Reviewing the viewpoint put across in last Friday’s ST about Minimum Wage as an ‘easy solution’, I think that some credit has to be given to the Labour Chief. His argument put forth does show some level of intelligence. In this post, I will show the good and the bad, the underlying assumption and the bigger picture of his argument.

His argument in brief is that a minimum wage will cause unemployment as companies leave to go somewhere with lower costs. Beyond this idea of unemployment, he talks about the ‘mismatch of skills’. Based on what the article had compacted, its vague whether this mismatch is a bad thing in itself or leads to companies leaving.

First, there is a cunning in his choice of naming the main human capital challenges which Asia faces: a widening income gap, keener competition for top talent and a growing mismatch between jobs and skills. In selecting the three problems, he already plants what is important and needs to be dealt with.

The first challenge is glaringly obvious and impossible not to mention. The second contributes later to how “top talent needs top dollars” and the third gives the ‘mismatch of skills’ a significance on the level of the widening income gap. HOWEVER, there is a flaw: objectives one and two contradict. His idea of “top dollars for top talent” clashes with bridging the income gap.

Second, merit must be seen in how he attempts to balance his view. At the end of the article, it is mentioned that the labour movement does not object to a higher pay and that workers must receive a “fair wage for the work they put in.” There is a cunning in this. In addition to not looking unsympathetic, it brings to mind the enshrined idea of meritocracy. Furthermore, what is implicit in the term “fair wage” is that if you work less, you likewise deserve less, instead of getting a minimum. HOWEVER, there is a flaw: how true is it that the labour movement does not object to a higher pay, when his principal fear is that companies will leave to places with lower wages? Seemingly, a tokenistic remark.

Third, he knows how to utilise soundbytes to simplify things for  ”the lay audience. “Low wage or no wage”, “Minimum skills instead of minimum wage”, “top dollars for top talent” (i think i’m starting to see the speech pattern) and  ”easy solution”. However, the flaw is that it oversimplifies things at times, leading some of the more intelligent to question like, what’s wrong with an ‘easy solution’ if it solves things or for those who are informed about fallacies, that low wage or no wage sounds like a false dilemma. The worst part is probably the ‘top dollar for top talent’, i think more than enough people will criticise it already.

Fourth, it is intelligent to appeal to the economist. The idea of a ‘mismatch in skills’ can be considered to be economic jargon that goes down well with the instinct of the economics-trained with a “yes, that’s true” sentiment. The idea of a mismatch sounds more sophisticated and deep than simply asserting that companies will leave. To appeal to the masses, you could a) simplify things for them to understand and/or b) use technical jargon to speak a level higher. HOWEVER, the idea of a mismatch is left quite unexplained. Does this theoretical economic concept really apply in the real world? Do employers really have a price in their mind they place on workers, or is it simply — the cheaper, the better?

But at the core of things, two key assumptions remain.

First, do higher skills equate to higher pay in the labour market? It is this premise that the “minimum skills” suggestion is based on. Since the labour chief likes to talk about “in the real world”, i would base my argument in the real world as well.

1. In the real world — we’ve been talking about skills upgrading since my primary school social studies textbook! …and we’re still talking about it.

2. In the real world, there will always be a demand for low skills workers, which is currently the case, except that it goes to the cheaper foreigners.

3. And in the real world, we will sadly always have a portion of local society that is less skilled. That is the real world. what are we going to do about them?

Second, will there be increased unemployment as companies leave just because of minimum wage? I think companies would not leave that easily and even if they did, there wouldn’t be increased unemployment.

1. Companies have many reason to stay on. In addition to having established a base already, they have a good location in south-east asia and many of our perks like a stable financial and legal system. It’s not cheap to shift base — and a simple sweeping assertion cannot be made. I think that the rural-urban migration equation can be applied to this scenario (can’t remember the equation already though)

2. Currently, its not as if there aren’t low skilled jobs. There are. Just that they go to foreign workers. A minimum wage not only increases wage for workers, it moves these jobs from foreigner to the unemployed locals. As previously argued, higher wages also incentivise more locals to work as the returns from working outweigh costs such as transport and the opportunity cost of time

From the bigger picture of public policy, something puzzles me — the contradiction between the Labour Chief and the earlier proposals of the ESC, which sought to decrease foreign labour involvement. He seems to speak of the need to go with the flow of market forces and globalisation to let cheap foreign labour be, whereas the ESC seeks to reduce dependence.

Perhaps there is room to assume that some companies will leave, but on the bigger picture — does this really matter when we weigh the loss of some competitive edge to looking after the poorest within society? My speculation is that the government’s agenda is more concerned with the loss of companies and their profits rather than the jobs they provide — I deduce this from how they are perfectly fine with jobs going to foreign labour as long as the companies stay. The concern of unemployment caused seems to be merely a media tool to put it across to the public. This agenda might need to change.

The fact of the matter is that in most developed countries wages aren’t low anyway regardless of whether there is a minimum. Singapore needs to shift its development strategy away from the low-cost labour methods of China and India to an even more technology intensive one. (although i also think that it is not necesssarily true that higher cost of labour definitely means a shift to technology. In some sectors, there will always be a need for labour)

On the bigger picture, the question perhaps is – do we want a society more akin to Switzerland and the United States, or do we want one like China and India? The third-world style of development is an arena we cannot win, we need to move forward.

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Personally, I don’t like touching upon the topic of salaries — there’s no good argument against this dogma. But the  same  article points out a damn brilliant idea. Don’t peg ministerial salaries to GDP, peg them to the lowest of society. What society would this create? For sure, a kinder one where we at least give a damn about the poor.