Singapore wage-cut plan stirs controversy

Tony Sitathan
Asia Times
26 August 2003

SINGAPORE – Singapore is facing a bad period of economic uncertainly, with unemployment rates having reached almost 4.5 percent, the highest recorded since the economic slumps of 1976 and 1982. Currently more than 90,000 workers are out of a job.

This movement up the unemployment barometer, after previously enjoying the lowest jobless rate among Southeast Asian economies, has made the government realize that it has to propose unpopular countermeasures to keep its workforce competitive with workers in China, India and Vietnam. It has unveiled a program of wage cuts that it says are necessary to keep jobs in the city-state.

Singapore, with its overdependence on multinational corporations (MNCs), has realized the brutal truth that the multinationals’ global supply and procurement chain is continually evolving. The propensity to outsource is increasing, and many MNCs prefer to relocate their manufacturing locations to areas that have lower overheads and operating expenses. Singapore, despite its high productivity rate per employee, still ranks as an expensive center for production or manufacturing services in Asia.

“There is a real danger that Singapore is fast losing its competitiveness when it comes to workers from neighboring Asian countries,” said Audrey Lam, a senior analyst with an investment company based in Hong Kong. “Singapore has a higher standard of living and higher costs of living. Real wages have increased almost by 30 percent since the early 1990s. In light of such changes, Singapore is worried that its pro-business environment and world-class infrastructure or high-tech manufacturing hub will not be sufficient to draw in the foreign investors.”

Singaporean Trade and Industry Minister George Yeo warned about wage cuts in parliament early this month. He said that Singapore faced long-term structural challenges despite an improving economic outlook. “The pressure is across the board because of the large number of skilled workers, technicians, engineers, programmers and others from these countries [Vietnam, China and India] prepared to do the same work for much less money,” he said. There was, however, no mention of the exact quantum of the wage cuts nor which category of workers might be affected.

Prime Minister Goh Chok Tong made a similar call for improving Singapore’s competitiveness in his National Day rally speech recently. “Our standards of living and business costs are reaching developed-country levels. And this is happening at a time when many lower-cost competitors are emerging. For every one manufacturing worker hired in Singapore, a company can hire three in Malaysia, eight in Thailand, 13 in China and 18 in India,” he said.

Goh pointed out that there was a need to take a closer look at the wage model for both the private and public sectors, with a greater emphasis on productivity and performance-linked pay rather than seniority within a company. “The problem is not just the absolute levels of wages, it is also the rigidity of our wage system,” he said.

The Port of Singapore Authority Corp (PSA) underwent some wage restructuring when it realized that in order to stay competitive it had to hive off close to 10 percent of its labor force and also impose wage cuts across the rank and file of the company. The PSA was forced to rethink after it faced severe competition from Malaysia, where several international container lines and their subsidiaries opted for Malaysia because of cheaper port and services charges.

Singapore’s economy contracted nearly 1.3 percent in the first six months to June because of the Persian Gulf and severe acute respiratory syndrome (SARS) crises. However, things are expected to rebound and its economy to revive from 1.3 to 3.3 percent growth in the second half of 2003.

Despite Singapore’s attempts to stay competitive, there is a growing fear that foreign expatriates are competing with Singaporeans for jobs. “There was a vicious half-truth circulating in public that the wage cuts and layoffs do not affect the large pool of expatriate workforce and are aimed instead at Singaporeans. It cannot be farther than the truth,” said Anthony C Reynolds, a lecturer with a private educational institution in Singapore. He received his marching orders to quit and his work visa was not extended during the SARS epidemic, which saw fewer students coming to study in Singapore. But he intends to spend his remaining time searching for the right job in Singapore.

Controversy was stirred up by a recent study by two economists at Nanyang Technological University purporting that three out of four new jobs created in the past five years went to foreigners. The study was discredited when the Manpower Ministry pointed out that it had been based on incorrect figures, and that in fact only one out of 10 jobs went to a foreigner. But the damage had been done – the study added to the impression that there were fewer opportunities for Singaporeans and that they were being unfairly sidelined.

Acting Manpower Minister Ng Eng Hen explained the government’s standpoint on foreign workers and stressed that its labor policy was not pursued at the expense of snatching jobs away from Singaporeans but rather focused on job creation.

Ng said that adopting an anti-foreign-talent policy in Singapore would do more harm than good. It would discourage firms from growing their businesses, especially when they could not get the right workers. “This in turn would mean trouble for Singapore’s economy and for Singaporean in general,” Ng argued. “We have seen the protectionist labor practices in France and Germany having worsened unemployment levels in their countries instead of helping them solve their unemployment problems.”

He also pointed out that between 1993 and 1997, when the economy was expanding, there was little resistance when 60 percent of the 475,000 new jobs went to foreigners. Singaporeans had an option at that time to choose what jobs they wanted and what suited them. Now when the going is tough, Singapore has to strive to create new job opportunities. He outlined several measures to grow the job market through new investments, emphasize skills upgrading, free up the labor market, and somehow coax Singaporeans to take jobs they used to shun.

Still, many Singaporeans feel that wage restrictions and wage cuts would be unfair, especially as they have made sacrifices in the past when times were bad. “We see a recovery in the latter half of 2003 and better sales orders for 2004. Why should we look at wage restrictions and wage reforms now when we should be looking at increasing our basic wages?” asked Samy Matthews, a production-line leader in an optical-instrumentation factory in Singapore. Many like Matthews feel that the government may be overreacting, and that now is not the time to tighten the purse strings, as economic recovery is imminent.

However, the truth is that Singapore, like the rest of Asia, is probably not completely out of the woods yet. “It would be [presumptuous] to suggest that Singapore has totally recovered from its exposure to the manufacturing fallout caused by the SARS epidemic, where even companies like 3M and Hewlett Packard Singapore had to call for four-day workweeks in their manufacturing schedules and slow down their night shifts,” said Lam. “Full economic recovery is only expected in the middle of next year.”

Until then Singapore’s short-term fiscal pump-priming policies may well serve to keep it on a path toward economic recovery.

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