Minimum wage: What it is and why it’s important

August 15, 2005
Singapore Democrats

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Since we posted the proposal of instituting minimum wage in Singapore, some readers have asked questions about its feasibility. Will it raise the cost of business? Will it cause more unemployment? One even said that it was unworkable. The Singapore Democrats present more information on this topic and provide compelling reasons how such legislation will help not just help the workers but the economy in general.

What is minimum wage?

Minimum wage is mandated by law where a worker cannot be paid below a ceratin amount (usually calculated on an hourly basis).

What are some of the benefits of having minimum wage?

One, it minimises exploitation of workers. Singaporean workers are paid very poorly in relation to the cost of living in this country. In a survey conducted by the Global Competitiveness Report, Singaporeans are among the worst paid in the world after one accounts for productivity. Out of 59 countries surveyed in the study, Singapore ranked 56th. Only Russia, Ukraine and Ecuador paid their workers more poorly.

Another indicator is that while Singapore’s GDP income is 25 times that of Indonesia’s, our labour costs is only 1.6 times as great. This tells us that for the kind of work that they produce, working Singaporeans are not being paid equitably.

Even the Government has admitted that while the country’s GDP levels are high, our wage structures remain at the Third World level.

Two, minimum wage increases the purchasing power of Singaporeans which helps the general economy.

Three, it raises the productivity of workers. Workers who are underpaid have to find alternatively sources of income such as taking on a second job. Under such stressful conditions, can an employee give their 100 percent to their first job? Financial stress and insecurity bring added problems at home. This again boomerangs on a worker’s performance in the workplace. Worker efficiency and labour productivity suffer when workers’ salaries are not commensurate with living costs. Paying workers unjust wages may well be a case of being penny wise, pound foolish.

Four, higher wages encourage employees to stick with one employer instead of job-hopping. This enables workers to learn new skills and gain important experience which, in turn, benefits the company. Conversely, employers are more willing to train the workers rather than go for the lowest wage “bidder” for the job. Increase in employer-employee trust and loyalty can only boost productivity and lower other cost factors.

Won’t minimum wage drive up costs and thus cause less people to be employed?

Studies by some economists in the US show that minimum wage, while causing increases in salaries, show no signs in decreasing the number of jobs.

Of course, there will be a “tipping point” beyond which minimum wage becomes counterproductive. That is, the minimum wage is so high that businesses have to close, resulting in retrenchment, or that they cannot afford to employ more people.

But this is where market forces come in where employers and employees come to a compromise/agreement on the level of a healthy and productive minimum wage which benefits both sides. But the point is that there must be this tension between management and workers. In Singapore at present, no such mechanism for bargaining exists. The PAP Government is the employer and final arbiter on wage levels, and it insists that there should not be minimum wage. In the meantime, Singaporeans continue to labour under impossibly low wages.

We cannot even begin a debate about whether a certain level of minimum wage is too little or too much because we’re not even at the starters’ block!

Perhaps the most convincing evidence in support of minimum wage is the fact that many countries have it and, more important, they are doing much better than Singapore in terms of economic performance. The best example is Ireland where the minimum wage is US$8 per hour. Yet the country has the fourth-highest GDP per head in the world in 2005, low unemployment not to mention a very free political system (meaning a strong labour movement as well). It is also one of the most competitive economies in the world in terms of attracting investments from multinational companies. Ireland’s economic performance really blasts a gaping hole in the PAP’s propaganda that low wages and a one-party rule are necessary for economic progress.

Country & minimum wage (Amounts are all in US$ per hour)

Australia – Approximately $9 ($362/week)

Canada – $4.86 to $7 depending on the region

Finland – $6.50

Ireland – $8

New Zealand – $6.45

UK – $5.27 to $8.53 depending on age and qualifications

US – $5.15

Note: Switzerland, a country whose living standards the PAP has promised Singaporeans years ago, does not have minimum wage but collective bargaining by trade unions ensure that monthly wages don’t go below US$2,330 a month.