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Oral Answer by Mr Tan Chuan-Jin, Minister of State for National Development and Manpower, to Parliamentary Questions on helping Low Wage Workers and Strategies to Raise Wages

Questions:

Ms Foo Mee Har: To ask the Deputy Prime Minister and Minister for Manpower what can be done to ensure that workers share in the profits resulting from productivity improvements enjoyed by their employers, particularly in respect of the lifting of income levels of workers earning less than $1,500 per month.

Ms Denise Phua Lay Peng: To ask the Deputy Prime Minister and Minister for Manpower (a) whether his Ministry will consider implementing the 'shock therapy' proposed by Professor Lim Chong Yah to revamp the wages of low-income Singaporeans; and (b) if so, what is the impact on the economy, productivity and on businesses especially the SMEs.

Ms Sylvia Lim: To ask the Deputy Prime Minister and Minister for Manpower (a) whether the Government is tailoring specific solutions for wage growth in industry sectors where wage increases lag productivity gains and, if so, how will this be undertaken; and (b) whether the Government is going to encourage wage growth to a living wage for Singaporeans in persistently low-wage occupations and, if so, how will this be achieved.

Mr Yee Jenn Jong: To ask the Deputy Prime Minister and Minister for Manpower in view of the recent inflation figures (a) whether the Government will adjust its target of a 30% rise in median wages in real terms over the next ten years from 2010; (b) what will be the forecast for inflation rate over the ten-year period and the resulting target median wage in nominal terms; and (c) whether the Government will set a target for the amount of wage increase in real terms that will be achieved for the lowest 20% of income earners over a similar ten-year period.

Answer:

Fully Committed to Helping Our Low-Income Workers - A Holistic Approach

  1. In my constituency, I meet a number of my residents regularly. A number of them fall under the low income category. They have wide-ranging and varied needs. Some are clearly struggling to make ends meet. Others manage. We step in to help in a wide range of ways. We tap on national schemes, and more importantly, we also find local solutions.
  2. As an MP on the ground, I can see the impact, as many of you would, of the Government’s effort in trying to uplift our low-wage workers and families. Being in the Ministry, I am able to also see the efforts put in behind the scenes, particularly over the last five years. The creation of jobs and good jobs is probably the best thing, and the most important thing, that the Government can do for the low income families. It allows everyone to stand on their own two feet. They can take pride in providing for themselves and their families. In this regard, we have introduced many initiatives to help businesses create better jobs with better wages, to subsidise workers’ training so that we can upgrade them, to provide them with better opportunities, and to supplement their wages with Workfare. Many of us have seen a number of our residents benefitting from these schemes and opportunities.
  3. However, helping lower-income workers and their families is not confined to jobs alone. We have enhanced our housing grants and subsidies to help lower-income families own their own homes and this has enabled many of our residents to either own their own flats or to be able to rent flats at below-market rentals.
  4. We have also expanded education subsidies and programmes to give their children a leg up in education. We have improved access to affordable healthcare, including long-term care for the aged. In this year’s Budget, we further introduced many major and significant initiatives to take us forward in building an inclusive Singapore. On the ground, all of us can see how these various efforts can, in very real ways, impact the lives of those who fall under the lower income bracket.
  5. As we can see, helping lower-wage workers achieve better incomes must be a key part of our strategy, but it is not the only way we are helping them, and it is important for me to make this clear upfront. It is about having a comprehensive and active strategy to help low income families improve their overall quality of life and share in Singapore’s continued progress. It is about adopting a comprehensive and active strategy and not just simply focusing on jobs alone.
  6. The focus of many of our members’ questions is on raising wages for our low wage workers. As explained, this is only one part of a broader equation. The issue of wages has been widely discussed over the past few weeks, including some very spirited debate on whether Professor Lim Chong Yah’s “shock therapy” proposal is the best way to sustainably raise their incomes. This was a useful trigger to generate thoughts and many have weighed in, both from within Parliament and society at large, with their views on the matter. It is very heartening to see the level of passion involved. Clearly, many of us feel very deeply about this issue.
  7. While there are varying views about the solution, all of us agree that more can and should be done to raise the wages of low-income Singaporeans. The key question therefore is how do we then achieve this in a sustainable fashion, so that our lower-income workers keep good jobs, and remain better off in the long term.

    8. Significant growth for lower-wage workers and households in the last five years

  8. Let me briefly talk about what actually happened to wages at the lower end of the income ladder in the past few years. We have said this several times now but it is worth repeating and important to review this again. Wages picked up significantly over the past five years for most lower-wage workers. Adjusting for inflation, the real incomes of Singaporean workers at the 20th percentile grew by 11.5%1 (or 2.2% per annum) from 2006 to 2011. This contrasts against the decline in real incomes over the first half of the last decade (2001-2006), where we experienced two significant recessions and lower-wage workers were hit particularly hard. In those years, the income levels actually decreased. However, taking the decade as a whole, real incomes were roughly flat.
  9. Next, let’s look at income growth from the household perspective. Here, the picture is more positive. If we look at Singaporean households at the 20th percentile, household income per member grew by 13.6% in real terms in the last five years. Last year, those in the bottom 20% in fact saw the highest percentage growth in income per member. The average of the first decile, in other words the average of the bottom 10%, saw income growth of 6.8% after adjusting for inflation. The second decile saw real income growth of 5.2%. This is higher than what households in the upper deciles experienced.
  10. As a result of the stronger growth in incomes in the last five years, our low income households also saw growth in their real incomes over the decade as a whole. At the 20th percentile, incomes per household member grew by 11.7% in real terms from 2001 to 2011.
  11. This improvement at the household level reflects not just the rise in individual wages, especially in the last five years, but it also reflects the fact that more members of the household have found employment in an economy that has created more jobs with good economic growth in those years. It is also worth recognising that this significant growth in incomes in the last five years occurred despite the rise in the proportion of foreign workers in the workforce.
  12. I should highlight that this is a picture that stands in stark contrast against what we see in many other countries. In fact, we just have to turn to the papers today to read about the riots and the many challenges facing Europe today. The global financial crisis, coming on top of the powerful structural forces of globalisation and technological change that we all face, have led to Europe and the US being mired in high unemployment, low job creation and dismal or negative real income growth for both lower income families and especially those in the middle as well.
  13. The reality therefore is that we have not done too badly in the last five years. This is especially so even before we consider the very significant and comprehensive support that we are providing to lower income families such as through Workfare, housing subsidies and better support for children and the elderly from low income households. The data cited do not include these transfers or assistance.
  14. However, there is another part of labour market realities that concerns us. While the broad group of lower income workers has seen better real incomes, some Singaporeans in specific low-wage occupations have not experienced this improvement in incomes. For example, office cleaners, who are amongst the lowest paid in the workforce, have seen weak improvement in nominal wages over the last decade, and a decline of about 2.7% in their real wages over the last decade.2
  15. Ms Denise Phua asked whether we will consider implementing “shock therapy” to revamp wages of low income Singaporeans.
  16. I share Denise’s and many Singaporeans’ dismay when we look at the state of some of these sectors. In October last year, during the Parliamentary debates on the President’s Speech, I had said that I was not happy with the wages of our cleaners. Let me be quite clear about where we stand. While the broader group of low wage workers have seen improvement in the last five years, the current levels of pay of our cleaners and some of our other lowest wage occupations is unsatisfactory. We have to find the best ways to improve the incomes of all lower-wage workers, in particular for those groups which have seen little or no improvement.

    17. Strategies to raise wages

  17. What are the strategies to raise wages? Well, to do this sustainably, we must continue to do three things right. First, we have seen that the incomes of low-wage workers are actually badly affected when our economy falls into recession or when the economy does not do well. Hence, we have to ensure that we recover quickly whenever the economy takes a dip and to ensure that we are able to sustain good decent economic growth over time. This is the only way to ensure that we can keep unemployment low, keep our labour market tight and therefore create pressures to help grow incomes and wages.
  18. Second, we must invest in and continuously improve the productivity, innovation and skills of our companies and workers. Without significant productivity improvements in the next decade, we will not be able to improve incomes significantly and in particular, on a sustained basis, for Singaporeans.
  19. Third, we must pay attention to ensuring that our lower-wage workers, especially in those sectors mentioned earlier, benefit from the growth that we enjoy. I will talk more about this later.
  20. All three strategies must go hand-in-hand, if we are to succeed in achieving inclusive growth.
  21. Madam Foo Mee Har and others, including union leaders, have asked if higher productivity will indeed lead to higher wages. This is an important and valid question.
  22. Over the long term, real wages of our workers have risen broadly in line with productivity improvements. Since 2000, our productivity grew at 1.7% per annum, while real total wages3 grew at a comparable rate of 1.6% per annum. While real wage growth may not match productivity growth in each and every year, the two tend to be consistent over the long term.
  23. However, our approach is not merely to leave things to the market, or to chance. We are dedicating extra effort and resources to ensure that our lower income groups benefit from the economic restructuring and future growth. Indeed, our lower and middle income Singaporeans must be the main beneficiaries as we restructure our economy over the next decade.

    24. Specific measures to help lower-wage workers

  24. Let me go into the specifics on how our specific strategies can help lower-wage workers.
  25. First, we are helping lower-wage workers to stay in their jobs, by helping them upgrade their skills, and helping employers to pay them higher wages. We do this through the Workfare Income Supplement (WIS) scheme, Workfare Training Support (WTS) and the Special Employment Credit (SEC).
  26. In 2011 alone for example, WTS helped 50,000 lower-wage workers undergo training, and enhance their skills and employability.
  27. Importantly, we now provide a Special Employment Credit to employers of older workers. This is significant as a large proportion of our lower-wage workers are in fact older workers. Since SEC increases along with wages, it actually helps employers raise wages and reward their workers in turn.
  28. Our second strategy is focused on specific occupations and industries. A key way to do this is through the Inclusive Growth Programme (IGP), which is led by NTUC. This addresses Ms Sylvia Lim’s question about whether we have specific solutions tailored for industries where wages have lagged. Indeed, this is the approach taken. The IGP will be focusing especially on sectors where wages have lagged, such as Cleaning, F&B and the Retail sector. In return for the IGP’s support, companies are required to share productivity gains with their lower-wage workers.
  29. We have recently increased Government funding to expand the IGP to benefit a total of 100,000 lower-wage workers by 2015.
  30. A further aspect of our targeted approach is to tackle the issue of cheap sourcing. The cleaning and security sectors are good examples where we face this problem. We will be taking steps to support best sourcing for cleaning and security services, and also to tighten industry regulation and accreditation frameworks to raise standards and enable workers in these sectors to enjoy better employment terms. This will include a requirement for cleaners employed in accredited companies to receive appropriate wages commensurate with the higher training, standards and productivity required of accredited companies. The details are being finalised and will be announced shortly.
  31. To summarise, we are addressing the problem of low wages through a multi-pronged approach. First, broad-based approaches to improve productivity, skills and incomes; and second, targeted approaches that address issues specific to certain sectors. Not just economy-wide incentives, but industry by industry, company by company, working on a tripartite basis to put in place very practical and concrete plans to restructure companies’ operations, upgrade jobs and tie in wage gains with productivity improvements. Both are intensive efforts, and are already in motion. They are practical and sustainable ways in which we can uplift incomes for low-wage workers.

    32. Is Productivity target of 2-3% pa achievable?

  32. We have set ourselves a target of achieving 2-3% productivity growth per annum over the decade. If we achieve something nearer the upper end of the range, let’s say about 2.7%, we will be able to increase productivity by 30% over the decade. That too, is how we hope to raise median wages by 30% in real terms over the decade.
  33. It is a stretch target. Most developed countries enjoy productivity growth of about 1-2%. These are matured economies and in a steady state, they enjoy about 1-2% productivity a year. However, the good news is that, in a sense, most of our industries are operating well below the levels of productivity seen in the most developed economies, and our productivity growth was also relatively slow in the last decade. Hence, unlike a matured economy, we have the space to move up. This is something that we must and should do.
  34. Mr Yee Jenn Jong asked about the inflation forecast for the next ten years, and whether it means that the 30% rise in real median wages will not be achievable. The Monetary Authority of Singapore, like other central banks, does not have a 10-year inflation forecast as over a long period, the combined impact of structural and cyclical changes in the economy on inflation is very uncertain. Global price trends are also difficult to predict far in advance. Nonetheless, we do not expect our current high levels of inflation to persist in the years to come. As the Minister for Trade and Industry just mentioned, the Government will also be doing what it can to bring inflation down.

    35. Should we try ‘shock therapy’?

  35. Ms Denise Phua asked about the impact of a shock therapy on productivity and our businesses, especially the SMEs. Let me share what we learnt from our last experience of sudden and large increases in wages in the 1980s. The NWC’s wage correction policy from 1979-1981 came after a period when wages had in fact been held down. However, wages ended up rising much faster than productivity, and hence Singapore’s unit labour cost (ULC) rose by almost 40% from 1980-1985. This was a sharp increase compared to that of our competitors during the same period, which were mainly the other Asian NIEs. Not all of this was due to the initial three-year wage restructuring, as wages continued to rise quickly after 1981. However, when wages are pushed up artificially much faster than productivity is able to improve, a continuing dynamic of wages and prices feeding into each other, together with expectations and demands will force wages to continue to move up, and this moving up of wages is difficult to avoid.
  36. In the first half of the 1980s, the loss of competitiveness did not have much impact on our exports because external demand was booming. However, the moment external demand began to decline, the demand eased, and the effects of the loss of competitiveness were severe. Tens of thousands of local jobs were lost. It was not just tens of thousands of local jobs, but tens of thousands of workers and tens of thousands of families were affected as well. The impact was not trivial.
  37. To regain competitiveness and create jobs as a response to the situation in 1985, in 1986 the NWC recommended a wage standstill for 3 years. We also had to cut employer’s CPF contribution rates very sharply, from 25% to 10%.
  38. Equally important was the NWC’s emphasis on the need to focus on productivity improvements as the basis for sustainable wage increases. Over the last two and a half decades, this focus has served us well. Wages overall have increased and grown substantially, together with productivity.

    39. Intervene actively to help workers, but avoid taking major risks

  39. What it comes down to is avoiding extremes of one form or another. One end of the spectrum of policy options is to mandate large rises in wages, and hope that productivity gains will follow. In fact this would be, seemingly, the easy option. At the other end, we could take a completely market approach, by simply waiting for market forces do the work of raising wages in a tight labour market, with minimal Government role or tripartite efforts.
  40. The approach we are taking is essentially a balanced one which involves deliberate intervention to support restructuring, to raise skills and to ensure that our lower-wage workers get a fair share of productivity gains. It is an active strategy, and we are not leaving things to the market - but neither should we engage, in experiments that could put our workers and businesses at major risk.
  41. In particular, we have to bear in mind that our SMEs are the major employers of our low-wage workers, and will be at real risk if we force their wages up suddenly. Many of them have indeed expressed their grave concerns over such a move. This is also why we have been increasing foreign worker levies gradually, in small steps each year so that the companies, businesses or SMEs are able to manage and adjust. We are also actively supporting our SMEs to restructure and improve productivity and in turn, this would have an impact on the workers themselves.

    42. Conclusion

  42. To conclude, let me return to where I started – which is about our people. We have provided reasonably well for the majority of Singaporeans and have avoided the situations that plague many other developed countries. However, we know that there are certain segments of our low-wage Singaporeans that have not enjoyed that same improvement. We are addressing this resolutely and will leave no stone unturned to help them move up the economic ladder. We are also taking a holistic approach that goes beyond the labour market. We help them own their own homes by providing heavy subsidies. We have taken various measures to improve their retirement adequacy, through WIS payouts and CPF top-ups. We are doing more for their children, and providing more medical and long-term care subsidies to lower-income families to ensure that they will always have access to good healthcare. Many of these have been taken further in the recent Budget.
  43. We will continue to work with our tripartite partners and press on with our efforts to improve productivity and restructure our economy. While the Government will do its part, we will also work with business-owners, and unions and workers to ensure that we make real progress, so that all Singaporeans, especially our lower-wage workers, can look forward to better jobs and higher incomes.

 

1 Deflated by headline CPI inflation. Incomes are inclusive of employer CPF contributions. If employer CPF contributions are excluded, real income growth over the period was higher, at 15.1%.

2 Calculated based on the real median basic wage of full-time office cleaners, in 2000 and 2010.

3 Including employer CPF contributions, and deflated by CPI.