Commentary: A minimum wage isn’t the answer to inequality
SINGAPORE: Most people think that rising income inequality is bad. It is bad for politics and it is bad for society.
Only what does information technology mean for our economic prospects every bit a country?
THE POLITICS OF ENVY
In a hit 2022 experiment, sure households in Kenya across 60 villages were randomly chosen to receive large fiscal windfalls of US$400 or Usa$1,500.
Those who received the cash experienced greater life satisfaction.
Those who did non saw a subtract in their life satisfaction, to a larger extent than the increase in life satisfaction experienced by the kickoff group.
Some say the dissatisfaction experienced past the second grouping shows the corrosive impact of the politics of green-eyed.
As an economist I am more interested in whether there is an adverse economic bear upon on those who did not receive more cash.
If those who received big fiscal windfalls spend more, leading to higher prices of goods and services in the village, then, we can contend that the negative reactions from inequality are no longer merely emotional but have a tangible adverse impact on the lives of others.
HOW WE SHOULD MEASURE INEQUALITY
From the standpoint of a labour economist, inequality may have another problematic outcome.
An increment in income inequality is clearly undesirable if those in low-income households are non able to pursue certain economic opportunities or are prevented from realising their human being capital potential because they don't accept the requisite qualifications, capabilities or networks.
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In this case, it is bad for politics, bad for the society and bad for the economy. In other words, to decide whether increase in income inequity is bad or expert, we should also report whether at that place is social mobility.
If social mobility remains strong, income inequality would exist less of an issue. Just looking at income inequality, which is the gap between those with very loftier income and those with very low income, is non sufficient, because i has to examine the poverty rate to run into how widespread the impact of poverty may exist.
If the poverty rate is high, coupled with income inequality, social mobility is probable to be low.
ENTER OXFAM
A global index on efforts to tackle inequality by Oxfam has placed Singapore bottom 10 in terms of commitment to tackling inequality.
No incertitude, this is no good for Singapore'south global epitome but when you look closer at the metrics by which the alphabetize judges countries by, one of the reasons for Singapore'due south poor ranking is our lack of a minimum wage.
Oxfam implies that having a minimum wage will improve national outcomes in terms of achieving greater equality – whether through a lower poverty rate or higher social mobility.
Is that really so?
UNEMPLOYMENT AND THE MINIMUM WAGE CONUNDRUM
Economic theory tells us that introducing a bounden minimum wage will raise labour costs beyond all sectors and lead to businesses retrenching some workers.
Where exercise the retrenched workers go? Either they will be left unemployed or they leave to work in the informal sector where wages are lower.
In many developed countries that take a minimum wage, the minimum wage co-exists with an unemployment benefits scheme.
In this case, the minimum wage tin widen the national wage gap between those who earn high incomes and those who earn low incomes, because some in this latter category take now been fabricated redundant because of the minimum wage.
Of course, there are benefits when we innovate the minimum wage. Some studies take found that in the presence of the minimum wage, employee turnover and the number of job vacancies may fall.
Hence raising wage floors can reduce employers' recruitment and memory costs.
But because imposing a minimum wage would reduce labour demand, finding and holding down a job might go a worry amid workers.
If we innovate a minimum wage law in Singapore, small and medium-sized enterprises (SMEs) may be the most affected. Many of these sectors employ those who are very likely to be put on a minimum wage.
We should also comport in mind that Singapore has no unemployment benefits scheme, and that our social condom nets are employment-based.
Are we set to deal with higher social welfare needs that come with higher unemployment?
If nosotros introduce a minimum wage police in Singapore, are we prepared to innovate an unemployment benefits scheme similar what most countries have done?
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If we have an unemployment benefits scheme, our Workfare Income Supplement scheme, which provides additional financial back up to those who earn low incomes, may non be attractive anymore every bit workers will be able to choose between unemployment benefits and Workfare, eroding our national work ethic.
PAYING MINIMUM WAGES TO Foreign WORKERS
And if we introduce a minimum wage law, would it apply equally to citizens, permanent residents and foreigners?
Then many of our depression-income jobs in Singapore are taken upward by strange workers because they're not what most Singaporeans desire to exercise.
Adept luck trying to deviate from international standards fix by the International Labour System (ILO) to justify paying only locals a minimum wage.
Even if nosotros find cause to do so, there'south no stopping employers who are more likely to utilise permanent residents and foreigners who now price less than a Singapore worker.
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Let'southward besides not forget there are other employment mechanisms that might non be primarily intended at raising the wages of depression-income Singaporeans or protecting them from external contest but have that effect.
We have the strange worker levy in identify, which acts as an implicit wage floor for low-wage workers in Singapore. A high strange worker levy raises the earnings of depression-wage workers and demand for depression-wage Singaporeans.
TACKLE PRODUCTIVITY AND VALUE-Add
Even if we leave all these reservations aside and impose a minimum wage, let's not forget that this policy change will shape behaviour such that returning to a fourth dimension without a minimum wage will be shut to impossible.
The minimum wage has a life of its own, and will face up pressure to increase over time. One time introduced, information technology will be extremely politically and economically hard to remove, and does nix for social mobility.
My view is that in introducing a minimum wage, ane may exist tackling the symptoms rather than the root causes of poverty and inequality, of which one is the low value-add and productivity of depression wage-workers.
Singapore has made strides in raising the productivity and value-add of low-wage workers through schemes like the Job Redesign programme, which provides companies with grants to create smarter jobs for older workers, and various other preparation schemes such as those operated by NTUC, SkillsFuture Singapore and self-aid bodies such every bit the Chinese Development Help Quango (CDAC).
Recipients of Workfare likewise have recourse to a Training Scheme that supports their upskilling. There are likewise many informal community-based groups which arrange for volunteers to requite free tuition to children of low-income households.
All these measures will direct increase present and future earnings of depression income households, thereby assuasive their children to adequately invest in their own homo capital and preserve social mobility.
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At that place is certainly scope to fine-melody Singapore's current mix of and see how to professionalise and upskill various sectors where we might apply a minimum wage in specific sectors, learning from the lessons from the progressive wage model for cleaners, security guards and lift technicians.
Merely we should try harder to increase productivity through diverse grooming schemes and job redesign programmes.
A minimum wage police does not accept a proficient rail record in raising productivity or meaningfully reducing income inequality.
It was not that long agone that the International Labour Organisation (ILO) was not very happy with Singapore for not having a minimum wage. Only two decades agone, the ILO switched gears and has since been praising the Labour Motion in Singapore for initiating and implementing numerous effective grooming programmes for the workforce.
That should requite us pause when looking at global indices that measure inequality and prescribe specific measures that might not exist suitable to our context.
Chew Before long Beng is Adjunct Professor of Economics and Industrial Relations at the Nanyang Technological University.
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Source: https://cnalifestyle.channelnewsasia.com/commentary/commentary-minimum-wage-isnt-answer-inequality-282406
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