Re-imagining the minimum wage

Channel News Asia reported a surprising turn of events last week: a trade union representative arguing against a minimum wage.
Lim Swee Say, General Secretary of the Singapore National Trades Union Congress, speaking at the Lee Kuan School of Public Policy stated that rather than introduce a minimum wage, the government is trying to increase wages through improved worker skills and lifelong training. He said that this approach, termed by the government a ‘workfare' approach, would provide more options for workers and longer term skills in the labour market.

The main argument seems to be around the concern that setting a minimum wage at too high a level will lead to a reduction in entry level jobs and people losing their jobs. Whereas a minimum wage set too low doesn't enable workers to cover their living costs.

The same arguments are re-hashed in every country considering how to improve conditions for the lowest paid, from concerns in UK before the introduction on a British minimum wage in 1999 to Uganda earlier this year. Concern about losing inward investors and causing labour instability resurface in different guises.

A working paper published by International Monetary Fund in (IMF) in 2008 looked at the likely impacts of introducing a minimum wage in Hong Kong SAR. The report's conclusions seem to add weight to some of these concerns. It states that rather than stabilise output and labour availability, the introduction of a minimum wage would "amplify the volatility of output over the business cycle by 0.2% to 9.2% and of employment by -1.2% to 7.8%."

However a report into the impacts of the introduction of the UK minimum wage in 2000 by Incomes Data Services (IDS) found that "many of the earlier worries about job losses, the disruption of pay structures and the impact on differential have been found to be groundless."

Singapore's approach to increasing low wages through improving worker skills may be an enlightened and thoughtful approach to improving the lot of workers at the bottom of the wage scale. However Lim Swee Sat did acknowledge that the workfare programme is currently costing $400 Million, and this is likely to rise.

Costs such as this preclude many developing countries from such an approach, and indeed many developed economies in today's recession hit world.

And regardless of financial costs a workfare approach also requires a mind-set of social equality and mobility.

Re-imagining minimum wage jobs as entry level positions that workers progress from through skills development and training requires the existence of a workforce with ambition and good basic education. Countries with low social mobility and high inequality may well produce young workers who wish for a better life, but poor educational provision and training opportunities mean they are unlikely to be able to achieve it.

This quandary brings to mind work I recently carried out looking at skills improvement in the Bangladesh Textiles Sector. There is little career progression for textile workers in Bangladesh, and while improvements can be made to companies' long-term planning and worker engagement to encourage it, any such programme is limited by the poor language and mathematics skills of many workers.

Educational provision is basic. Many workers, especially women, leave school with only the most rudimentary of reading and writing skills, little arithmetic and no computer skills. Without these skills it is difficult for even the most enlightened employer to introduce an effective skills development programme that would justify increased wages.

So re-imagining the minimum wage as an entry level wage relies on strong governance both in terms of implementing such a plan and in providing a grounding from which employers can build in terms of basic education and core reading and writing skills.

Singapore may have a strong and upright enough government to introduce such a system. In the meantime for most countries, a minimum wage may be a crude measure of worker protection - but it probably remains the most easily and effectively implemented.