Why Singapore has no minimum wage

Why does Singapore not have a minimum wage? This may be a million dollar question, but it has a one hundred billion dollar answer.

Most developed countries have one – either in law or negotiated through unions. But oddly this is one feature of first world life that the PAP stubbornly refuses to even consider. It is something that many locals would like to see for many reasons. It would help to level the employment landscape which is currently tilted in favour of cheaper foreign workers who can more easily support a family in their lower cost of living home country. A minimum wage would also encourage employers to work towards more productive economic growth rather than pumping up the wealth of the nation by importing cheap labour inputs of increasingly marginal economic benefit in ever greater numbers.

So why is a minimum wage consistently rejected by the PAP? We can get a clue by looking at what actions they take as an alternative to a minimum wage. For example, the budget this year announced billions of dollars will be given to businesses to fund wage increases. The tension between the desires of employers and employees is well recognised, but in Singapore the government consistently sides with businesses. Nevermind the hugely populist vote-buying aspect of this policy that is intended to funnel money to citizens who are even earning above the national median wage – increasing the salaries of citizens is the aim – and this clearly stands as a policy counter-point to a minimum wage. But who will really benefit? Singtel for example, 54% owned by the government, made billions in profit last year. Do they really need government cash to subsidise pay rises? Hardly. So why does the government take this route?

The clue is in the 54% government ownership. The government is the largest shareholder in Singaporean companies. The Singapore stock exchange maintains an index of the thirty largest listed companies – the STI Index – and at least sixteen have the government owning or controlling the largest stake. If we add it all up, shares either owned or controlled by the government in these thirty largest companies are worth over 100 billion dollars. One Hundred Billion Dollars. This actually puts the government in a very awkward position. Any policy decisions have to be balanced with a desire to not endanger the value of these investments. Is it any wonder the government sides with businesses over the needs of citizens?

Going back to the minimum wage – when deciding to increasing the income of ordinary citizens the government has a few choices. For years the government has simply ignored this problem. But more recently, having suffered shocking reversals at the ballot box, the government has realised they need to address this problem to save themselves. But how to act? The government could side directly with the needs of employees and impose a minimum wage, but that would increase the cost of doing business for employers. Does the government want to increase the cost of doing business, for those very businesses in which it has a one hundred billion dollar stake? It is much easier to give the money directly to those companies, on the assumption that the money will be passed on to citizens. But this alternative mechanism is vastly inferior. Like many government policies, it does not put cash in the hands of those who need it most. It does put cash in the bank for businesses that are owned by the government though, and the rules under which this scheme operates include no requirement that the cash is spent on wage increases that had not already been planned. So if Singtel had already decided internally to increase the salary of certain employees, it appears that they will be eligible to receive this money from the government for merely implementing an already existing policy. Hardly money well-earned – and in fact this is effectively just another subsidy from the government to businesses – businesses that in many cases are owned by the government.

So what is the solution? First of all the government should drop its fear of a minimum wage, as a minimum wage is the single best thing that could improve the struggling local economy. But more importantly the government’s holding of huge stakes in local companies needs to end. China for example attempts to prevent government entities from holding stakes greater than 5% in any local company, precisely to prevent this sort of bias influencing policy making. This contrasts starkly with Singapore where the government holds more than 50% in many local enterprises. Of course, the value of these holdings should not be squandered. A careful rebalancing of the portfolio over the course of twelve months would be wise, and the government should re-distribute its holdings so it has the same total value, evenly distributed amongst indexes of companies, similar to the STI, but listed both locally and overseas. This would result in the government taking much smaller stakes in the most successfully global companies – companies listed in Hong Kong, Korea, Japan as well as the US and perhaps also Europe.

With this change in place the government would be free to focus on the needs of the nation and citizens – without the distraction of wondering about the well-being of private corporations that should have the management skills to look after themselves.

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15 Comments

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15 responses to “Why Singapore has no minimum wage

  1. Raymond

    We have workfare, which is well noted to be a system that is better than minimum wage. Just look at the many problems of minimum wage in western countries and you will realize why it is a can of worms.

    • Workfare? You say it is well noted to be better than a minimum wage? But “well noted” by who? A large part of it isn’t even paid in cash? How to use it to buy a bowl of rice?

      Since workfare doesn’t actually establish a minimum wage, it doesn’t actually solve any of the ongoing problems that arise from not having a minimum wage. Employers are still free to bring in cheaper foreigners to undercut local salaries, because there is no minimum below which they cannot undercut. What is to stop SMRT (54% owned by the government) from bringing in bus drivers from Ethiopia on a salaray of S$200 per month? And since workfare comes from the government rather than employers, it is effectively a subsidy to insure employers against increased cost of business, when they should be looking to enhance productivity or improve efficiency to achieve the same.

      Further, what problems do you note with minimum wage in Western countries? Any details? How about minimum wage in other Asian countries? How about in Afghanistan, Angloa, Argentina or Australia. Bangladesh, Barbados, Belize or Bhutan? Do you want me to do every letter in the alphabet?

      Pretty much everywhere in the world has minimum wage except Singapore. Singapore is also pretty unique in having billions of dollars of government money locked up as huge stakes in local companies. It is the fear of adversely affecting their holdings in this companies that prevents the government from undertaking necessary reforms of the local labour market.

  2. WM

    Singapore does have a minimum wage system of sorts, just that it is implemented in an unseen way. Allow me to explain.

    Every company that wants to hire any foreigners firstly has to get their Singaporean/PR quota. For example in the services sector, the 40% of their workforce can be foreigners, meaning they need 3 Singaporeans in order to hire 2 foreigners.

    Now, the govt body responsible for setting how many foreigners each company is allowed to hire is the CPF, who looks at the CPF contribution from the company. A CPF contribution for a wage of $850 would count the Singaporean/PR as 1x head count. Anything lower is counted at 0.5x head count. So the minimum wage is implemented of sorts here, requiring companies to pay at least $850 per Singaporean/PR in order to clock their foreigner quota. What’s more, the CPF contribution needs to be for at least 3 months before the quota is clocked in the 4th month, meaning the company has to wait for 5 months (1st salary paid in subsequent month after 1st hiring) since hiring the Singaporean/PR before getting the benefit.

    Of course there is no such “minimum wage” if the company doesn’t need to hire foreigners, but how many companies don’t hire? That being said, the use of the minimum wage is said to benefit low wage workers. However, from the standpoint of the companies doing the hiring, if the worker cost $0.8 to hire, and only produces $1 of work, then it makes sense to hire the worker as it produces $0.20 of profit to the company, while the worker gets to take home $1. However, if the minimum wage is set at $1, then the company doesn’t make any. If the minimum wage is set at $1.20, then the company makes a loss of $0.20, which then forces the company not to hire the worker in the first place. So what happens is the company is unable keep the worker on its payroll, and the worker takes home $0. This is the real minimum wage, $0. (In a diverse economy like Singapore’s, there will always be marginal producers who will not be able to keep up with the minimum wage, much like how we’ve seen in the papers lately of restaurateurs closing shops).

    Just my 2cents worth.

    • Thanks for the insightful comment. One thing I would say is a good intention behind minimum wage policy would be to create a level playing field between all potential employees. So right now maybe you can have 4x locals @ 850 and one foriegner worker at 600, but with a minimum wage really set @ 850, you would need to have 5 workers @ 850 and suddenly there is no saving available by paying a foreign worker less. This would encourage the employment of locals first.

      Also, if the sum is not legislated openly as a minimum wage people will not pay attention to the meaning behind the value. Perhaps 850 is the value today, but what about last year or 3 years ago, or next year? Does this value increase with inflation? A good minimum wage policy would track inflation so that employees do not become worse off in real terms. Since people do not look at the value you mention as a minimum wage (certainly I never came across this argument before), they do not ask the question of it being linked to inflation. Is it? If not, again it is not functioning as an effective minimum wage should.

      Finally – 850 is a very low wage. It’s not very livable in Singapore so I would suggest it is not going to be enough if we want to talk seriously about a minimum wage policy here.

    • WM

      The playing field is leveled through the implementation of high levies ($230 – $650, depending on industry and MYE quota) payable monthly. Companies still have to provide the accommodation (approx $300 – $400) and transport, which they don’t require for Singaporeans/PRs.

      In fact, many companies do have a policy of hiring locals first. However, with the tight labor market, it is not easy to find locals willing to work. There is also high competition for employees from the govt sectors. For example, the RSAF is offering fresh engineering graduates (completed NS) starting salaries of $3.8k – $5k while HDB is giving fresh grads $3.5k at least. In the lower end of the spectrum, there are not many locals willing to work as a worker in the construction/manufacturing field with the long hours (yes, OT pay is included, but not many are forthcoming).

      Still, if you can look back to my argument that if the company has to pay to the worker a higher rate than the worker can earn, then the company cannot afford to employ this worker. In a tight employment situation like we have now, this worker can easily find a job. But if we have higher unemployment, then it will not be easy to find another job, meaning the worker earns $0, which is the true minimum wage, no matter how high we set the minimum wage at. There are differences between countries so perhaps you can compare the unemployment rates between countries with and without minimum wage?

      The issue of minimum wage is very complex and has an impact on the economy. Even economists have widely differing opinions on whether & how to implement this.

    • From what you describe it still seems a bit like an accidental minimum wage. None of the levies or quotas you mention are advertised as being towards a minimum wage, so it is hard to see as government policy. Besides, leveling the playing field @850 is quite poor, that is too low of a wage in my opinion to be very livable. The quality of accomodation we are supposed to account a few hundred dollars for is often appalling and since these figures are not linked to inflation our low wage workers can easily get left behind.

      About the tight labour market. I disagree we have such a situation in Singapore. Although we see reports of such in the news often, I don’t think our local media is reliable enough with this political hot potato to be believable. Common sense dictates what would happen in a “tight labour market” and it all comes down to supply and demand. When supply is tight, more productive and high value employers can pay a higher wage, and they bid up the price of the scarce commodity. So if unskilled / manual labour was in short supply, wages at the lower end of the spectrum would go up as the available people get pulled into high value economic activity. But in fact that is not what we see. Low wage workers are left behind with stagnant wage growth over recent years. Furthermore, in a limited supply of labour scenario, employees would be in a position of power of employers – forcing better treatment and better working conditions in the knowledge that a better employer can likely be found elsewhere. Again this is not what we see in Singapore. Poor working conditions and a lack of rights are common, with many Singaporeans living in fear of losing their jobs because a better one may not be easy to find. These are the properties of a system where there is an overabundance not a shortage of resources – the overabundance is caused by our open door approach to immigration at all levels of the workforce.

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  4. Brendan

    Don’t try to fix something that isn’t broken. Despite the Quantitative Easing programs that have gone on for the past 5 years, the United States has seen the highest levels of sustained unemployment (6-9%) since the Great Depression, with up to 13% of people dropping out of the labor force entirely. Singapore’s unemployment rate last quarter reached a HIGH of 1.8. Let that sink in. I really don’t know what your objection to it is anyway because Singapore has seen moderate growth for a while now, even when the US has seen major contraction. Minimum wage laws simply makes it a criminal act to hire those willing to work below an arbitrarily high wage that’s set by bureaucrats whom know little to nothing about market dynamics. Raymond makes a good point, and I don’t think you really have the background to understand it. Minimum wage has no doubt had terrible effects in Western countries, and just because you choose to not see them doesn’t mean they’re there. Read up on Friedman and Rothbard, it’ll do you some good.

    • I would disagree when you say it isn’t broken. We’ve all heard the reports about stagnant wage growth over the last decade for low wage workers. What is the point of statistical “growth” when the reality on the ground is that cost of living increases but wages do not? Since the government refuses to legislate to protect workers from exploitation, we find the least well-off being left behind and discriminated against. This is hardly a surprise when the largest employer is the government itself. From SMRT bus drivers to SIA cabin crews, we see local citizens being undercut by foreign workers, and their employers are majority owned by the state! It is sickening.

      For some reason you randomly select the US as a counter-point, but neglect to mention the recent debate over there has been on whether or not to increase the minimum wage. Their unemployment statistics are skewed relative to ours by the fact that they actually have some social safety nets which means there is some value in putting one’s name on the “unemployed” list. In Singapore, with the world’s richest government but no welfare spending, there is no unemployment benefit. Since there is no unemployment benefit, no one puts their name on the “unemployed” list … since there is no value in doing so.

      Few final points… Singapore hasn’t had moderate growth for a while. Last year it was only unexpected revisions that prevented a technical recession. This year Q1 it was again a significant revision that turned negative growth positive. I would like to know more about these so called “terrible effects” of minimum wage which you, just as Raymond, leave unsubstantiated. Bear in mind that the vast majority of countries – particularly developed ones – have minimum wage, but not Singapore. And I’m not aware of any of them which want to get rid of it. Feel free to enlighten me if you have any facts on this.

      Please don’t tell me who or what to read. If you have a point to make, please go ahead and make it yourself. Don’t just wave your hands in the vague direction of some supposed “authority” – the relevance of which you do not even describe.

  5. Real problem is that whilst PAP doesn’t want workers to get foot in the door of minimum wage, it also wants to have its cake and eat it too. Sometimes, if one continues status quo, nobody will ask for more. But PAP started the ball rolling by raising its own salaries to stratospheric levels first- signifying the benefit of having a ‘peg’. Problem is that what is sauce for the goose is sauce for the gander, so now the people also demand a peg to privilege themselves against political/ landlord tyranny. So looks like the minimum wage conundrum is one for the PAP to answer… Yet for one with the hand stuck in the cookie jar, that would not be an easy question to answer.

  6. ABEL

    You say so much, in detailed. you become a member of the Parliament lah . Can save Singapore what. what you waiting for. i think you are someone that studied alot. maybe not. but since you are so against the Garment, then become opposition lor. you so zai. can one lah. you can help people who dont have rice to eat, you can pay them cash.

    but i think hor, you become Garment, you will just shut up , give talks during New Year and eat citizens money.

    Walk the talk . say until machiam Garment will come and see your blog and make a difference.

    Why not you go and make this world a better place?

  7. The govt wants to dispense the wage increases through the employers especially the GLCs so that the recipients will be beholden to them and vote PAP.

  8. jangankuatir

    Interesting article and debate here. I am from Indonesia that has minimum wage system but unfortunately it became source of trouble when our labors started to strike because they felt that Current minimum wage doesnt deal with current cost of living. I think my country need to update the minimum wage and maybe to find other scheme that fulfill all expectation. Based on this article i became known about situation in Singapore. I already read about CPF system and i think that was good idea from the gov. My goal is to compare payroll system in Indonesia with peers countries such as Singapore and Malaysia, and i have studied that Malaysia just set up minimum wage system in 2012 with exemption for low income employers that will get 1 year grace period to increase minimum wage payment.

    • Thanks. Singapore’s lack of a minimum wage can be seen effectively as a minimum wage policy where the minimum wage is effectively zero. So there is a parallel between labourours striking because the minimum wage is too low and how those same people would behave if there was no minimum wage at all.

      CPF is really something seperate to minimum wage but still interesting in its own right.

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