Monday, 23 April 2012

Wages, wages, wages!

The Great Divide in Wages

“Professor Lim Chong Yah responded on Thursday to critics who have dismissed his radical wage reform plan as unworkable.

He gave a stout defence of his ideas, which have sparked a debate in the business, economics and trade union circles.”

‘We need people to support that we need restructuring if we want a better society. If we want a society where we depend on our neighbours for cheap labour, well… some people like it. I don’t like it.’

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Lim Chong Yah clears up "fallacies" over wage restructuring proposal

SINGAPORE - Former chairman of the National Wages Council Lim Chong Yah has issued another statement to clear up what he describes as "fallacies" over his wage restructuring proposal.

 He said the "Shock Therapy" between 1979 and 1981 in fact, resulted in a higher gross domestic product growth rate for Singapore.

 "Official statistics show Singapore had an average of 6.4 per cent real growth rate per year from 1974 through 1978, the quinquennium before Shock Therapy I. They also show that the quinquennium that followed, covering the three years of Shock Therapy I and the two years following it, the average real GDP growth rate was 9.2 per cent per annum, a figure which is much higher than the preceding five years of 6.4 per cent per annum," said Professor Lim.

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A milder ER II is workable

Letter from Paul Chan Poh Hoi

I disagree that Professor Lim Chong Yah's "Wage shock therapy 'too risky': Lim Swee Say" (April 14).

The risk potential of his Economic Restructuring II (ER II) depends on how it is approached in this time of dependency on cheap foreign labour.

The issue is that if our high-growth economic model of many years has left domestic industry workers struggling to make a decent living, compared to those earning 10 times more, we need to correct this quickly.

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Two different perspectives to raise pay

Reasons to justify pay hike for workers
  1. Increase in productivity
  1. If recommended by the NWC
  1. Better employee performance
  1. Increase in company profit
  1. Cost of living adjustment
  1. Difficulties in recruitment
  1. Need to pay for talent
Reasons to justify pay hike for ministers

  1. Difficulties in recruitment
  1. To prevent corruption
  1. To pay for the bestest talent
  1. To keep up with the private sector
  1. To maintain a comfortable life style
  1. To compensate for the great sacrifice
  1. To maintain dignity
  1. To retain talent or they will quit
  1. Increase in GDP
  1. Individual performance
  1. More appointment or wearing more hats
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Our income gap reflects the power distribution in our society

I looked around the Internet forums, blogs and spoke to a number of people about the debate surrounding the proposal by Professor Lim. Some people are angry with the responses from our ministers because when it comes paying low income workers more, they say that productivity needs to be raised, company revenues needs to go up and the economy has to be good. However, when they debated their own ministerial pay hikes in 2006, they didn't talk about the need to increase their own productivity first - the main justification put forth by LHL was they can't recruit people if the pay is not the highest in the world. Our bus companies say they can't recruit enough bus drivers. Instead of raising the pay to a level that attracts Singaporean drivers, they go to 3rd world countries to recruit drivers. Today the pay of bus drivers in Singapore is less than half that of Taiwanese bus drivers[Link]...not just our bus drivers but our cleaners, kindergarten teachers, hawker assistants are the lowest paid in the developed world. Contrast that with the highest pay in the world we need to pay for political office holders and high ranking civil servants. Some thing has gone very wrong

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12:27 PM Apr 18, 2012
SINGAPORE - Labour chief Lim Swee Say took issue with former National Wages Council chairman Lim Chong Yah's suggestion to drive up wages of workers to match productivity, saying that productivity and wages go hand in hand. Mr Lim said driving up wages without focusing on...

Updated 01:03 PM Apr 18, 2012
SINGAPORE - Foreign investors do not react well to shock treatments but, instead, prefer steady and sustainable policies, said Singapore National Employers Federation (SNEF) President Stephen Lee yesterday, in response to former National Wages Council chairman Professor Lim...

05:00 AM Apr 18, 2012
IT SEEMS that Singapore has two worlds: A first-world Singapore and a third-world Singapore. In the former, high-income Singaporeans co-exist with high-income foreign talent in an increasingly globalised environment, with fast-rising salaries but also fast-rising costs...

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Impractical to increase wages

05:00 AM Apr 20, 2012
IF SIMPLY issuing an administrative order could solve economic issues and uplift our living standards, many countries would have followed communist ideas. But most of the communist countries have moved to capitalism in past decades. Communist countries have the smallest.

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Tan Meng Wah, Today:

The low-income wage earners should not be denied of a long-overdue big adjustment in wages just because costs would go up. Rapid increase in income for other income groups has also raised costs in the past.
An honest day's pay for an honest day's work.

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Wage reform issue calls for public debates

Letter from Quek Soo Beng

I HAVE been following with interest and concern the discourse on Professor Lim Chong Yah's recommendation of "Economic Restructuring II" to solve our income inequality, which he feels is reaching critical proportions as to require "shock therapy".

Prof Lim is a reputable academic and practising economist who played a key role in bringing us our first economic miracle in the early 1980s and in leading the National Wages Council, which was instrumental in our country's wage restructuring.

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The income gap must be reduced. But it is impractical to ask employers to pay more to the low-income and less to the high-income groups. This is a complicated issue, which takes time and effort to solve.

There are two separate issues here: closing the income gap, and ensuring an honest day's pay for honest day's work. The income gap problem is urgent but complicated and difficult to solve, so let's tackle the lower-hanging fruit first by making sure having a job means enough money to feed a family.

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The Minimum Wage is a Terrible Idea

Singapore needs people with skills warranting a higher wage, not politicians legislating a minimum wage. Our national education system is the problem. It has produced an entire generation of people who copy and replicate, instead of creating and innovating. If our people are highly skilled or creative, they will naturally command a good wage, or even own flourishing businesses. Value creation must come before the rewards. Legislating a minimum wage won't solve the problem because inflation and illegal activity will negate the well-intended minimum wage.

Businesses will do three things when faced with a minimum wage law:
1. Stop hiring any position below the minimum wage
If there is little value in the position, and it is expensive to maintain, a business will simply cut its losses and terminate the position. Worse still, the business may decide to relocate those functions completely to other cheaper countries.

2. Make those paid above the minimum wage do more work
Businesses would prefer to give an employee a raise and add more tasks to the employees job scope than pay a minimum wage and be faced with arbitrary pay increases each time the government changes the law.

3. Pass the cost increase on to the consumers, which includes low income workers
Inflation is the worst tax of all. It erodes the power of savers to break the chains of poverty and rewards the rich who have the power to take huge risks to beat inflation. The poor will suffer the most when businesses pass on increases costs to the consumer. This is how income disparity begins: the government causes inflation, the poor are unable to save, and the rich keep investing to stay ahead of inflation.

Net effect:
1. Higher cost of existing goods and services
Businesses will transfer the increased costs to the consumers. Employees higher up the food chain will demand pay increments to ensure parity and use the minimum wage as a benchmark. All these translate to inflation.

2. Higher unemployment
The ones with low wages tend to be school leavers, vacation workers, and the elderly. They will be the first to be fired. Next will be the staff in low value positions. Businesses would not take as many chances on new people because a minimum wage would be involved, so a minimum standard of experience would be demanded too.

3. More foreign talent imports that meet the minimum wage
By making local labor as expensive as foreign imports (talents, not low wage workers since the minimum wage would eliminate low wage), businesses would look further away from Singapore when hiring and it would be tougher to get a job here for local school leavers.

4. More illegal foreign workers to circumvent the minimum wage
Some businesses would look at hiring illegal foreign workers to keep wages low. It will become a big problem in the construction industry, and you will soon see more locals
displaced by illegal foreign labor.

Singapore Wage Debate Heats Up

Singapore needs a “wage revolution” to narrow a widening gap between rich and poor and put its economy on a more sustainable track, says one of the city-state’s leading economists, whose proposals have sparked vigorous debate on the viability of Singapore’s long-lauded growth model.

To lift stagnant low-end wages and curb an overreliance on cheap foreign labor, Singapore should consider freezing salaries for three years for those earning 15,000 Singapore dollars (about US$12,000) or more a month, and raising pay for workers drawing monthly wages below S$1,500 by 50% or more over the same period, among other measures, says Nanyang Technological University economics professor Lim Chong Yah.

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Softly, softly, will not narrow income gap

Published 15 April 2012 economy and finance9 Comments

The debate that Lim Chong Yah kicked off is a welcome one. He has argued that if Singaporeis ever to make progress on narrowing the income gap, it is going to require strong affirmative action by the state. He has proposed double-digit increases for the bottom wage earners over a few years coupled with a moratorium on salary increases for top earners.

Predictably, the government has megaphoned its opposition. It will be economic suicide, it says, touting its own plan for improving productivity through financial incentives while gently tightening up on the import of foreign labour instead.

Look away from the specifics and you’ll see a fundamental issue being debated. Look harder and you will see another fundamental issue NOT debated.