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Why our wage policy must evolve

Despite not being mandatory, the National Wages Council’s (NWC) recommendations have never lacked clout when addressing the impact of economic downturns in the past. In contrast, the actual implementation rate of last year’s recommendations has been low.

Despite not being mandatory, the National Wages Council’s (NWC) recommendations have never lacked clout when addressing the impact of economic downturns in the past. In contrast, the actual implementation rate of last year’s recommendations has been low.

Judging by its reiteration along the same lines this year, the NWC appears to be keenly aware that dealing with the labour crunch as well as plugging the productivity gap requires a different strategy, one which may require persuasion.

Hence, in addition to again recommending a fixed quantum of increase for low-wage workers, the NWC has made clear its strong support for the NTUC’s progressive wage model which emphasises the link between productivity improvements and wage progression. The key difference between this year’s recommendations and last year’s is the Wage Credit Scheme — it effectively means that companies taking up the NWC’s proposal have to pay only 60 per cent of the rise.

Why is it important to continue focusing on low-wage workers?

LOT NOT LIFTED

In economies undergoing rapid growth, the question of whether there has been a corresponding improvement in the lot of workers is an important and potentially volatile issue. One criterion is a comparison of the growth in real average monthly earnings with the growth in per capita real gross domestic product.

In the three decades beginning 1981, the two measures have kept pace for Singapore, with earnings actually slightly ahead if the all-CPI measure is used as the deflator. While the calculations vary slightly depending on the measure of earnings that is used, the main conclusion about the state of real earnings keeping up remains unchanged across such variations.

Once the span of time is narrowed, however, the picture changes, quite dramatically. In the ’80s and ’90s, real average monthly earnings grew more than 25 per cent faster than real per capita gross domestic product. In the first decade of the 21st century, however, both had slowed significantly, with the former growing less than half as fast as the latter.

Inevitably, there will be those whose lot had not been lifted during the earlier decades, and could have fallen further back during the relative uncertainty of the more recent years.

This appears to be the message implicit in this year’s NWC recommendations. The council has clearly decided to calibrate its approach to emphasise the position of those in the lowest earnings group, while seeking to balance the pressures that a weakening economic environment could have on businesses.

TOO TIMID

Given that they are not legally binding, the most important element in the NWC recommendations is to maintain the tripartite consensus. It should also be keenly aware of whom its quantitative recommendations would really affect.

As I see it, while the general philosophy presented by the NWC recommendations is well thought out, especially in the difficult job of tying together strands such as the progressive wage model with the emphasis on the essential role of low-wage workers, the recommendations are too timid for a task of such urgency.

The statistics show that we are talking about a very specific group of workers which would likely constitute the last local human resource frontier that we can tap on to deal with the labour crunch.

The proportion of workers earning below S$1,000 rose in the first half of the 2000s, but has steadily fallen since 2006.

Approximately 12 per cent or just over one in eight working resident falls within this category. The absolute numbers have also fallen except for a slight increase last year.

Among the 238,000 resident workers in this category as at June last year, the majority are part-timers. While only one in 15 full-time workers earn less than S$1,000 a month, more than one in two part-timers do so. Among sectors, the accommodation and food services industry has the largest proportion of such workers.

As has been widely discussed as part of the NTUC’s efforts, the occupations within which one is most likely to find such workers are in those performing services such as cleaning and security. More than one in two workers in cleaning services is in this group, while one of every three is in cleaning services.

Finally, more than 27 per cent of those earning below S$1,000 a month are aged 60 or older. If we take the last two statistics together, we may even be able to put a face to the Singaporeans we see working alongside often younger foreign workers in our canteens and food centres.

RATIONALISE THE LINK

These last two statistics bear out in stark terms the urgency as well as the depth of change in the employment situation which our wage policy must evolve to address.

As a small country experiencing a labour crunch at the same time that it is struggling to cope with the stress that a burgeoning population is putting on its infrastructure, one answer to the squeeze on manpower is obviously to increase the effectiveness with which we employ workers who appear to be at the margins of productivity contributions.

If older folk do continue working, we must strive to open up opportunities for them in job roles which make better use of their experience. In addition, for low-wage workers in general, and older workers within that category in particular, we need to rationalise the practice of linking productivity improvements to wage increases.

At too low a wage, workers may not be able to afford the type of auxiliary expenditure that can strengthen their ability to perform at their job roles, such as better means of transport. Everything else being equal, this situation would become even more pronounced for older workers in the same circumstances.

At the very least, these elements of performance should be taken into account in future recommendations.

ABOUT THE AUTHOR;

AP Randolph Tan is Associate Professor, Business at SIM University, School of Business.

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