The Pros and Cons of a Sectoral Approach to the Minimum Wage in Singapore
The current minimum wage in Singapore has a negative effect on small businesses and the economy. It discourages businesses from innovating and paying their workers peanuts. But the effect of the new law is also on consumers. The change will make consumers pay a bit more for their food and services. However, the cost of hawker food is still quite cheap because hawkers receive rent subsidies and their labour is cheap. In a few years, the minimum wage in Singapore may be high enough to cause consumers to question their purchasing habits.
While calculating the minimum salary for employees, employers should remember that minimum wage laws in Singapore have strict rules and regulations. This is because 40% of Singaporeans earn less than S$2,000 (US$1,496) a month. In other words, they are earning poverty wages based on the international definition of poverty, which is 50% of the median income of S$4,000. This is a significant factor for employers to consider when determining salaries for their employees.
The government of Singapore is opposed to implementing a minimum wage, saying that it would increase the cost of doing business and could result in job losses. This could have a negative impact on the country’s attractiveness as a business location. The effects would be felt more severely during an economic downturn, when the minimum wage is raised. For now, the government is reluctant to implement a minimum wage, for fear of creating a culture of mistrust and hostility.
The opposition in Singapore has long called for a national minimum wage, citing the high cost of living. However, this proposal only applies to resident workers. As a result, foreign workers in Singapore earn lower salaries than residents, which could lead to a larger wage gap. To bridge the gap, the government should implement a national minimum wage. However, despite its opposition, it’s not enough to solve the current problem. A minimum wage in Singapore should cover all industries, not just the cleaning industry.
A workgroup comprising representatives of the labour movement, government and employers has proposed an approach that could raise the wages of common workers. The new wage model will also apply to drivers and administrators, which will benefit more than 55,000 lower-wage workers. As a result, this change will raise wages for 82 percent of lower-wage workers in Singapore. In the long run, this move will help to alleviate the economic crisis.
While many have questioned the effectiveness of a national minimum wage in Singapore, others believe that sectoral customisation can drive wages up even faster. TODAY spoke with academics, economists, and workers to determine if such a system would benefit the economy. We also discussed whether sectoral customisation would have any downsides. Below are some pros and cons of a sectoral approach to minimum wages in Singapore.
The current minimum wage in Singapore is insufficient to meet the basic needs of the working population. A recent study found that people aged 65 and above would need S$1,379 to meet basic needs. In contrast, younger workers would need S$1,535 or more. A Progress Singapore Party member calculated that a person with a basic salary of S$2,055 would reach that goal in 2026. However, such an estimate doesn’t include the costs of social protection and healthcare, as both are provided free of charge in other high-income countries.
The PWM is a laudable attempt to reverse wage stagnation. This system is hoped to improve wages in the country, but it will take some time. The implementation of the plan could take up to the end of this decade, or even the beginning of the next. The PWM plan fails to consider the ten years that workers have lost on wages. The current minimum wage in Singapore is much lower than the average wage in countries with similar GDP per capita.
While Singapore has implemented a progressive minimum wage for workers, it is not applicable to all industries. Rather, the Progressive Wage Model will apply to all administrative and driving workers. Under the PWM, a local qualifying salary will be S$1,500 or S$1,750 per month. This means that 82 percent of the lower-wage workers will benefit. However, the PWM’s minimum wage will still be below the PWM threshold.
While many are in favour of the national minimum wage, the Singapore Government is still leery about implementing it. It would increase the costs of doing business, which would make the country less attractive as a place to do business. As such, the effects of a minimum wage would be felt more in the current economic downturn. As a result, the Government is hesitant to implement it. But the effects of a minimum wage in Singapore are more acute than many think.
While many wealthy countries have increased their minimum wages to match the cost of living, Singapore’s minimum wage is still significantly below the national average. For example, a worker in Singapore’s cleaning sector earns S$1,274 per month, which is less than three-quarters of what a person in that age group would need. It will take another ten years for Singapore’s minimum wage to catch up to the cost of living in similar wealth countries.
The PWM plan will attempt to reverse the trend of wage stagnation and bring Singapore out of its current state, but it is unlikely to be enacted until the end of this decade or the start of the next. The plan also fails to account for the wage losses that workers have suffered over the past two decades. A living wage of S$2,055 will not be achieved until 2026. This means that the PWM plan will only benefit Singaporeans, and foreign workers will continue to suffer wage losses.
Wage data do not give the full picture of what a worker earns. For example, in other high-income countries, citizens enjoy free basic healthcare, university education, and an unemployed pension that can equal 50% to ninety percent of their pre-unemployment wage. Meanwhile, the elderly need to pay for basic social protection even though their incomes are low. In addition, “public” housing in Singapore is no cheaper than in countries with higher living standards. Private housing in Ireland and the Netherlands is nearly the same as that of a Singaporean.
Impact on business
The introduction of a minimum wage in Singapore has a significant financial impact on Singapore’s businesses. The average Singaporean earns $1,400 per month, or less, when you factor in CPF contributions. The increase in cost per employee could reach up to 5.9%, but it is unlikely to be passed on to consumers. It is more reasonable to expect an increase of 0.1% to 1.0%, and close to 100% of companies may hold their prices unchanged.
The cost of living in Singapore is already comparatively high – over SGD 800 a month. A higher minimum wage will attract more Singaporeans to fill those jobs. However, it will lead to a decrease in Singapore’s equilibrium wage, from S$7 per hour to around SGD5 per hour. This means that Singapore’s overall employment will fall to E2 level, and foreign workers will retrench. This will lead to a drop in productivity, a negative result for local firms.
The new support measures for lower-wage workers are a welcome change and a signal of a unified policy shift. However, the devil will be in the implementation speed. While the announcements on Sunday will elevate the income of the lower-income group, the policy shift could be tempered by the risk of inflation. In addition, this new policy will require businesses to improve their skills and shift towards higher-skilled labour.
The PWM for food and service industries will come into effect in September, while the minimum wage for waste management and retail trading will start on September 2023. While the minimum wage will help retail workers, it will have a significant impact on businesses that have high turnover. The government may also consider offering support to offset wage costs during the transitional period. Nevertheless, despite the negative effects of the minimum wage, some businesses are still hopeful that a minimum wage can be implemented in Singapore.
Justification for a minimum wage
The justification for a minimum wage in Singapore is simple: to promote equalisation in the labour market and raise the bargaining power of the working poor. But if the minimum wage is set too low, it distorts the market and damages the employment prospects of the working class. The question is: is it worth paying more for a minimum wage? It is not the answer to all questions relating to the minimum wage in Singapore.
Its opponents are arguing that a minimum wage in Singapore is not the best solution. The PWM plan aims to address this problem by promoting a progressive wage system based on skill and training, which is a stairway to better jobs. But the PWM plan does not consider the loss of wages that workers have experienced over the last two decades. In other words, if it is a rung on a ladder, there is no need for a minimum wage.
Some argue that a minimum wage will increase unemployment. The PAP peddles fallacious reasoning and economic myths to justify its policy. But in reality, it is a sensible economic policy that will lead to economic growth. The minimum wage in Singapore could cost up to $3000 per month, but this shouldn’t have any substantial impact on the cost of living in Singapore. Assuming that the minimum wage in Singapore is set at $1000 per month, it should not increase the cost of living too much, but will encourage businesses to raise their prices to compensate for the increased wage bill.
It is also important to note that PWM only covers residents, so if foreign workers are working in Singapore, they would earn a lower wage than their local counterparts. This gap will increase to $2000 by 2028, when the government aims to introduce a minimum wage in Singapore. A minimum wage will be an important component of social protection in Singapore. If it is not implemented, the PWM will fall behind the rest of the world’s minimum wage policy.