Addressing the economy’s twin problems

Business Times, Monday, 23rd Apr 2012

Does Prof Lim Chong Yah’s wage restructuring proposal adequately address the challenges of income inequality and low productivity? What really needs to be done to combat these twin problems?

THE wage restructuring proposal seems like a rather Utopian ideal; that such a wage hike will cause productivity to increase. In reality, it is a very risky proposition as there is no way to guarantee a commensurate rise in productivity. It is possible that the recommendation was intended to resolve the labour crunch – particularly to reduce the reliance on foreign workers so that more Singaporeans might take on menial low-paying jobs that they had previously shunned.

Increasing wages artificially ahead of a productivity boost is likely to cause some medium-term pain. Singaporean workers – and Singapore as a place to do business – could become uncompetitive and this would result in job losses and higher unemployment. Driving up business operating costs will make Singapore a less attractive destination to companies which may then choose to relocate elsewhere.

The proposal is also likely to cause inflation to rise further. Boosting both income and productivity simultaneously is a great challenge indeed. The labour movement’s current approach is a more sustainable method as productivity is first raised in order to justify an increase in low-wage workers’ incomes. However, this strategy will take longer to reach the high productivity-high wage goal. The various government agencies will need to work hand in hand to roll out even more measures to increase productivity in as short a time as possible so that wages can rise faster and in a more stable and sustainable manner.

Ronald Lee
Managing Director
PrimeStaff Management Services Pte Ltd

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