Okay cool, I didn’t know that every Thursday, ST publishes two articles on a specific economic issue. What’s interesting is that they get two NUS economists to present conflicting views.
The issue presented this week is on the Minimum Wage — whether Singapore should move towards implementing it after Hong Kong did so recently.
The average economics student would have been taught with some graph that a minimum wage (price floor above equilibrium) causes an excess supply of labour, resulting in a shortage of jobs. More workers want to work because of the higher pay, but companies want less workers because they are individually more expensive — so the textbook says.
This view is echoed by the professor from the business school who says in his article “Workfare does a better job”, that while wages would be guaranteed, jobs could not be. He argued that
1) the minimum wage is unable resolve the conflicting goals of increasing employment and higher wages, instead causing unemployment.
2) That the minimum wage reduces the flexibility of employers to cater to the special requirements certain workers have. A very textbook-esque example is raised about how Jane who is physically less able and produces less won’t be able to be paid according to her “marginal productivity” which will be less also. She will simply lose her job.
3) That the workfare is a sufficient and superior alternative to meeting the needs of workers without compromising on employers. Even though there is some cost to the government, it outweighs the social costs of layoffs and the loss of competitiveness by employers. A minimum wage actually leaves less for employers to spend on upgrading their workers.
Contrast this with the view of the professor from LKYSPP who argues in “Minimum wage works” that the minimum wage in fact removes the need for workfare, which is an economic burden. His article is set in the context of foreign labour and how its increased labour supply depresses wages. While alluding to it slightly, his argument focuses less on how there needs to be a minimum wage to support a minimally acceptable standard of living. Instead it is portrayed in the interest of the economy by actually encouraging 1) people to get a job, which actually decreases underemployment and 2) encourages productivity to justify higher wages. (possibly becoming more capital intensive to reduce the labour requirement)
Looking at the two articles side-by-side (quite literally), the two key clashes are 1) Employment — which is the more likely and impactful effect: encouraging workers to work or employers to layoff? 2) Productivity — which is more likely and impactful effect: having less money to spend on upgrading or becoming more productive to save money on workers?
Unfortunately, I don’t have the answer to the questions above -_- an actual statistical study needs to be carried out to determine which way it swings.
However, argument-wise, we could consider how productivity might be affected. I think that it is extremely idealistic to expect companies to shift to machines or skills-upgrading. There are jobs which require no skill and cannot be replaced by machines — and it is often these jobs which minimum wage applies. Yet, at the same time, where skills training is required, a minimum wage wouldn’t make employers forsake essential skills — its simply not in their interest to have clueless workers. Inasmuch as there has been a lot of media hype about productivity, it is a tangential issue and at most, a moot point.
Hence, employment and how workers are affected is the main issue. “Minimum Wage Works” establishes that the bulk of the low pay workers are foreign labourers and that the demand for labour in Singapore is extremely high, far outweighing the supply of labour. Meaning to say, even if there were a dip in demand for labour, 1) it affects foreign labourers mainly and actually shifts jobs from foreign workers to local workers who no longer have to compete for such low wages. 2) even if employers want to hire less workers, there are enough jobs to go around (or so it is asserted)
On the premise that demand for low-wage workers exist either way, that article strongly implies that unemployment is because people are unwilling to work in the face of CPF and transport costs which make it less worth it. It’s not that there aren’t jobs, the low-wage workers just don’t think its worth it to work. Especially by nullifying the greatest strength of foreign labourers to compete for low wages, more locals will have jobs.
I find the article “Minimum Wages Work” more convincing as it seems grounded in reality — making reference to statistical studies, real-life considerations behind the decision to work (such as transport costs) and the very specific context of foreign workers. It is well-crafted in how it deals with the potential counterarguments and alternatives (that so happen to appear in the opposing article).
BUT in practice, while I am more convinced by the case that “minimum wages shift jobs from foreigners to locals”, I highly highly doubt that this will be implemented. For a simple reason: it is possible that Singapore values economic growth and competitiveness more than welfare. (…unless of course you follow that strange argument that a rich group can pull the lower income together with them.) Second-hand experience with an industry that I’m acquainted with tells me that international companies are very concerned about increased wages. And the government is CONCERNED about them being concerned — after all, with reputations and competitiveness to uphold, we cannot afford to lose important big businesses to other countries that can offer lower wages and costs of operations.
The article on “Workfares do a better job” should have perhaps focused more on the loss of competitiveness as its strongest argument and spent more explaining the efficacy of the workfare. I finished the two articles with little more insight of how the workfare works and only had the instinctive thoughts — “is it really enough? if it worked so well, we wouldn’t be having any complaints right?”
On an unrelated note, funny how “Minimum Wages Work” mentions “negative externalities” from too much foreign labour without actually explaining — its assumed! lol.
Let’s see if i do get disproven eventually. Not that I’m particularly affected. And heh, I wrote all these in my store while reading the papers waiting for some people to arrive.
Need to keep brain alive, need to keep brain alive — what the hell, this unrelated subject is distracting me from my important readings.
Ah, what the hell — ST and their damn puns in titles.