It hurts not those it’s supposed to help

I refer to the 13 Mar 2013 Straits Times letter “It hurts those it’s supposed to help” by Mr Patrick Liew Siow Gian [1]. Mr Liew feels that wages should be dictated by free market forces as it is the most productive, competitive and sustainable. Our experience has shown quite the reverse, that readily available cheap labour lowers productivity; even our government has acknowledged that cheap labour driven economic growth is unsustainable [2]. Many small and medium enterprises primarily serve the local market and so do not compete with similar small, medium enterprises in rival economies. Even if they do, all else being equal, they would be competing on even grounds under the same rules, minimum wage or not. The minimum wage merely compensates for the over-cheapening of wages due to mass labour influx. Rather than see it as being an increase in overheads, why not see it as a return to previous overhead levels without cheap labour? There is no difference as far as the consumer is concerned since savings from previously reduced overheads due to cheap labour were never passed down to consumers. Cutting off cheap labour pushes companies to upgrade and become more, not less competitive. It is a virtuous rather than a vicious circle that upgrades salaries and benefits rather than hurts lower skilled workers.

Although we do not have unemployment welfare programmes, we have underemployment welfare programmes. It can also be argued that reliance on government underemployment programmes entrenches current work practices and disincentivises productivity upgrade and thus reduces competitiveness.

The current system achieves similar outcomes as the minimum wage. The main difference is that in the current system, our workers are made to feel that they are receiving money from the government whereas for the minimum wage system, our workers are made to feel that they deserve some minimum wage level.

[1] Straits Times, It hurts those it’s supposed to help, 13 Mar 2013

[2] MTI Insights, Developing Our Industries, 13 Dec 2011
• Singapore’s economic growth in the last decade was driven largely by labour force growth. This is clearly unsustainable, and productivity will be a key driver of our economic growth in the coming decade.

[3] Budget 2012 Speech (Part 2): Sustaining Economic Growth
• However, our increasing dependence on foreign workers is not sustainable.

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