Singapore Budget 2015: Beware distortions from wage support schemes, says NMP

The extended use of wage support programmes, in which the Government helps companies subsidise part of the wages of local workers, is worrying, said nominated MP Randolph Tan during the Budget debate in Parliament on Tuesday. -- ST PHOTO: KUA CH
The extended use of wage support programmes, in which the Government helps companies subsidise part of the wages of local workers, is worrying, said nominated MP Randolph Tan during the Budget debate in Parliament on Tuesday. -- ST PHOTO: KUA CHEE SIONG

SINGAPORE - The extended use of wage support programmes, in which the Government helps companies subsidise part of the wages of local workers, is worrying, said Nominated MP Randolph Tan during the Budget debate in Parliament on Tuesday.

He said three such programmes - the Wage Credit Scheme (WCS), the Temporary Employment Credit (TEC) and the Special Employment Credit (SEC) - "provoke at least three serious concerns" and "deserve re-consideration".

The programmes help employers in different ways. Under the WCS, the Government co-funds wage increases for Singaporean workers, while the TEC and SEC give companies payments to offset wage costs, including for older workers.

This year's Budget extended the WCS and TEC schemes, while enhancing the SEC.

But Dr Tan warned that while these schemes "(shift) relative wages in favour of local workers, they also actually end up delaying the adjustments that businesses should make in order to complete restructuring".

In addition, extending employment credits when the job market is still healthy runs the risk of limiting the Government's policy options when unemployment rises, added Dr Tan, who is also an economist at SIM University.

After the recession that followed the global financial crisis, for instance, the Government successfully used the Jobs Credit Scheme - which gave companies cash grants so they would retain their workers - to ensure a swift recovery of the economy.

The "over-use" of employment credits now will "rule them out when the need arises", said Dr Tan.

The Jobs Credit Scheme cost $4.3 billion spread out over 18 months. In comparison, the WCS, first announced in 2013, will run much longer than that and amount to an estimated $9.1 billion, Dr Tan noted.

Since "the danger of a downturn is not negligible", he urged the Government to "conserve" its policy options.

The third worry about these programmes is that they may give rise to "policy overreach" by raising the labour participation rate among older workers too quickly, added Dr Tan.

He suggested that such a change might be better left to "develop slowly", since "multi-generational family structures" in which grandparents have a role in childcare are also valuable to the workforce.

For this reason, increased labour force participation of older workers should not be considered as "a goal in itself", said Dr Tan.

marilee@sph.com.sg