A road fraught with challenges — Randolph Tan and Tan Khay Boon
MAY 25 — For the first time in 28 years, the National Wages Council (NWC) is setting a minimum quantum of recommended wage increase for the lowest of the low-wage workers.
While it represents a good start to addressing the widening income gap, this move is likely to be fraught with challenges.
Notwithstanding the good intentions of its proponents, any move to set wages or wage increases for low-wage workers could reduce flexibility in the labour market and may be counter-productive.
Worse, it disadvantages those with less bargaining power which, in the current environment, include not just low-wage workers but also those employers who had earlier depended on low-wage foreign manpower which policymakers are now tightening the supply of.
For precisely this reason, the NWC has until now preferred making qualitative recommendations. In deviating from this practice, the NWC appears to have decided that the benefits outweigh the risks.
In the current environment, with the move towards reducing our reliance on foreign manpower inducing some tightness in the labour market, the brunt of the burden is likely to be borne by employers.
Small quantum of increase
These are not exactly the best of times for employers either, with the Organisation for Economic Co-operation and Development warning of the risks of severe recession in the euro zone.
The lot of workers whose employers are caught in a squeeze may actually worsen. For the economy as a whole, this could complicate any potential fallout from the euro zone woes.
The companies likely to be most affected by this guideline are the small and medium-sized enterprises in the service sector which employ many low-wage workers.
If we consider this wage increase in the spirit of a “minimum-wage law”, the usual concern is that it may lead to employers reducing the number of workers employed.
However, given the small quantum of wage increase and the current tight labour market, this is less likely to occur. The more likely scenario is that the low-income workers may get their pay increased by S$50 (RM124), but they are expected to have a higher workload.
For companies already facing rising foreign worker levies, this recommendation would undoubtedly add to their wage bill. Some companies have reacted to the proposal to say they may consider price rises. If so, this could spark off precisely the type of wage-price spiral the Monetary Authority of Singapore is supposed to guard against.
On the other hand, there will be some who argue that the proposal lacks bite because it is not mandatory. The higher wage increases only benefit those who are employed and may not prevent employers from laying off those who have become relatively too expensive to hire. They are also not mandatory.
To wait or not to wait?
Does it then make sense for the NWC to have made these recommendations?
The consequences of low-wage workers in particular — and the economically disadvantaged, in general - not keeping up and remaining relevant for the needs of a 21st-century labour force are potentially severe for our economy in the long run. It could force us to be more dependent on foreign manpower as a replacement.
Given that the NWC took the unusual step of acknowledging Professor Lim Chong Yah’s radical suggestions in its accompanying remarks, it says quite a lot about the environment we are in.
There is almost no disagreement that we need to take a hard look at the lot of the low-wage worker in Singapore. We believe the disagreement lies mainly in whether we can or should wait for this group of workers to justify their increases through improved productivity performance. The NWC cited several programmes already directed at this effort.
We need to have every able-bodied pair of hands on deck if we want to be self-reliant in our manpower needs.
The NWC’s guidelines provide a “signalling effect” to demonstrate this genuine concern. Nonetheless, the NWC can only do so much, and it acknowledges this in its preamble to the latest recommendations.
Those who fall through the gaps
In a good year, there will still be some companies which cannot afford to raise wages and which may have to resort to wage cuts.
In 2009, when the economy was weak, about a fifth of companies cut wages. On average, the magnitude of the cuts for these companies was also larger than that of the increases for those companies which raised wages.
The following year, in 2010, the improved economy meant that the proportion of companies cutting wages fell to about a twelfth. On average, the magnitude of the cuts for these companies was less than that of the increases for those companies which raised wages.
In short, there will always be some who fall through the gaps, and it is the priority of our economic policymakers to nurture growth, not worry about who falls through the gaps. That must be left to someone else.
The only effective way of addressing the plight of low-wage workers in particular - and the economically disadvantaged, in general — is to expand the social safety net. We salute the NWC for its courage in voicing these concerns. — Today
* Associate Professor Randolph Tan is head of business programme at UniSIM’s School of Business. Dr Tan Khay Boon is senior lecturer at UniSIM’s School of Business.
* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.