26 May 2008

Do we have the minimum wage to make ends meet?

Singapore does not have any minimum wage law and does not implement a minimum wage system. It postulates that wages should be determined by free market forces of supply and demand. Employers and workers should be allowed to negotiate and mutually agree on the wages to be paid before they enter into an employment contract.

The National Wages Council (NWC) was established in 1972 to advise the government on wage policies and also issue wage guidelines in line with long-term economic objectives. The NWC’s recommendations, when accepted by the government, serve as a basis for wage negotiations between employers and unions. NWC’s recommendations apply to both the public and public sectors

The key function of the NWC is to enhance Singapore’s competitiveness in global markets by adjusting wages in an orderly manner. With this as its purpose, the goal of the NWC is to recommend wage policies and guidelines that attract foreign direct investments into the country, and in its process provide jobs for its local and overseas residents.

A minimum wage is defined by International Labour Organization as:

The minimum amount that must be paid to the majority of the workers of a country, generally on an hourly, daily or monthly basis; and which is ideally fixed in such a way as to cover the minimum needs of the worker and his/her family, in light of the prevailing national economic and social conditions.

According to the conditions for work and employment information sheet published by the International Labour Organization, minimum wage laws are now enforced in more than 90% of all countries.

Adjustments to the minimum wage are driven by two criteria: social, and economic. The social criteria takes into account the needs of the workers and their families, the cost of living and / or inflation, general level of wages, and the level of social benefits. The economic factors are the economic situation and / or development of the country, the capacity of enterprises to pay, employment, and productivity.

There have been commentaries on introducing minimum wage legislation in Singapore. Many supporters of the minimum wage assert that it is a matter of ethics and social justice that helps reduce exploitation and ensures workers can afford what are considered to be basic necessities. Others, however, claim it hurts businesses by reducing profit margins, and also increases unemployment. While the discussion on minimum wage continues, Singapore (Incorporated) does not have a legislation on minimum wage.

The National Wages Council (NWC) has completed its deliberations on wage and wage-related guidelines for 2008/2009. In its deliberations, the Council took into account the prevailing national economic factors, such as its economic performance, labor market conditions, productivity, wages and inflation trends, Singapore's cost competitiveness, uncertain economic outlook, and high inflation.

The Singapore government has accepted the NWC’s recommendation covering the period from 1 July 2008 to 30 June 2009. As in previous submissions, the recommendations by NWC were driven mostly from an economics perspective such as affordability of employers, increase in productivity of workers, and wage flexibility.

In addressing the high inflation in Singapore, the council recommends a one-off special lump sum payment for rank-and-file workers with heavier weightage for low wage workers. The one-off lump sum payment has been hailed by main stream media as an innovation of NWC, and was reported to be widely received by both employers federations and union members.

Although the lump sum inflation buster payment is meant to assist rank and file workers to make ends meet, the council could not prescribe the quantum to be payable. Hence, the amount of the one-off lump sum payable and its implementation are left to the creativity of companies and perhaps the devices of compensation and benefits practitioners.

NWC recommendations on wage and wage-related guidelines did not, in my opinion, delve adequately into the social factors such as the ability of workers to pay for what are considered to be basic necessities. As inflation sets in, a higher benchmark in terms of pricing for a basket of food will be re-established, and the affordability of workers to purchase basic necessities threatened.

Why do workers work? At the basic level, rank and file workers work to bring bread (and rice) to the table for themselves and their families. With the price of food and commodities reaching dizzying heights, are they still able to bring bread crump to the table?

Singapore could introduce an inflation-indexed wage system for its rank-and-file workers. Inflation indexed wage system means that wages would automatically go up by the extent of consumer price index (CPI) increase. The idea of an inflation-index wage system is not far fetched because the CPI indicator may be embedded as a key performance measure for rewarding public service administrators. Perhaps, the amount of the one-off special inflation buster pay could be index to consumer price index, and made variable according to employee levels. After all, the one-off special lump sum payment recommended by the NWC is intended to fight inflation, or isn't it?

Will we have the minimum wage to make ends meet?