• Dennis Toh

[Commentary] Why I am not for minimum wage in Singapore

[Commentary] Why I am not for minimum wage in Singapore


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The minimum wage issue has long been a hotly discussed and debated issue in Singapore. During the last general election, it was also used as a key political agenda and contention used to sway the nation’s political inclination.

While it seems that the minimum wage protects employees from being overly underpaid, I believe there are intricacies and hidden flaws surrounding the ‘minimum wage’.

One key problem with the minimum wage is that it is a short-term measure rather than a long-term solution. The minimum wage does protect workers from exploitation where employers suppress the wage intentionally. This is a fair argument. However, I rather we let the private industry and free market take care of it instead.

One key issue faced by employers today is the challenge of hiring suitable workers. It is said that a company is only as good as its employees. Hiring suitable and competitive workers will not only increase a company’s business competitiveness, but also ensure the long-term business survival of the company.

As much as possible, employers will try to match salaries with market forces so as to recruit and retain the best employees in their company. In today’s labour shortage work force, retaining employees is really an uphill task.

Hence my argument is that employers would be ethical and ‘smart’ enough to pay employees at a market rate that is benchmarked competitively according to the industry. While some might argue that there might be exploitation or unethical practices; in this case paying workers a ridiculously low wage, I believe the laws of demand and supply will counter this argument.

If there is huge supply of jobs available and there’s not enough demand of workers to fill the jobs, employers will raise the salary to attract the demand. The reverse is true. If there is limited supply of jobs and demand is huge, there is a possibility where employers will adopt a lower wage strategy. Nonetheless, this does not mean that the employers will exploit the situation by suddenly reducing the ceiling of salary remuneration.

The central argument for having the minimum wage is always on the premise of an anti-poverty tool, especially for low skilled entry-level positions. However I read a Forbes article which states that there is abundant evidence that a 10% increase in the minimum wage leads to a 1 to 3% decrease in employment of low-skilled workers (using teens as a proxy) in the short run, and to a larger decrease in the long run, along with rising unemployment.

http://www.forbes.com/sites/jamesdorn/2013/05/07/the-minimum-wage-delusion-and-the-death-of-common-sense/

I wonder why this is the case. I suppose when employers are forced to pay-entry level workers more, this will ultimately make them hire fewer of them, and consider replacing more workers with robots, computers, IT systems or infrastructures. This is already true as I am beginning to see more restaurants using automated systems to order food and no longer you see smiley looking waiters attending to your needs.

I will spare you the complex economics theories. If there is one thing you have to know about why so many people are against the minimum wage, it is this: Having a minimum wage guarantees nothing.

Yes, some (probably low-skilled?) workers might earn more money, PROVIDED they already have a job. But there will be people who are left jobless because they do not possess skills that have meaningful value or are relevant to the marketplace. Even if they are willing to work at lower wages and businesses are willing to take them on at lower wages, they cannot do so with a minimum wage in place. So in many cases, we actually see the implementation of minimum wage killing jobs for the very people it is trying to help.

There’s an old but still very good article that said this, “In truth, there is only one way to regard a minimum wage law: it is compulsory unemployment, period. The law says: it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result.”

Singapore is supposedly a free market, and we should really let the demand and supply forces play their hands and set prices. Just like what the labour chief Lim Swee Say said, minimum wage can be a zero sum game. Nobody really wins, not even the workers.

Other than making workers lose their jobs, minimum wage may also limit future wage increase since businesses may just pay the minimum wage, period. So, minimum wage may just turn out to be the maximum wage.

The other issue, which is close to my heart, is on the notion of productivity. Productivity is an average measure of the efficiency of production. It can be expressed as the ratio of output to inputs used in the production process, i.e. output per unit of input. It is said that Singaporeans are highly productive and due to the knowledge-based economy, our nation’s competitiveness stems from our highly skilled, knowledgeable and productive workers.

There are also various productivity grants and incentives like the Inclusive Growth Programme grants from e2i or even Productivity and Innovation grant (an incentive which I have truly benefited) in place to encourage businesses to improve productivity to counter the manpower crunch. With higher-tech solutions, businesses will also train their staff so there’s also the element of upgrading for the workers.

Meritocracy is itself integral in the way our society works. We work hard for what we want. And somehow, if we do it right with a pinch of luck, we will be duly rewarded at the end of the day. I am a firm believer in the continuous pursuit of knowledge and skills, be it for professional or personal reasons. Not having the minimum wage gives a notion or signal that anyone, who works hard enough will be able to reap his or her fruits in the long run. By having the minimum wage, not only does it send the signal that workers are generally protected constitutionally, it gives room and spaces for people to think that they don’t need to up keep their skills or knowledge, yet be paid a certain ceiling of pay, made mandatory by the government, and not necessary a true reflection of their real skill set.

As a business owner myself, my goal is to grow my companies and to ensure my employees are rewarded well based on their performances & inputs. I believe our current social –economic landscape is mature enough to handle the intricate issues relating to manpower and labour force. Having constitutional protection of a minimum wage may be a good stance for some people politically; it might not necessarily help our country in the long run.

Dennis Toh , Editor, http://www.TheInfluencerMedia.com

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