Are we tightening on cheap labour? Are we helping Singaporeans?

The Low Wage Singaporean

The plight of the low wage Singaporean is well recognised. Struggling more than most to make ends meet: cleaners, labourers, toilet attendants and others typically earn less than $1,000 per month. Despite Singapore’s much-lauded GDP growth, this is a group that has been left behind. According to MOM statistics, the real monthly income of a citizen in the 20th percentile has been flat [1][2] over the past decade. In June 2012 it was reported that the monthly salary of a citizen in this group was $1,500 [3]. This group, together with those earning even less, account for one fifth of Singapore’s working citizens. To restate – one fifth of Singapore’s working citizens earn $1,500 per month or less, and have seen no real increase in their incomes in the last decade.

The Competition

Clearly this is a cause for concern, and the reason for wage stagnation is widely held to be the downward pressure caused by the wide availability of cheap foreign workers. NTUC Director Diana Chia, speaking in May, gave voice to an argument that resonates with many:

“Because we had easy access to foreign labour, we’ve made it easier for employers to say, what’s the impetus for me to increase their salary? It’s natural for people to behave like that. After all, as an employer, you’re profit-driven.”

While Singapore, like many countries, has long felt the need to augment its workforce in areas shunned by locals, in recent years the government’s increasingly liberal approach to immigration has seen foreigners take on more jobs that were once done by many locals. An example was brought into focus by the recent SMRT bus drivers strike – once the dust had begun to settle it was reported [4] that the mainland Chinese component of the workforce – a relatively recent addition – receive a basic starting salary of just $1,100. That pay packet is very much in the range of salaries earned by local low wage workers and presumably puts downward pressure on SMRT’s pool of local drivers, who are thought to earn more. In a country however with tens of thousands of self-employed taxi drivers, it is hard to accept that a salaried, CPF eligible position driving a bus is something locals truly shun – rather low wages and increased working hours are likely to deter applicants.

The Concern

The government, to their credit, is aware that there is a problem and states that the challenges faced by low wage workers are a priority. In his May Day speech PM Lee said [5] we “must make a special effort for the low wage workers”. But what is to be done to help those we see as getting short-changed by the PAP’s model for economic growth? If the problem is the excessive availability of foreign labour, then the solution should clearly be to tighten the inflow.

Measures Taken

But have the government acted? Good question. One can hardly turn on a radio [6] or open a newspaper these days without having a reminder of the government’s supposed “tightening” of the labour market rammed down ones throat. However, as I wrote a few months ago [7] I am highly skeptical that the government’s actions so far are meaningful. The government has a wide range of passes and permits under which employers can recruit foreign workers – from the work permit (WP) and S pass (SP), for low and semi-skilled candidates respectively – to the P1 employment pass at the opposite end of the spectrum, for which one needs a minimum salary of $8,000 to even be considered. For the purpose of this discussion, clearly we need not consider P1 employment pass holders since they are not in any sort of competition with the low wage local workers about whom we are concerned.

It is workers on the WP and the SP who can most easily be seen as competing with low wage Singaporeans for employment. The next rung up on the permit ladder is the Q1 employment pass, for which one needs to earn at least $3,000 (and probably more)[8] to be considered. To be eligible for the WP however there appears to be no minimum salary – in fact there have been reports of WP holders being paid as little as $500 per month [9] – and as such the impact on low wage citizens is likely to be significant. At the SP level, there is a minimum salary of $2,000. This is somewhat above the $1,500 salary of a citizen in the 20th percentile, but as the SP is aimed at semi-skilled workers this group can be seen as competing with citizens who seek to upgrade themselves and improve their lot by moving into more productive work. To answer the question of tightening on cheap labour to help low wage Singaporean’s we need to consider the flow of WP and S pass holders.

In answer to the question of what has been done, my answer is: not much. Despite almost constant reminders in the state controlled press, it is hard to find meaningful examples of policy changes the government has made to tighten the flow of cheap labour. The most obvious change was announced in the 2012 budget [10]:

The government will tighten the foreign worker quota by reducing Dependency Ratio Ceilings (DRCs), which specify the maximum proportion of foreign workers that companies in various industries can hire, to curb foreign worker growth from 1 July 2012.

The manufacturing industry will take a five per cent cut in DRC from 65 to 60 per cent. This means that foreigners will only be allowed to make up 60 per cent of the manufacturing workforce, as compared to 65 per cent previously.

The services sector will also take a reduction in foreign worker DRCs, from 50 per cent to 45 per cent.

S-pass holders will also see a cut in DRC of five per cent to 20 per cent.

These changes will be implemented come 1 July, where companies in the manufacturing and services industry will not be allowed to bring in new foreign workers that will result in them exceeding the new ceilings. Companies that exceed the new ceilings with their existing worker pool will be given an additional two years, till June 2014, to reshuffle their employee make-up to fall back within the new DRCs.

What has been done is nothing more than a five percentage point reduction in the ceiling on the proportion of foreign workers that local companies can employ. Is a five percentage point reduction meaningful? Clearly it is better than nothing, but it is hard to imagine a government policy that would tighten the supply of labour less and still be taken seriously. Only those companies which are right on the limit in terms of reliance on foreign workers will be affected, and even then only impacting future hiring decisions. Since the current crop of workers can continue as they are until June 2014 it is likely that most business can continue as normal, and this in particular makes claims of a tight labour market impacting businesses hard to believe. In light of this, it is also hard to imagine this policy creating a significant set of new opportunities to improve the lot of the Singaporean worker.

Let me re-iterate – a five percentage point reduction in the limit to the proportion of foreign workers a company can hire is not a meaningful tightening of the supply of labour. In fact, it is the least a government could possibly do and still be taken seriously.

So what of the endless media coverage of the supposed tight labour market? I would point to a couple of things – separate from dependency ceilings the government has also increased the cash levies employers have to pay MOM for each worker they hire. Whilst this is a nice revenue source for the government, and probably has a positive impact on the economics of hiring foreign staff, it cannot really be said to impact the supply of labour. I suggest employer unhappiness with recent policy changes is more likely a result of increased levies than minor changes to dependency ratios. More importantly, the subservient relationship media tends to have with the government in Singapore is well recognised. One key reason why we keep hearing about a tightening of the labour supply is probably that the government wants us to hear about it. As long as this is government policy, the media are likely tasked with reminding us of it at every opportunity. Although the miniscule nature of the policy changes does not appear likely to have a meaningful impact on the supply of labour, this is the government position and we are likely to be informed of this on a regular basis.


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One response to “Are we tightening on cheap labour? Are we helping Singaporeans?

  1. Pingback: Triple confirm. “Tightening on foreign labour” was a lie. | andyxianwong

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