Application of Minimum Wages

Recently, NTUC Chief Lim Swee Say was reported to have said that minimum wages would have no effect in helping the lower income families. Perhaps, he had mistaken their values and importance of safeguarding the basic rights of low-wages workers and do not understand the purpose of minimum wages. In a modern and progressive society, it would be unethical to sacrifice the workers’ rights and benefits, especially when one is within the “first world” environment.

While Singapore’s GDP may have appreciated by about 15%this year, the general wages of most workers have remained stagnant and symptom of declining especially the lower and unskilled workers. Last year in 2009, average wages have decreased by 3.5%. Since we have free competition in the local labour market, it is important that we recognise and safeguard the rights of our entire workforce.

A recent study on Minimum Wages in the US (the Annuals of Economics and Finance) had shown that it disadvantages were actual exaggerated. The most common objection to any increment in the minimum wages was that mainly from small business owners. They felt that the increment in labour costs would ultimately lead to reduced employment and eventually leads to the failure of business. However, a growing number of new studies showed that the flexibilities of employees and employers were being overlooked, whenever the minimum wages changes. Studies also noted that those States that increased their minimum wages, have shown stronger job growth instead, when compared to those whose the minimum wages remained static. Moreover, the risk of business failure did not increase whenever there is an increment to the minimum wages.

Many countries have already implement the Minimum Wages Policy in their labour market, though in practice they do vary considerably. The pertinent points include:

• The Minimum Wages Policy prevents the wages of lower income workers from further downward revision, due to the huge availability of foreign workers, or from the increased business overheads,

• It helps to improve workers’ confidence in the seeking of viable jobs, and encourages the unemployed to seek alternate employment such as contract work, instead of waiting for more permanent and higher paid positions,

• It establishes a fairer employment environment for all workers,

• It motivates the low-wages labourer to perform better to achieve a higher productivity which would contribute towards better economic growth,

• It helps to reduce the income gap between the rich and the poor, by increasing spending power.

• It reduces the number of families requiring social assistance from the Government, and therefore reduces the volume of social problem.

It is undeniable that Singapore would continue to reply on foreign labour to feed its industries, for the sake of economic growth. Thus, some form of Minimum Wages guideline should be put in place to protect the interest of the unskilled and lower-income workforce.

Since the levels of Minimum Wages would depends much o the performance of the National economy, such statistic can be used to help Government to gauge the impact of the labour demand. The success of such a scheme would also depend on the level of collaboration between the Authorities, the Employers and the Business community. At the same time, skills enhancement training should be extended and easily made available to all workers, with generous subsidies.

Singapore needs to develop a better infrastructure and a more conducive environment for the growth of its workforce. A skilled workforce is more productive than unskilled one. The current influx of cheap foreign workers reflects poorly on our productivity and on the success of the Government’s program to enhance productivity. It is therefore essential that we do not step backwards to accept the low productivity performance of those foreign labourers, if we are to sustain ourselves as a “first world” nation.

By Elvin Ong