The Bad about Minimum Wage
The term “minimum wage” can almost be labelled as “dirty” in Singapore. For a long time, the government had insisted that having a minimum wage in place could do more harm than good. In a recent Straits Times report, MM Lee had noted that every country that has set a minimum wage over what the market will bear has found that the move cuts jobs and that Singapore’s aim is to create as many jobs as possible.
In the world of economics, the view is subscribed by many economists.
The purists argue that minimum wage laws are distortions to the market equilibrium and will theoretically increase unemployment. Adam Smith’s famous invisible hand theory will mean that artificial setting of price (wage) floors makes allocation of resources inefficient.
In Singapore’s context, the administration of any minimum wage policy will have spill-over effect on our immigration policies. Minimum wage policies cannot apply solely to Singaporeans, as this will make employers turn to cheaper foreign labour. However, if these policies were to be applied to PRs and migrant workers as well, we will see a further influx of foreign workers to our shores, since they are expected to pick up even higher pay then before.
Another area of concern is inflation. For 2008, inflation was 6.5%. A minimum wage policy is likely to have a bigger impact on construction, food and the general service industry (these industries are generally where workers are paid less). Prices of houses, food and most household items are likely to increase as cost of the labour providing them goes up with minimum wage.
The Good about Minimum Wage
Naturally, minimum wage laws have their supporters as well.
The loudest of voices on this side of the debate comes from those who fight to increase the standard of living for the poorest and the most vulnerable class in society. A minimum wage policy will ensure that the so-called “bottom” ten percentile of the society will still be able to earn enough to sustain a respectable lifestyle. Naturally, this will reduce the income gap between the richest and the poorest of the nation.
Others have noted that a minimum wage law does not add burden to the government. Unlike welfare benefits, cash payouts or tax credits to the poor, this policy will not require the government to increase its spending.
Some have argued that a minimum wage will improve the work ethic of those who earn very little as the higher pay helps motivate them more. It also encourages employers to have a tougher labour screening process, ensuring that better quality staff is hired as they now have to pay more for each employee. In Singapore, this may help raise the quality of the service industry – an area which had particularly deteriorated over the years.
The Truth about Minimum Wage
The first ever minimum wage policy was set in state of Victoria in Australia way back in 1824. It was enacted in 1904 and the British were the first to conduct studies on the effects of the minimum wage in 1907. United States, the symbol of big conglomerates and capitalism, first introduced the Federal minimum wage in 1938 and it has been in place ever since.
As of 2009, Singapore is only one of 10% of the nations in the world not to have any law or regulation of some sort in terms of minimum wage. It may come as a surprise, but even countries like war-torn Afghanistan, Iraq and the Democratic Republic of Congo have some sort of national law to set the minimum wage employers must pay (whether they are actually enforced is another matter).
And amongst those that 10% of nations that do not have a national law on minimum wages are all of the Scandinavian countries and others like Switzerland and Germany. However, in these countries, trade unions are renowned to be particularly strong (and definitely independent of any government influence) and wages are usually set by collective bargaining between the unions and the employers. It is worthy to note that in most of the Scandinavian countries, the disparity between the rich and poor is the narrowest in the world.
While acknowledging that there are studies out there to prove otherwise, there has been extensive research done to show that in fact there is a positive correlation between (a higher) minimum wage and level of employment (ie unemployment went down in places with a higher minimum wage). From a behavioural point of view, it can be argued that people are more motivated to find work if the minimum that they can earn is higher.
On the argument on reduction of competitiveness with a minimum wage, let’s not forget that while Singapore is the third most competitive economy in the world without such a policy, nine others in the top ten have some sort of minimum wage policy or notably very independent and strong trade unions.
Furthermore, a minimum wage policy is unlikely to affect a majority of the industries where Singaporeans are employed by multinational overseas companies. From an international perspective, there is little to suggest that such a policy will hurt our competitiveness. After all, it is not the lifestyles of high-earning lawyers, bankers and accountants that will be changed by such a policy – it is that of lowly paid cleaners, hawker assistants and construction workers.
In the United Kingdom, the minimum wage first became legislation in 1999, under the Labour government. There was much debate from the public, unions and the Opposition prior to its implementation, but research afterwards has showed that this new Act definitely did not increase level of unemployment in the country. Let’s also not forget that over the decade just passed, London surged ahead of her European counterparts to become a leading global financial centre (something Singapore is aspiring to be).
The people who first came about with the idea of a minimum wage had one motivation in mind – to protect individual workers from being exploited by factory owners for the benefit of more profits. From whichever angle you look at this, you must admit that this motive can only be a good thing, akin to the abolition of slavery.
With Singapore slowly creeping up the list of the most expensive cities of the world, the time is now for us to relook into enacting a minimum wage policy to start protecting those who might have already been exploited, even if not intentionally, by circumstances.
Sources:
1) David Card and Alan B. Krueger, “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania,” American Economic Review, Volume 84, no. 4 (September 1994), pp. 774-775.
2) www.ilo.org/public/english/protection/condtrav/pdf/infosheets/w-1.pdf
3) Waltman, Jerold. “The Politics of the Minimum Wage.” University of Illinois Press. 2000
The term “minimum wage” can almost be labelled as “dirty” in Singapore. For a long time, the government had insisted that having a minimum wage in place could do more harm than good. In a recent Straits Times report, MM Lee had noted that every country that has set a minimum wage over what the market will bear has found that the move cuts jobs and that Singapore’s aim is to create as many jobs as possible.
In the world of economics, the view is subscribed by many economists.
The purists argue that minimum wage laws are distortions to the market equilibrium and will theoretically increase unemployment. Adam Smith’s famous invisible hand theory will mean that artificial setting of price (wage) floors makes allocation of resources inefficient.
In Singapore’s context, the administration of any minimum wage policy will have spill-over effect on our immigration policies. Minimum wage policies cannot apply solely to Singaporeans, as this will make employers turn to cheaper foreign labour. However, if these policies were to be applied to PRs and migrant workers as well, we will see a further influx of foreign workers to our shores, since they are expected to pick up even higher pay then before.
Another area of concern is inflation. For 2008, inflation was 6.5%. A minimum wage policy is likely to have a bigger impact on construction, food and the general service industry (these industries are generally where workers are paid less). Prices of houses, food and most household items are likely to increase as cost of the labour providing them goes up with minimum wage.
The Good about Minimum Wage
Naturally, minimum wage laws have their supporters as well.
The loudest of voices on this side of the debate comes from those who fight to increase the standard of living for the poorest and the most vulnerable class in society. A minimum wage policy will ensure that the so-called “bottom” ten percentile of the society will still be able to earn enough to sustain a respectable lifestyle. Naturally, this will reduce the income gap between the richest and the poorest of the nation.
Others have noted that a minimum wage law does not add burden to the government. Unlike welfare benefits, cash payouts or tax credits to the poor, this policy will not require the government to increase its spending.
Some have argued that a minimum wage will improve the work ethic of those who earn very little as the higher pay helps motivate them more. It also encourages employers to have a tougher labour screening process, ensuring that better quality staff is hired as they now have to pay more for each employee. In Singapore, this may help raise the quality of the service industry – an area which had particularly deteriorated over the years.
The Truth about Minimum Wage
The first ever minimum wage policy was set in state of Victoria in Australia way back in 1824. It was enacted in 1904 and the British were the first to conduct studies on the effects of the minimum wage in 1907. United States, the symbol of big conglomerates and capitalism, first introduced the Federal minimum wage in 1938 and it has been in place ever since.
As of 2009, Singapore is only one of 10% of the nations in the world not to have any law or regulation of some sort in terms of minimum wage. It may come as a surprise, but even countries like war-torn Afghanistan, Iraq and the Democratic Republic of Congo have some sort of national law to set the minimum wage employers must pay (whether they are actually enforced is another matter).
And amongst those that 10% of nations that do not have a national law on minimum wages are all of the Scandinavian countries and others like Switzerland and Germany. However, in these countries, trade unions are renowned to be particularly strong (and definitely independent of any government influence) and wages are usually set by collective bargaining between the unions and the employers. It is worthy to note that in most of the Scandinavian countries, the disparity between the rich and poor is the narrowest in the world.
While acknowledging that there are studies out there to prove otherwise, there has been extensive research done to show that in fact there is a positive correlation between (a higher) minimum wage and level of employment (ie unemployment went down in places with a higher minimum wage). From a behavioural point of view, it can be argued that people are more motivated to find work if the minimum that they can earn is higher.
On the argument on reduction of competitiveness with a minimum wage, let’s not forget that while Singapore is the third most competitive economy in the world without such a policy, nine others in the top ten have some sort of minimum wage policy or notably very independent and strong trade unions.
Furthermore, a minimum wage policy is unlikely to affect a majority of the industries where Singaporeans are employed by multinational overseas companies. From an international perspective, there is little to suggest that such a policy will hurt our competitiveness. After all, it is not the lifestyles of high-earning lawyers, bankers and accountants that will be changed by such a policy – it is that of lowly paid cleaners, hawker assistants and construction workers.
In the United Kingdom, the minimum wage first became legislation in 1999, under the Labour government. There was much debate from the public, unions and the Opposition prior to its implementation, but research afterwards has showed that this new Act definitely did not increase level of unemployment in the country. Let’s also not forget that over the decade just passed, London surged ahead of her European counterparts to become a leading global financial centre (something Singapore is aspiring to be).
The people who first came about with the idea of a minimum wage had one motivation in mind – to protect individual workers from being exploited by factory owners for the benefit of more profits. From whichever angle you look at this, you must admit that this motive can only be a good thing, akin to the abolition of slavery.
With Singapore slowly creeping up the list of the most expensive cities of the world, the time is now for us to relook into enacting a minimum wage policy to start protecting those who might have already been exploited, even if not intentionally, by circumstances.
Sources:
1) David Card and Alan B. Krueger, “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania,” American Economic Review, Volume 84, no. 4 (September 1994), pp. 774-775.
2) www.ilo.org/public/english/protection/condtrav/pdf/infosheets/w-1.pdf
3) Waltman, Jerold. “The Politics of the Minimum Wage.” University of Illinois Press. 2000
