Ex—NWC chief revisits wage shock therapy

SINGAPORE: Former National Wages Council (NWC) chief Lim Chong Yah revisited his much—debated wage shock therapy aimed at narrowing income inequality at the Singapore Economic Policy Forum on Thursday.

Presenting his paper "Shock Therapy II" at the forum, the ex—chairman of NWC said income inequality is widening.

He said the Gini Coefficient — a measurement of income inequality — increased to a high of 0.473 in 2011, which is close to the often used dangerous level of 0.5.

Professor Lim said there had been a serious upward escalation of pay for the upper income group and a freeze or decline in pay for the low—income earners.

The architect of Singapore’s wage system in the 70s repeated his call for a three—year wage freeze for top income earners.

Professor Lim, who is also an Emeritus Professor of Economics at the Nanyang Technological University, said: "There is no fear that they will emigrate or run away just because there is a freeze or a kind of moratorium on the (wages of) high—wage, high—salary executives, I doubt very much. But, if the alternative is to have higher and higher taxes, that might frighten them away."

However, on pay hikes for bottom—income earners, Professor Lim’s latest suggestions were more tapered.

He said that serious considerations should be made to introduce a compulsory minimum wage scheme, with a suggested quantum of $1,000.

But, that is only if wages of lowest—paid resident workers remain stubbornly low in two or three years’ time.

Raising minimum wages may not necessarily be inflationary, said Professor Lim.

"If it is carefully handled, carefully implemented and spread over a period of three years, the probability of it contributing to inflation is very low. But, I won’t say it would not jack up prices. In some cases, the margin of profit can fall," he said.

Professor Lim argued that inflation was more likely to come as a result of recent easing of monetary policy in Europe, the US and Japan, which could hit the lowly paid in early 2013 as money flows into Singapore from abroad.

Professor Lim’s original proposal in April was to raise the monthly salaries of workers who earn S$1,500 or less by 50 percent over three years.

It was then criticised as unsustainable and risky.

For now, he said that the NWC should continue with the issuance of quantitative wage increase guidelines for those earning less than S$1,500 a month.

The professor praised the NWC and the NTUC for their recommendation in May to increase the salaries of those earning below S$1,000 a month by at least S$50 a month.

Professor Lim suggested the recommendation came out of the debate following his wage shock therapy proposal in April. But NTUC said the recommendation had been in the works.

Zainal Sapari, director for NTUC’s Unit for Contract and Casual Workers, said: "I was a member representing NTUC in the National Wages Council. In our internal discussions, back in November, we did suggest the idea of giving a fixed amount to the low—wage workers.

"This idea was actually discussed with the Singapore National Employers Federation and we also shared our thinking with the Ministry of Manpower. It was just a coincidence that when we were discussing with the National Wages Council that Professor Lim suggested his shock therapy.

"However, I would say Professor Lim’s idea generated a lot of interest on the plight of low—wage workers."

Other economists MediaCorp spoke to had mixed views on how best to close the income gap, but most like Associate Professor Randolph Tan at SIM University agreed that wage increases for bottom—income earners have to keep pace with productivity gains.

Associate Professor Tan said: "If the proposals kick in too quickly, then you may actually end up disadvantaging the very workers you are trying to help. The main problem with trying to raise the wages of low—wage workers is that if it doesn’t keep pace with productivity, then companies are going to find it very hard to continue operating and they may actually fold up altogether, and if companies fold up, then it’s not actually going to help low—wage workers."

Hoon Hian Teck, Associate Professor of Economics at the Singapore Management University (SMU), said: "...if the minimum wage is binding, it reduces employment. Raising this at a time now, when the world economy is slowing down, makes that even a harder call because preserving jobs becomes far more important."

Economies like South Korea, Hong Kong and Malaysia have already implemented a minimum wage system.

Singapore has effectively taken on the role of supplementing the income of low—wage workers through mechanisms such as Workfare Income Supplement and Workfare Training Support, rather than imposing the extra salary costs on businesses.

— CNA/ck/ir