Bridging the gap

Former Chairman of the National Wages Council (NWC), Professor Lim Chong Yah kicked up a storm recently when he suggested that wages of low-income Singaporeans could be improved by increases of 50% over three years, while also freezing the pay of high earning individuals at the same time. This would help to reduce the widening income gap in Singapore, he said.

However, ministers and experts are cautioning against using such a “shock therapy” approach, stating that it would be counter-productive to increase wages alone without raising productivity. Minister of State for Manpower and National Development, Tan Chuan Jin, said in Parliament that the Government had introduced several initiatives in the 2012 Budget to help low-income workers and their families.

“Helping lower-income workers and their families is not confined to jobs alone. We have enhanced our housing grants and subsidies to help lower-income families own their own homes and this has enabled many of my residents to either own their own flats or rent at below-market rentals,” Minister Tan said.

One of the budget initiatives targeting this group of Singaporeans includes the Financial Assistance Schemes (FAS) for Schools – all families that meet either the gross household income ceiling of $2,500 per month or the per capita income cap of $625 will qualify for subsidies.

The Government has also set aside $3.6 billion in the GST Voucher Fund to finance the scheme for the first five years. The GST Voucher Fund is divided into three components – Cash, Medisave (top up of Medisave for elderly people), and U-Save (offsets costs of utilities), to help low income earning individuals.

Moreover, Minister Tan said in Parliament that the Government is using an active strategy to help all Singaporeans. “This is a deliberate intervention to support restructuring to raise skills and ensure that our lower wage workers get a fair share of productivity gains.”

Some experts and organisations agree that raising wages for low income workers is not sustainable in the long-term, and could affect the competitiveness of all Singaporeans.

Irvin Seah, DBS Economist, says Singapore should improve its productivity before raising wages. “A direct hike in wages can impact the employability of workers. If there is a substantial increase in wages, businesses could turn to hiring foreign workers.” He adds that with a high inflation rate and increasing business costs, companies could relocate their work to places where wages are lower.

Dr Moh Chong Tau, Deputy President, The Singapore Manufacturers’ Federation (SMa), and President and CEO of Makino Asia, says that businesses will be adversely affected as business costs have been escalating in the past six months due to inflation. “Increasing the low income workers’ wages by 50% over the next three years may not be sustainable unless productivity improvements are made in tandem.”

Employers say that besides cash, they are offering extra benefits to help their employees, especially those in the low-income bracket. In manufacturing company, Makino Asia, food is provided at affordable prices in the company canteen as well as free hot drinks. Also, every employee receives a monthly subsidy for food, says Dr Moh.

“In addition, we provide health care programmes and favourable medical insurance scheme which fully cover low wage workers’ serious illness up to the initial $25,000 excluding hospitalisation expenses,” he adds.

Also, Dr Moh says the organisation practices accelerated salary progression for low income workers either quarterly or half yearly to their basic wage, which is raised to a substantial amount within a three-year period.

Employers and experts also say that the burden of helping low income workers should not be on businesses alone. Gary Lai, Managing Director, SEA, Charterhouse Partnership, says that any form of perks or incentives that come directly from businesses will ultimately impact their bottom line. “The government can assist by continuing to provide direct financial incentives to lower income workers in vouchers and subsidies for housing, schooling, transport or food. The government can also provide corporate tax-subsidies to companies which have a huge cost base of low income workers, but ensuring that this cost savings is channelled to this group of low income workers.”