Raise wages to raise productivity

I happen by chance to read this news article on a flight to Manila concerning on an innovative idea that will help reduce income inequality and the demand for foreign labour in Singapore. One of the main reasons Professor Lim suggested this be made now is due to the falling productivity. He sites the example where before most car washes was automated but now was done by lowly-paid workers. When I think about this idea more its actually similar to the recommendation of the Australian Productivity Commission to increase the current wages paid to people employed in the childcare sector in raise the quality of care which will match raising the qualifications required.

From the Singapore Business Times

 

Local economist suggests second wage revolution

 

3-year plan to cut income inequality, foreign labour use.
Teh Shi Ning

Tue, Apr 10, 2012
The Business Times

 

SINGAPORE – To tackle rising income inequality and an excessive reliance on cheap foreign labour, one prominent local economist is proposing a three-year restructuring plan that includes a wage freeze for top income earners and sizeable pay hikes for the lowest paid.

 

This ‘bold and iconoclastic’ proposal seeks to complete the wage revolution of 1979 to 1981, says Professor Lim Chong Yah.

 

He helmed the National Wage Council (NWC) from 1972 to 2001 and as its founding chairman had a pivotal role in that first, radical three-year wage restructuring exercise.

 

Then, the NWC had recommended a 20 per cent across-the-board increase in wages a year, including higher contributions to Central Provident Fund accounts and to the Skills Development Fund, which grants companies training subsidies.

 

Speaking to an audience of about 50 at an Economic Society of Singapore public lecture yesterday, Prof Lim outlined another three-year solution to Singapore’s ‘two Achilles‘ heels’ – the sharp rise in low-wage foreign workers and rising income inequality – while raising productivity.

 

This features a sizeable pay hike for the lowest-paid workers, regardless of nationality or age, earning less than $1,500 per month over three years.

 

He proposes a cumulative 15 per cent rise in the first year, another 15 per cent in the second, and 20 per cent in the third. This increase would be channelled, in equal parts, to the worker’s take-home pay, his CPF Retirement Account, and the Skills Development Fund.

 

At the top end of the income ladder, Prof Lim proposes a three-year wage freeze for those earning $15,000 or more a month.

 

But he stresses, the intention is not to ‘frighten the geese that lay the golden eggs’ as there will be no pay cut, pay ceiling or super-taxes imposed.

 

As for the middle income, he proposes pay hikes ranging from a quarter to a third of that received by the lowest-income group, part of which will go into the CPF Retirement Account. The government should also match contributions to the Skills Development Fund to demonstrate its commitment to the restructuring effort.

 

Prof Lim envisions all operating details of this proposal being discussed and decided on by the tripartite NWC, as was the case in 1979, to ‘forge consensus by the three tripartite social partners’.

 

He acknowledged readily that national economic restructuring is ‘much more difficult’ now than it was three decades ago, given the changed political, economic and socio-economic climate.

 

But he thinks that Singapore still has effective tripartism and a government and civil service with integrity and ability, so what is needed is ‘national will’ in the face of ‘the problems of economic success’.

 

In response to questions from the floor, Prof Lim said that his proposed scheme is unlikely to have a significant negative impact on unemployment – now at record lows – and that high-quality foreign investment will continue to flow into Singapore in pursuit of strong fundamentals.

 

Asked about the pace he proposes, which seems swifter than the government’s target of a more gradual 30 per cent rise in median incomes in the 10 years till 2020, Prof Lim said that some ‘shock’ is needed to ‘check, halt and if possible reverse’ the rise in income inequality.

 
This article was first published in The Business Times.


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