Tuesday, October 20, 2009

Should we have minimum wage?

I have some reservations about the minimum wage. Quite apart from the controversy over whether minimum wage reduces jobs, I am also concerned about the impact on the 2nd tier of the lowest income earners. The way I see it is this: If we implement minimum wage, those currently earning below the minimum wage would benefit from this, but as wages increase, cost of goods and services increase. As this affects those earning minimum wages, it is probably the cheaper goods and services that are affected more than the luxury goods/services, so the people feeling the most impact from rising cost would be those earning just above the minimum wage. This group does not benefit from the minimum wage, but will now have to pay more for goods and services – resulting in a decline in living standards. It seemed like shifting the burden from the lowest 10-15% say, to the next lowest 10-15%. Which really is not a solution at all.

Comparatively, the workfare scheme would seem a better option. It avoided the potential problem of distorting market mechanism and causing a possible drop in number of jobs, while topping up the income of the lowest wage earners. However, the debate here would be over details. What should be the income level below which the workfare scheme kicks in? How much should the wage supplement be at each wage level? The current amount reflects the current government's long standing position towards free lunches -- very conservative. So conservative, that not much effect is felt and hence we still hear occasional clamours for minimum wage. I personlly think it would be better to fight for higher amounts in the workfare scheme than implementing the minimum wage scheme.

That said, it does not address the problems faced by those earning above minimum wage levels, but are either losing their jobs to foreigners or getting lower wages than they used to before the influx of foreigners. But that will be the subject of a separate post.

2 comments:

  1. Hazel, minimum wage may leads to a small rise in cost of living. However this can be offset by pushing for a cut in other cost factors like land cost, rentals, utility charges, government fees. As the largest landlord in Singapore, the government has tremendous influence over rentals.
    To put additional burden on the shoulders of those who can ill afford it to keep cost down, is to me cruel. That burden should rest squarely on the shoulders of the government. They are so rich and can easily afford it. They have been manipulating the cost structures of industries they targetted with tax incentives and direct subsidies. They can certainly do more.
    Minimun wage will have an uplifting effect on all wage levels. So all workers benefit. It will correct the artificially low wages in our current stage of economic development.It will also force employers to be more innovative in increasing productivity. If workers earn decent wages, there will be less social problems in society.

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  2. George says:
    If the workfare thing is a better alternative why are we still having the issue of people having to work for wages that are clearly below living expenses here?

    Minimum wage means a salary that is adequate for at least the person concerned to live a decent life - without even considering the need to support others, including aged,sick or young dependents.

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