Justice Party Singapore
High Wage Policy Revisited
Prof Lim was chairman of the NWC when the government implemented the high wage policy with the intended purpose of pushing companies in Singapore to increase their productivity through use of higher technologies, better skilled workers, etc. Mr Lim Chee Onn who was the minister without portfolio and NTUC Secretary General also pushed very hard for this idea.
How bad was the high wage policy? Let’s look at the table below:
growth rate growth rate growth rate Remarks
1979 8.0 11,6 9.4 NWC recommended high wage policy
1980 7.3 10.3 10
1981 6.5 9.4 10.7 High wage policy1982 4.0 3.0 7.2
1983 8.3 5.9 8.6
1984 9.3 9.9 8.8
1986 11.0 11.0 1.3 Wage restraint and flexi-wage policies
1987 10.7 13.4 10.8
1988 5.6 8.4 11.1
1989 10.3 2.2 10.2
It should be reasonable to conclude from the table that when growth was strong, high wage policy was not a problem. In 1985, Singapore went into a recession. This was attributed to the high wage policy. Rigidity in the wage structure made recovery from the recession difficult, so the high wage policy was subsequently replaced by wage restraint and flexi-wage policies.
Had the government been too hasty in abandoning the high wage policy? Could the outcome be different? While the high wage policy was intended to be the push factor, what was lacking then were pull factors that would aid companies go to the next level and supporting factors that would help smooth the path of the high wage policy. The idea of high wage was good, but it cannot work alone. As the wage structure in Singapore is no longer as rigid as before and with the high income gap and the attendant social costs, it is time to revisit the high wage policy.
We all know rental costs in Singapore are very high and form a major cost component of companies in Singapore. And the Government is probably the biggest landlord. To help companies, especially SMEs cope with a high wage policy, the Government and perhaps the GLCs could take the lead to reduce the rental rate in stages, in tandem with each push in wages. Companies that are taking steps to skill up their workers and to redesign their processes to cope with the higher wage costs could be given greater rental reductions than those that do not. The reduction in rentals will mitigate cost-push inflation. Similarly, HDB could reduce their stall rental rate in tandem with wage increases so that the hawkers are not pressured as much to increase their prices.
Small companies may also need help in their effort to redesign their processes and to train their workers. As we are likely to have a substantial pool of underemployed, unemployed and retired skilled workers due to displacement by cheap foreign labour and old age, so perhaps a scheme to gather these people and match them with companies that needed their skills for productivity enhancing projects could be looked into. The fees earned by these people could be made tax free and the companies entitled to double deduction of these costs for tax purposes. This would create a win-win situation for the struggling small companies and the displaced or retired Singaporeans with the requisite skills.
A system of recognizing different skill levels is another area to explore. For example, when you engaged a contractor to do your home renovation, you do not know the skill level of his workers. Wouldn’t it be useful if you know whether the worker who is doing up your kitchen cabinet is a master carpenter and not merely someone who can saw wood and hammer a nail? Wouldn’t it be useful if you know that the contractor is a top-class project manager and that under his supervision, your renovation will be completed on time? Would you pay a little more for such peace of mind? If such a system is in placed, workers can be motivated to upgrade themselves. Employers will be happy to get their workers upgraded as well. Customers and clients will also be much happier and more willing to pay for their services as they know they are getting their money’s worth.
The high income gap is a problem that needs to be addressed and it is hope that this article will spur further discussion and throw up more ideas and solutions.
JPS Central working Committee
I really wonder what kind of economic theory is being used here for SJP to arrive at conclusions such as that of high-wage policy being able to move any country towards a ‘Swiss standard of living’.
ReplyDeleteAnd I really wonder how the writer for a political party can have the misperception that it will also give rise to a ‘vibrant’ and ‘inclusive society’. It gives the impression that SJP’s solution to our social shortcomings is to ensure high wages for all.
While I agree that the income-gap issue needs to be addressed, it does not help that SJP indulges in faux-economic theorising by making statements such as, “Rigidity in the wage structure made recovery from the recession difficult”.
Instead of attempting to gain respect and prominence through making sensible policy proposals, SJP is seen to be making frivolous and even proposal based on ignorance and a huge dose of amateurism. A clear example of this is the proposal to have a ‘system of recognizing different skill levels’. I suppose the writer has not even taken any effort to find out more about the various training and certification system offered by various training institutions (eg. ITE) and PSB before he even pens them down.
The lack of due research and diligence is obvious.
My suggestion for SJP is to scrutinise its articles more closely before it publishes them.
Otherwise, its publication will be perceived as no different from those that appear on the rabid alternative media such as TR. And already, we have a deluge of those, without needing more, especially from a nascent political party.
Take the right path - and make some sense!
Note that it was the Singapore Government that implemented the high wage policy. So perhaps you are saying that this policy of the Government was misconceived. We don’t think the policy was not misconceived at that point in time but that it was let down by the implementation.
ReplyDeleteThis was made quite clear in the article. And, we did not invent the idea of "wage rigidity". The fact that the government implemented flexi-wage policies after the 1985 regional recession indicated that they recognized the problem of wage rigidity then.
As for the "system of skill levels", do note that the
various training institutions are meant to equip the trainees with the basic skills so that they should more or less be able to hit the ground running when they first enter the job market. But in the market, there are people with different level of skills for the same job ranging from skills of an “apprentice” to the skills of a “master craftsman”. We happened to think that it would be good to have some formal recognition of these different levels of skills as it not only benefits both the person supplying the skill and buyer of that skill, but can uplift the whole market as it creates an environment that encourages people to keep improving and to have pride in their skills.
Central Working Committee-JPS