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The Criminal, Election-rigging, Car Scratching LIEgime scheme to subsidies pay rises for workers is designed as just another bailout to companies and employers, with none going to workers

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  • Robert Ho
    Dealing with High Cost of Living: Wage Measures or Cost
    Message 1 of 1 , Mar 14, 2013
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      Dealing with High Cost of Living: Wage Measures or Cost Measures

      The cost of living in Singapore is high. However, one question is whether we should lead off with wage measures, cost measures, or both at the same time. I’d like to weigh in with a less that rigorously considered opinion.

      Wage measures include things like a minimum wage, wage credits, and what we call WorkFare. A minimum wage is a government stipulated floor on income, and the latter two are measures to subsidize wage bills. Cost measures, on the other hand, seek to leave people with more money after expenditure on necessities.

      The Effects of Such Measures
      When one would have more money after dealing with necessities, one often does not save it all. One might decide to treat oneself to a little something — some consumer electronics, for instance. One might choose to move upmarket with respect to one or more consumption categories — hawker food to food-court food perhaps. One might even move into new categories of consumption, such as family holidays. Simply speaking, standards of living rise. That is, unless inflation rears its ugly head. I will not touch on inflation at this point. Perhaps because I do not think I have the expertise to touch on the matter of inflation as intelligently (or as comprehensively) as I would like to1.

      Cost Measures
      When I speak of “cost measures”, I refer to the plans and initiatives government can do to reduce the cost of living. As a member of the SDP, I would be remiss if I did not cite the examples of making healthcare affordable through a national healthcare insurance scheme with sensible risk pooling and cost management; and making housing affordable through appropriate pricing and cross-subsidies (while managing the transition to a new housing system in a manner that does not destabilize the housing market). Such measures also include lowering foreign domestic worker levies for households with special needs. Cost measures reduce expenditure on certain items, reducing cost of living pressure on households and putting more money in their hands.

      Wage Measures
      Wage measures (naturally) have hiring and income implications for low-wage workers.

      While a minimum wage directly puts more money in the hands of low-wage workers, it may reduce hiring unless workers were originally substantially underpaid. When say underpaid, I mean that the marginal benefit to the business of keeping people on payroll is substantially higher than the legislated minimum wage. If it is indeed true that many low wage workers are grossly underpaid as a local economics luminary has proposed, then a minimum wage makes sense, otherwise it would mean higher income for some and unemployment for others. My bet is that the former chairman of the National Wage Council is right that Singaporean workers in low-paying sectors have been “grossly underpaid”. One thing that has to be considered is the issue of marginal firms, which can only get by with cheap labour, possibly because they have not been able to increase their productivity. A minimum wage will put them out of business. Do they deserve it? Or should they have been in business in the first place?

      Wage subsidies, on the other hand, can have a positive impact on hiring and wages as the marginal benefit of hiring workers increases. However, if the measures are transient, there is a strong likelihood that a rational manager will take the subsidy as a bonus to the bottom line without increasing hiring or wages, especially if hiring and firing is not easy.

      My Conclusion
      With these in mind, I would be in favor of implementing fiscally sustainable cost measures and gradually phasing in a minimum wage. The former will mean a reduction in the cost of living while the latter will mean that businesses will not feel an immediate shock to their bottom line. This will allow owners of marginal businesses to do what it takes to keep them afloat. That is their responsibility, and a government has something of a moral responsibility to give them a fair shot. I am not in favor of wage subsidies unless there is strong evidence that the subsidies will result in greater hiring and higher wages. Similarly, the gradual phase-in of a minimum wage (as suggested in the SDP’s recent policy proposals on population and manpower) will allow us to observe the effects of marginal increases in the minimum wage and act accordingly.

      I believe that there is a lot of policy space to deal with the high cost of living. There is a need for evidence to support any wage measure, whether a minimum wage or wage subsidies. There are strong arguments in support of a minimum wage, but not so much for wage subsidies. This is why I would not recommend wage subsidies. On the other hand, a minimum wage will have to be implemented carefully. Regardless of the challenges on the wage end of the spectrum, there is no reason why we should not push full steam with cost measures.


      Afternote: I came across the following ST article being shared on Facebook. This, in large part, confirms my deductions on the way managers will deal with the wage subsidy in Budget 2013.

      Some Firms Won't Pass On Wage Subsidy (ST, 13 Mar 2013)

      A closer look will reveal (if the first glance did not already) that most firms will not be passing on the wage subsidy. This means that, by and large, shareholders will be the main beneficiaries of the $3.6 billion dollar ($1.2 billion per year over 3 years) Wage Credit Scheme.

      .

      Jeremy Chen

      * Jeremy is currently a PhD student at the Dept of Decision Sciences at NUS Business School. Previously, he was with DSTA, working on developing decision support systems and performing operational studies. Jeremy believes in “social justice” and “the free market”. He explained that it is for this reason that he is politically aligned with SDP. He is a member of SDP and also a member of the SDP Housing Panel. He blogs at http://jeremy-chen.org.


      --
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      MY ACQUAINTANCE, MR DAVID DUCLOS, A FORMER POLICE INSPECTOR, AND HIS LAWYER FRIEND, EYEWITNESSED LEE KUAN YEW RIGGING THE 1997 CHENG SAN GRC ELECTION.  READ MORE AT MY BLOG ENTITLED "I CAME, I SAW, I SOLVED IT" : 

      b.  SWORN EXHIBIT IN SUPPORT OF AFFIDAVIT:

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