Minimum Wage: SDP has it wrong

Temasek Review
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The following opinion was sent in by Eddie Lim

The Singapore Democratic Party published a piece admonishing the Deputy Prime Minister for saying that a minimum wage system had crippled countries in Europe and the USA. Why was the DPM wrong? Because the economic crisis was caused by the “criminal acts of bankers” and not minimum wage.

Though the chest-thumping rhetoric sounds like it is justified, it is far from so as through either sheer foolishness or simple mischief, the SDP has clearly chosen to misread what the DPM said.

The DPM shared his observations on how minimum wage schemes had crippled some of these economies. He had observed how many workers could not find jobs that matched their abilities as minimum wages were set at a level high enough that employers could afford to choose better trained staff and not the ones who needed a job urgently. He further added how many of the youths who got jobs paying the minimum wage level were actually from relatively wealthier households, ie, they did not need the minimum wage jobs at all. At no point did the DPM say that the recent financial crisis in particular was caused by minimum wages. This is a wilful twisting of facts by the SDP clearly.

The SDP further tries to confuse the situation by citing how Switzerland and Norway also have minimum wages set through collective bargaining and how they have done as well as Singapore. Again, the SDP chose to disregard the more than 1,200 collective agreements currently in force between Singapore unions and their employers. These collective agreements are individually ratified by the Singapore courts and cover benefits like annual increments, variable bonuses on top of, of course, wage levels. But coming from SDP, I don’t think we expect them to accord the credit due.

Dear readers, the real crux of the matter is that different wage systems have different attributes and whichever we choose, it is important that we understand what the pros and cons are.

Setting wages through collective agreements is the best, in my opinion. It allows flexibility to both workers and that particular employer to negotiate terms pertinent to that company and to those workers. In short, it is customised right down to the company. Tailored clothes are always better fitting than off the rack types. But not all companies are as enlightened and many refuse to be unionised. So other measures are required.

Setting a minimum wage is at the direct opposite of the spectrum. Typically, a council of employer, government and worker representatives meet annually to set a minimum wage for the upcoming year. Clearly, each party comes with different expectations and it is not unusual to see strikes and violence everytime it is minimum wage review season. One just needs to look around for examples. Malaysia, Indonesia, US, Egypt and many others have seen strikes recently or will be seeing them soon due to minimum wage reviews.

Also, the battle is not over after the minimum wage is set. If the wage is set too low, the workers do not benefit and the exercise becomes a farce. If it is set too high, those who are underqualified due to lack of education qualifications or experience, cannot find jobs and drop out of the race. Some may have the state giving them unemployment insurance, but many, like those in Germany, have to meet conditions to find jobs within a certain time frame. But because employers don’t want to hire them, the workers are caught between the proverbial rock and hard place.

So what is this progressive wage model that Singapore has chosen to adopt? In gist, it is the in-between of collective agreements and minimum wage. It allows employers, workers and government representatives to negotiate a wage range, not a single wage point. So whilst it is hard to agree on whether $1,000 or $1,200 is the best figure in a minimum wage regime, the PWM allows for a range of $1,000 to $1,200 to be set, based on the skill qualifications and experience of the worker. If the worker is better qualified, he can move to the next level of $1,200 to $1,400; and then to $1,400 to $1,600 and so on. This allows flexibility for workers to be paid according to their skills. It allows employers to reap benefits through getting the same workers to be able to do more within the same hours of work through government funded machines and process improvements. And the workers get career and wage progression as a result. Hardly a terrible thing if you ask me.

So to the SDP, my advice is to find out more about what the DPM said before criticising. It will show some political maturity as well as economic acumen, which is needed in plentiful form if one is choosing to take on the finance minister of the year, as named by Euromoney magazine, a global banking and finance publication. Otherwise, this is just a petty piece to try to get attention.

Eddie Lim

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