Saturday, April 14, 2012

Wage hike not cost-free: Swee Say

Apr 14, 2012

Labour chief warns that higher salaries without productivity gains could lead to job losses
By Lydia Lim

THE unionists who cheered an economist's proposal to raise wages at the bottom by 50 per cent over three years may not be aware of its potential costs, labour chief Lim Swee Say said yesterday.

On Tuesday, a union leader told The Straits Times that Professor Lim Chong Yah's plan to hike wages at the bottom and freeze those at the top was 'a real morale booster' and 'long overdue'.

Yesterday, Mr Lim, NTUC's secretary-general, cited this comment twice during an hour-long press conference. He said it was understandable that union leaders would support a plan to raise workers' wages if they believed it would be cost-free.

'If you can up the wages of workers by 50 per cent with zero downside, I think union leaders, of course, will welcome it. But I also think that there are many union leaders who understand that nothing comes free so there must be some downside,' Mr Lim said.

The labour chief himself was sceptical that wages could be raised in the manner proposed by Prof Lim without workers and consumers paying a price.

On Monday, Prof Lim outlined a radical plan to close Singapore's growing income gap by raising wages of workers who earn $1,500 or less by 50 per cent over three years, and freezing wages of those who earn $15,000 or more for the same period.

Yesterday, NTUC's Mr Lim said: 'This approach is very risky. What is at stake are jobs and structural unemployment. You can push up the wages of low-wage workers by 50 per cent in three years, but you cannot improve his skill, his productivity, his employability by 50 per cent in three years.'

After criticisms from other economists, Prof Lim mounted a defence of his proposal in an interview on Wednesday with The Straits Times.

Responding to worries that the plan would drive away foreign talent and raise unemployment, he said Singapore would remain attractive to talent, and that Singaporeans who lost their jobs could be retrained and re-employed, given the tight labour market.

He conceded his plan might raise prices but said it would be all right as long as Singapore kept its rate of inflation at about half the rate of the world's inflation.

Yesterday, the NTUC chief dwelt at length on why he doubted that Prof Lim's 'thought-provoking' proposal would be as cost-free as claimed.

The first Cabinet minister to comment on the wage shake-up plan, Mr Lim warned that if productivity gains did not match the 50 per cent hike in wages, workers would pay a price in the form of job losses and structural unemployment.

He also gave a rough estimate of the size of the wage bill that would result from Prof Lim's proposed wage hike for low-wage workers - $4.56 billion. To arrive at that figure, he assumed a base wage of $1,000 and a pool of 400,000 low-wage beneficiaries.

He warned that someone would have to foot the bill. If the low-wage workers were from domestic sectors such as cleaning, the hike would mean a higher cost of living for Singaporeans, in the form of higher service and conservancy charges, for example, he said.

If the workers were in the export sectors, their companies would have to bear higher costs, and if they should become less competitive as a result, the outcome would be job losses, he added.

At the press conference, Mr Lim stressed he was merely stating his position as labour chief, not issuing a rebuttal to Prof Lim or stating the Government's position.

Prof Lim, who was chairman of the National Wages Council from 1972 to 2001, also argued that Singapore's high-wage policy of 1979 was effective in driving up productivity.

Asked about that yesterday, the NTUC chief said there was no consensus that the policy was a success.

His own recollection was that Singapore came to the conclusion that the policy, which led to wages outstripping productivity, resulted in the 1985 recession.

That was why Singapore abandoned it in favour of a policy centred on productivity and innovation, which remains in place today, said Mr Lim.

He also said that in today's globalised world, jobs and manpower are far more mobile than they were 30 years ago. 'In the early days, I can make a mistake but if the world is less mobile, I can still get away with my mistake. But in a highly globalised world, a slight mistake can lead to serious repercussions.'

[This is a variant of the minimum wages proposal, except instead of a wage line, the proposal is an across the board increase without any justification. But like the minimum wage proposal, there is an attractiveness to this proposal. If we ignore the possible costs and knock-on effects.]

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