Speaking on social inclusion in Singapore during his third lecture as IPS’ 9th S R Nathan Fellow for the Study of Singapore, Mr Ravi Menon outlined a labour-centric model of inclusion that aims to raise the wages of low-wage workers, sustain median wage growth and promote income mobility.
To address the risk of growing wealth inequality, Mr Menon said it made sense to shift the balance in Singapore’s tax structure away from taxing income towards taxing wealth. This could take the form of a property gains tax or inheritance tax. He observed, however, that wealth taxes had not worked well in many European countries. “This is not necessarily a reason for not imposing a wealth tax but a strong caution that designing a good wealth tax is not a trivial exercise,” he clarified.
Mr Menon described a job and wage architecture comprising two “safety nets” in the form of a minimum wage and an enhanced workfare income supplement, a “trampoline” in the form of re-employment support, and four “escalators” to help people move up the wage ladder, namely through progressive wages, reclaiming jobs, professionalising all jobs, and lifelong learning.
Safety Nets: Minimum Wage and Workfare Income Supplement
Mr Menon said Singapore might want to seriously study a modest minimum wage as a safety net to complement the existing Progressive Wage Model (PWM) in lifting the wages of workers at the bottom of the income distribution. He pointed out that a large body of empirical evidence across countries had found zero or minimal adverse effects on employment from an increase in the minimum wage. However, he also cautioned against exaggerating the benefits of a minimum wage in significantly reducing income inequality.
“A minimum wage also signifies a societal value: that no one should be paid less than this amount for his or her labour. It is not unlike setting minimum standards for workplace safety and humane conditions of work,” he added.
The government could use the Local Qualifying Salary (LQS), currently pegged at $1,400 per month, as a de-facto minimum wage if a national minimum wage is seen as too big a step. The LQS is a minimum wage that must be paid to resident workers in order for them to count towards an organisation’s total workforce when determining work permits and S Pass quota entitlements. He noted that the LQS has been increasing by $100 every year over the last few years. This could continue, or the increases could be stepped up.
Mr Menon added that the minimum wage was not a straightforward issue, as the price of foreigners relative to locals would need to be simultaneously raised for any form of minimum wage to work.
Mr Menon said a second safety net was the Workfare Income Supplement (WIS), which tops up the salaries of workers up to the 30th percentile.
Trampoline: Re-employment Support
Mr Menon highlighted the need for a trampoline to help workers bounce back from falls — specifically transitional support for re-employment. In his view, dealing with ongoing technological disruption demands a more dynamic and flexible labour market, which would require more security for workers than what Singapore currently has. This can be in the form of temporary unemployment benefits or insurance to ease the transition of workers from redundant jobs to skills training before they can take on new jobs, he said.
These support measures should be “time-bound” and designed as re-employment facilitation rather than unemployment benefits, Mr Menon advised. He explained that providing monetary assistance without a deliberate link to employment search and active upskilling leads to poor outcomes, as shown by the experience in many countries.
According to Mr Menon, Singapore’s current approach of supporting workers by subsidising their existing jobs through transfers to firms may have to gradually pivot to directly supporting workers and their retraining into the new jobs of the future, such as through the ramping up of existing subsidised attach-and-train schemes.
Escalators: Progressive Wages, Reclaimed jobs, Professionalised Jobs and Lifelong Learning
Mr Menon said that the sector-based Progressive Wage Model (PWM), a wage ladder where workers can earn higher wages as they upgrade their skills, was more effective than a static national minimum wage when it comes to raising the wage prospects of most low-wage workers.
He said that, however, it was unclear if the PWM, which presently applied to only three sectors, could be easily extended to all occupations below the 30th percentile, how long it would take and whether it would work as well. He said a minimum wage could complement the PWM instead of being pitted as an alternative.
Mr Menon estimated that one out of three low wage jobs in Singapore are taken up by cheap foreign labour, thereby dampening local wages. Progressively tightening the intake of low-skilled foreign labour and freeing up these jobs for Singaporeans would help resolve this, he said, pointing out that the demand for domestic services like cleaning, maintenance and cooking was inelastic and that wages would have to go up if the number of foreign workers was reduced.
The education and healthcare sectors, he noted, had scope to reclaim local jobs at good wages.
“The increase in wages, coupled with improvements in work conditions and prospects for a meaningful career should gradually attract Singaporeans into these domestic services,” he added.
Mr Menon suggested setting as a goal the professionalising of all jobs, adding that as a start, the category of professional, managerial, executive, and technical (PMET) jobs could be scrapped. He stressed that it was important to raise the status of “blue collar” jobs like plumbers and electricians. To be an inclusive society, Singapore must value social and vocational skills as much as academic intelligence, Mr Menon argued.
“If we can’t abolish the PMET category, then at least drop the ‘P’ from the category: it suggests other jobs are not professional,” he said. “We should question the premise that all Singaporeans should aim to take up PMET jobs.”
Emphasising the importance of continuous education, Mr Menon advocated allowing workers aged between 40 to 50 to take a paid six-month learning sabbatical to pick up fresh skills and capabilities, arguing that training and skills upgrading need to be integrated as part of work life rather than an episodic luxury during lull periods.
Question-and-Answer Session
During the question-and-answer session moderated by The Straits Times Associate Editor Ms Chua Mui Hoong, Mr Menon questioned the conventional wisdom that wage increases at the lower end of the income distribution would affect our cost competitiveness, pointing to the experience of advanced economies where a broader range of workers was paid well and able to afford high prices.
Puzzled at how Singaporeans are willing to fork out much more for a dish at a restaurant and yet are sensitive to cost increases for that same dish at hawker centres, Mr Menon said that Singaporeans must be willing to bear higher prices for our local food to raise wages for hawkers.
The minimum wage, in his view, should not be set too high as it could risk unemployment for Singaporeans, adding that he would start with something lower and watch how things panned out to manage possible dislocations.
As to why he has finally come around to a minimum wage after changing his mind three times on the issue, Mr Menon replied that his confidence in Singapore’s tripartite mechanism to pull it off led him to say yes this time, but mused that he might change his mind again in the future depending on the economic data and facts.
Mr Menon also reiterated the importance of re-employment support, especially for mid-career workers at risk of job displacement, citing their fixed cash outlays that limited job mobility and flexibility. He cited Denmark, which has a flexible and dynamic labour force with reliable safety nets. All stakeholders — employers, employees and the government — have a responsibility to chip in and fund these assistance schemes for an equitable burden sharing, he emphasised.
The paradox, he added, is that the government needs to help people in order for them to become self-reliant, which is why he believes the traditional left-right political divide does not make sense.
“The right says people must be self-reliant, if you take care of them, they will become dependent and entitled. The left says no, they cannot take care of themselves, the state has to take care of them. This is an endless oversimplified debate,” he lamented.
“Over the years, I have come to the conclusion that you cannot leave these things entirely to the market,” Mr Menon said, “and yet, we have seen so much of how state welfarism has damaged societies.”
Ultimately, the key is a work-centred social security and inclusion model underpinned by values of self-reliance and public support, where help from the state, employers, and the community are primarily aimed at helping people to be able to help themselves eventually.
Responding to a question on whether Singapore over-relies on the Gross Domestic Product (GDP) as a planning tool, Mr Menon answered that the government does not bank on the GDP as a be-all and end-all planning tool and instead looks at a range of indicators, including inflation, productivity, and wage growth, besides GDP. While agreeing that GDP growth should not be overly valorised, Mr Menon said that it should not be discarded, adding that it is a good enabler of median wage growth.
Click here to watch the video of lecture III.