Commentary: Singapore’s poorest earners will benefit from expansion of Progressive Wage Model but some conditions must be met
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Commentary: Singapore'south poorest earners will do good from expansion of Progressive Wage Model only some weather condition must be met
These include a reduction in low-wage strange labour, a continuation of wage subsidies and expanded social protections, say Linda Lim and Irene YH Ng.
Martin Seah works at the cashier at a McDonald's restaurant outlet in Singapore. Taken on Dec 19, 2018. (Photo: REUTERS/Edgar Su)
SINGAPORE: Information technology is past time to raise the wages of Singapore's depression-wage workers and the productivity of the labour-intensive sectors where they toil.
The Progressive Wage Model (PWM), through which the Government has chosen to do this, has so far proved too niggling, too late.
First introduced eight years ago, PWM covers but three sectors — cleaning, security and landscaping, which combined account for 15 per cent of low-wage workers, defined as the bottom 20 percent of income earners.
LIMITS OF A Limited PWM
One likely reason for the slow and incomplete implementation of PWM is its complex construction, requiring tripartite consultation and negotiation.
As a upshot, while wages of workers in low-wage sectors have risen in the last few years, their absolute and relative wages continue to exist significantly lower here than in other rich countries, even those with lower per capita incomes and lower rates of GDP growth.
For example, Lien Foundation's 2022 Long-Term Care Manpower Study noted that nursing aides and healthcare administration in Singapore earned the lowest among peer economies of Australia, Hong Kong, Nihon and Republic of korea. In 2013, boilerplate earnings in accommodation and food services in Singapore were less than half of those in the Netherlands and just a quarter of those in Sweden and Denmark.
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More mostly, low-pay incidence, divers as two-thirds of the median wage, is estimated to be almost twice as loftier in Singapore as in all OECD economies, at 30 per cent in 2017.
Extension of the PWM to more than sectors recently announced by Deputy Prime Minister and Finance Minister Heng Swee Keat is welcome simply lacks a timeline and other concrete details. The taskforce to look into ways to improve the pay of low-income workers should act swiftly so that depression-income pay can catch up with professional salaries.
Since 2012, when PWM was first introduced, the boilerplate annual increment in salaries of the 3 everyman-paid occupational categories of service and sales workers, plant and machine operators, and cleaners, labourers and related workers, was 3.4 per cent.
This trails the iii.nine percent average annual wage growth of the highest earning occupational categories of managers and administrators, working proprietors, professionals, and acquaintance professionals and technicians.
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AN EXPANDED PWM AND RESTRUCTURING FOR College WAGES
After cleaning, security and landscaping, which PWM covers, the next everyman wages are establish in labour-intensive and foreign-labour-dependent sectors such every bit retail, F&B and non-therapeutic health and personal care. These jobs are mostly in the service and sales occupation group, which faced the everyman wage growth in the by decade.
Yet, jobs in these sectors provide essential services which have social value, equally pointed out by economist and former Nominated Fellow member of Parliament Walter Theseira, and low pay could undermine Singapore'due south resilience to economic shocks and cycles.
These service sector jobs also have the greatest potential for upskilling, technology application and other productivity improvements commonplace in advanced economies.
With COVID-nineteen, they may shrink the nearly as consumer habits change, for instance to online shopping, nutrient delivery and home entertainment, as people swallow and work more at dwelling house.
The Authorities'south plan to expand PWM is therefore timely, and should be enacted sooner rather than later, with the broadest sectoral coverage. Every bit DPM Heng notes, "COVID-19 has highlighted why it is critical, for long-term survival, for firms to exist more than manpower-lean, productive, and take jobs that are bonny to our locals".
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To facilitate this process while ensuring that citizens' livelihoods are protected equally much as possible from pandemic disruption, other rich countries notice direct subsidising individuals, where households do good immediately, is more efficient and effective than subsidising businesses.
This also mitigates the hazard of businesses becoming "zombie companies", unable to survive without subsidies yet hanging on to scarce manpower more productively deployed elsewhere or in new sectors that emerge or expand in mail service-pandemic structural transformation.
This restructuring will weed out weaker businesses, particularly those unable or unwilling to invest in raising productivity, assuasive workers to relocate to more than productive and hence higher-wage enterprises. Labour becomes a smaller share of total product costs, as expected in an flush, capital-rich but labour-scarce advanced economy.
The PWM has and then far been implemented aslope wage credits to firms and other support to assist companies transform.
Research by i of us constitute that the PWM did compel productivity enhancement in the organisations studied, with i manager sharing that until information technology was legislated, companies continued to pay low wages despite years of authorities exhortation to train staff and heighten wages.
Thus, the PWM tin can spur the process of transformation, without waiting until other processes are ready. Its expansion has become urgent given the continued lag in low-skilled wages and the necessity and opportunity that COVID-19 provides to reassess business organization structures and societal priorities.
Some targeted concern subsidies volition be required to help viable businesses survive the recession. Here the intent should exist to preserve a vibrant puddle of small and medium-sized enterprises (SMEs), and avoid the decimation of small businesses caused past skewed incentives.
In the US, the pandemic has fueled industry concentration, equally larger businesses command the lion's share of regime subsidies.
This has caused concern as SMEs, which include start-ups, are the major source of employment and innovation, every bit well equally an important channel of upward mobility, and preserver of market competition.
In Singapore, 90 per cent of firms are SMEs employing 70 per cent of the workforce. They provide the added benefit of ensuring that ethnic capabilities and jobs are retained even if global businesses relocate due to their ain shifting internal corporate priorities.
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MAKING PWM WORK: COMPLEMENTARY POLICIES
Structural transformation should ultimately benefit the people employed in companies. For PWM to piece of work as intended, complementary policies are also required, chiefly a reduction in the supply of low-wage foreign labour, a continuation of wage and income subsidies such as Workfare Income Supplement, expanded social protections for the elderly and stronger protection of work conditions.
These take been gradually strengthened in the past few years, and are all the more crucial with COVID-xix potentially leading to deterioration of wages and job atmospheric condition.
Strange worker policy, for one, must continue to reduce reliance on migrant workers, since a chief reason for Singapore's underperformance in raising productivity and wages for low-income workers is "cheap sourcing", or the ease with which businesses can import large numbers of temporary workers from labour-arable low-income countries,
Since PWM applies only to Singaporeans and permanent residents, it may have the perverse impact of increasing employers' preference for hiring foreign workers, especially since they can exist selected for age, skill, physical strength, endurance and other personal qualities that can yield higher productivity at a lower wage than elderly Singaporeans in the aforementioned labour pool who will now cost more.
Thus twinning PWM with reduced foreign worker quotas is essential. The current dependency ratio ceilings of 38 per cent in services (falling to 35 per cent in Jan 2021), 60 per cent in manufacturing, and higher in other sectors such as construction and processes, need to exist decreased.
At the same time, the strengthening of social protection through programmes such equally Silver Support will cushion whatever displacement effects on elderly workers. Low-income elderly whose lifetime wages have been depressed should be supported by society, and non forced to work for survival under poor weather condition.
Strengthening and enforcing employment protections must also accompany the expansion of PWM. If non, businesses might seek to meet the mandate by cutting labour costs through other means.
For example, equally research by ane of us shows, they might cut benefits or increase the hours required for a PWM monthly wage, so that hourly labour costs remain low even as monthly wages increase. They tin can also alter staff to contract, self-employed, part-time or casual status.
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Overall, for PWM to be constructive in raising wages and productivity, while minimising distortionary labour market furnishings, it should exist rolled out more than quickly, across more than, if non all, sectors, and enforcement tightened to ensure that employers are indeed investing in productivity-enhancing measures.
Extension to cover foreign as well as Singaporean workers is economically desirable, but probably politically unlikely.
The more successful PWM and reduced foreign labour are in raising productivity and market wages, the fewer the subsidies (including for housing, healthcare and retirement support) the Authorities and taxpayers will have to shell out through financial transfers to shore upwards the living standards of the poor.
ADDRESSING CONCERNS OVER INFLATION
Higher wages need not interpret into college consumer prices, especially with technology application and improved management, if productivity increases every bit PWM intends and in that location are wage floors.
Wages, peculiarly of low-wage workers, are merely one, usually modest, component of total costs, which also include rents, profits and taxes.
Commercial rental costs make up the king of beasts's share of costs for many companies in Singapore. Their fall due to COVID-19 should partly showtime ascension wage costs, as would lower turn a profit margins as business organization contest intensifies in the mail-pandemic era.
The Government tin can act to dampen any consumer price increase by reducing or delaying tax increases similar GST, or handing out aid to depression-income families through the U-Salve vouchers.
It can likewise introduce competition policy and off-white trading or consumer protection rules to preclude businesses with large market shares from exercising monopolistic pricing power — a primal reason for high prices.
PWM wage rates are still below those in other high-income global cities for like jobs, then increases should be affordable for the 75 to 80 per cent of consumers who are not depression-income, while enabling the lowest-income xx to 25 per cent to better maintain basic consumption standards. Whatever consumer toll inflation would be a fraction of the wage increase, as studies in the US on raising minimum wages have shown.
With our per capita income level amidst the world's richest people, Singaporeans should be able and willing to pay the prices that global companies and their international employees based here are accustomed to elsewhere, where minimum wages much college than our PWM levels exist.
The lifestyles of the more fortunate among the states should not be subsidised by the low wages of other compatriots.
And as an advanced economy, we should compete on the basis of productivity and innovation, non low labour costs that impoverish our fellow citizens.
Linda Lim is Professor Emerita of Corporate Strategy and International Business organization at the Stephen M Ross School of Business at the University of Michigan. Irene YH Ng is Acquaintance Professor of Social Work and Director of the Social Service Research Centre at the National University of Singapore.
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