News analysis

National Day Rally 2021: Fresh thinking on baseline salary for lower-wage workers

Prime Minister Lee Hsien Loong spoke about improving the lot of lower-wage workers. ST PHOTO: KUA CHEE SIONG

SINGAPORE - A fresh approach to pull up the pay of Singapore's lowest income earners is a sign of a shift in the Government's thinking on how to ensure that such workers get at least a baseline wage.

Speaking during Sunday's (Aug 29) National Day Rally about improving the lot of lower-wage workers, Prime Minister Lee Hsien Loong announced that the Government would apply a new approach to raise their wages.

This involves using the Local Qualifying Salary (LQS) - a regulatory measure to control the number of foreigners a company can hire - to essentially compel companies to pay all their local workers at least $1,400.

Currently, a company has to pay at least some of its local workers the LQS, depending on how many S-Pass and Work Permit holders it wants to hire.

The announcement was just four lines in PM Lee's 31-page National Day Rally speech, but the implications will reverberate throughout the local workforce.

The move represents an alternative route to the favoured way of improving the income of lower-wage workers through the Progressive Wage Model (PWM).

Introduced in 2012, the PWM ties wages to improvements in the level of skills and productivity of a worker, and currently covers the cleaning, security and landscape sectors. It has been described as something of a "sectoral minimum wage" which can go further to help workers move up the skills and wage ladder.

There are plans to expand the number of sectors that it will apply to, but the PWM currently covers only about 15 per cent of the lowest-fifth of income earners here. Critics also lament about how long it takes to implement PWMs, which are enforced through licensing requirements.

The labour movement, for instance, aims to put in place the recently announced PWMs for the food service and retail sectors within two to three years.

The LQS strategy, however, does not require workers to gain new skills to be guaranteed a base wage of $1,400, and is likely take less time to implement.

With foreigners making up one-third of Singapore's workforce, the number of companies - and therefore workers - who will be covered is also likely to be large.

At the same time, the keen competition for workers here may mean that even companies that do not hire foreigners may feel the pressure to raise wages.

The net result is that $1,400 could become a de facto baseline wage, a minimum wage in all but name, that will complement the PWM programme.

Yet, LQS differs from a universal minimum wage which would apply to all workers, including foreigners. The Government has argued that a minimum wage could inadvertently put vulnerable low-wage workers at a disadvantage, and raise costs.

Using the LQS as a lever means that it applies only to local workers, thus also limiting the cost increase that will undoubtedly be passed on from businesses to consumers.

It remains to be seen if the move goes far enough to improve the lot of lower-wage workers, and this will depend on several factors.

For one thing, how many workers will it cover, and how much will their pay be raised?

Also, at $1,400, the LQS amount would just about cover the basic needs of a four-person family, which is $1,300 based on estimates from 2017.

PM Lee said that the LQS will be adjusted from time to time, but gave no further details.

With the LQS now having a dual purpose - to help improve the salaries of lower-wage workers and to control the number of foreign workers that firms can hire - there might be a need to relook how it is calculated, and how fast it should rise.

The move acknowledges that for some jobs, there is perhaps only so much that a worker can improve skills-wise, and that in these cases, wages must still rise, at least to keep pace with the cost of living.

It also sends a signal that there is a minimum value that ought to be placed on work, and that it is important to recognise that lower-wage workers do need a minimum level of income to live with dignity.

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