Explainer: Why ‘local qualifying salary’ is not another word for minimum wage

• TODAY looks at the differences between a classic minimum wage model and the one Singapore is adopting
• In short, local qualifying salary helps determine how many foreign workers a firm can hire
• A minimum wage system would cover everybody, irrespective of employer or job
• Still, experts said the latest changes announced by Prime Minister Lee Hsien Loong largely meet the objectives of a minimum wage
• The changes directly affect 82 per cent of lower-wage workers, but it would lead to a “spillover benefit” to those who are not covered, they said

SINGAPORE — Prime Minister Lee Hsien Loong announced in the National Day Rally on Sunday (Aug 29) a new requirement for firms that hire foreign workers to pay all their Singapore employees a "local qualifying salary" of at least S$1,400 a month.

Is it right, then, to broadly interpret the news as the introduction of a national minimum wage?

What are the fundamental differences between a “universal” minimum wage model — also what the Workers’ Party has called for — and the hybrid progressive wage model-local qualifying salary model that Mr Lee said would be adopted here?

TODAY spoke to economists and academics to find answers to these questions, as well as understand what they foresee would come out of the chosen model, as opposed to Singapore implementing a minimum wage in the traditional sense of the word.

What is a local qualifying salary and why is it needed?

The local qualifying salary is not a minimum wage.

It is a wage threshold that the Ministry of Manpower (MOM) had imposed on firms that hire foreign workers to prevent Singapore workers from being employed on “token salaries” to allow the employer access to foreign workers.

Each firm has a work permit or S Pass quota and this varies across industries, ranging from 35 per cent in the services sector to 87.5 per cent in the construction and process sectors.

A work permit for migrant workers allows foreign semi-skilled or unskilled labourers from approved countries to take up jobs in sectors such as services, construction and manufacturing. An S Pass is for mid-level skilled foreign workers who earn at least $2,500 a month.

For instance, a firm in the services sector with a headcount of 120 needs to pay 65 Singapore workers at least S$1,400 – the current local qualifying salary – to be able to hire 35 foreign workers. Another 20 Singapore workers can be paid below the local qualifying salary and they will not be included when the quota is calculated.

This is how calculations are made:

• 1 local qualifying salary count = A Singapore employee who earns the local qualifying salary of at least S$1,400 a month

• 0.5 local qualifying salary count = A Singapore employee who earns at least half the local qualifying salary, between S$700 and S$1,400 a month

What will change?

From September next year, firms that hire any foreign worker must pay all their Singapore workers an local qualifying salary at the minimum, which will be set at S$1,400 a month for full-time workers and S$9 an hour for part-time workers.

This means that the firm in the example above needs to pay all 85 Singapore employees at least S$1,400 in order to hire foreign workers.

This is one of 18 recommendations from a workgroup comprising the Government, unions and employers studying how lower-wage workers can get more help, and the Government has accepted its proposals.

Another was an expansion of the Progressive Wage Model to cover more industries and occupations. The wage model sets out minimum pay requirements for workers at different skill levels and mandates wage increases in tandem with workers’ training and skills. 

With the change, the Progressive Wage Model, which is now only applied to four industries — cleaning, security, landscaping and lift maintenance — will apply to all administrators and drivers as well, ensuring that they are paid at least S$1,500 and S$1,750 a month respectively from March 2023.

Do these not impose minimum wages across the board?

Not really. The tripartite workgroup estimates that the local qualifying salary will cover about 99,000, or 35 per cent, of the 283,000 lower-wage workers — defined as income earners in the bottom 20th percentile — in full-time employment here.

Together with the Progressive Wage Model, 82 per cent of these full-time lower-wage workers will be covered under some form of wage floor.

A classic minimum wage system would apply in the same way to workers across all sectors. It usually involves the enactment of a law mandating that the minimum wage to be paid to any worker is a certain pre-specified amount.

Mr Terence Ho Wai Luen, Associate Professor in Practice at the Lee Kuan Yew School of Public Policy, said that instead of this, the current adjustments are done through “administrative levers” such as foreign worker access.

Dr Kelvin Seah Kah Cheng, senior lecturer in the National University of Singapore’s Department of Economics, said that the Progressive Wage Model is not applied uniformly across all occupations and sectors. Instead, the structure of wages is set differently, by sector.

Who will be left out?

About 50,000 full-time lower-wage workers who are not covered by progressive wages and do not work in firms that hire any foreign workers.

The workgroup states that a vast majority of them work in very small firms, such as hawker stalls and heartland shops, that are often family businesses hiring fewer than 10 workers, adding that they are usually not covered by minimum wage systems in other countries anyway.

Dr Walter Theseira, an associate professor of economics at the Singapore University of Social Sciences, said the jobs that are not covered with a baseline salary would likely involve general shop and sales assistance or general labour.

If they had involved higher skills, chances are that the salary would already be above S$1,400 and hence a baseline wage would not be of concern, he pointed out.

But will the end result be more or less the same?

The experts are of the opinion that the expanded Progressive Wage Model and local qualifying salary largely meet the objectives of a minimum wage in that it provides an effective wage floor for the vast majority of lower-wage workers, which would also affect a “spillover benefit” to those who are not covered.

Dr Theseira said: “I do not think there is going to be a practical difference between what the Government proposes and a universal minimum wage model with exemptions for micro-enterprises, and negotiated job or sector minimum wages.

“That's pretty much the same thing.”

Workers who are not covered, he added, will have the option of looking for a job covered by the Progressive Wage Model or local qualifying salary, since the skill requirement among the lower-wage jobs is expected to be similar.

He noted that there will still be the possibility of some jobs continuing to pay below the amounts set by the Progressive Wage Model or local qualifying salary as workers may value them for various reasons, including familiarity with the employer, work arrangements, proximity to home and flexibility.

But “having the flexibility here doesn’t harm anyone as long as workers can find higher paying jobs if they want”, he said.

Mr Ho said that enacting a minimum wage by legislation would have pulled up wages more quickly, but Progressive Wage Model allows for tripartite consensus and sectoral customisation, which can provide some assurance against Singapore job losses, particularly for the more vulnerable segment of workers.