor.

PWM by sectors is slow and useless

No two sectors are equal. The cleaning industry must pay differently from a security industry. Each industry has its own characteristics and affordability. If wages at the bottom become uniform, then jobs at the bottom become commodities – wages become perfectly elastic and any attempts to increase it further then becomes very difficult.

This is bad news for employers, companies will shut

Indeed some companies will shut. Companies that do not know how to do a good business, or have been relying on low costs to make a living will shut. Companies who do not want to share profit with their employees will shut. And why shouldn’t they? Why should they be hogging up resources for other companies who can do better?

Progressive Wage has strong emphasis on productivity gains, and employers can find solace in this. There is money directly from SPRING for companies to tap on whilst they adapt to this new transition. Money to help them increase productivity or better run their businesses.

The Government is against minimum wage

As demonstrated by the implementation of Progressive Wage, it is observable the government is not against minimum wage. It was seen to have resisted wage legislation before, however the administration is not known for taking big risks. Progressive Wage is a very bold (but carefully considered) move and there could be more in the future.

 

 

Sources:

These studies include: Card and Krueger (1995), Aaronson (2001), Macdonald and Arasonson (2000) (10% increase in wages leads to around 1- 4% in prices. 

 Also Frye and Gordon (1981), Sellekaerts (1981), Katz and Krueger (1992), Card and Krueger (1995) found very small or not statistically significant effects of minimum wage increases on prices.

 

 

 

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About the author

Benjamin Chiang

Benjamin Chiang is an enthusiast of good advertising, deep thinking, labour issues and chocolate. He writes also at www.rangosteen.com and occasionally on Yahoo!

The views expressed are his own.

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