Bridging the rich-poor gap in Singapore

The recent pay increases are seen by some Singaporeans as a step forward, but critics view them as tweaking, rather than resolving, a fundamental problem.

WHEN Cabinet ministers took turns to rebuff a proposal to push up salaries of lowly-paid workers, most Singaporeans viewed it as good as buried.

Given the strict way the government is run, the revolutionary idea raised by former state economic adviser Professor Lim Chong Yah might well have faced the death sentence.

His think-out-of-the-box way of narrowing the economic gap called for the salaries of low-level workers to be raised by 50% over three years, and those at the top-end be frozen for a similar period.

The widening gap between rich and poor is becoming one of the most pressing problems here today. It threatens Singapore’s social fabric despite its strong GDP growth.

To the PAP, Prof Lim’s suggestion probably smacks too much of socialism.

But according to the professor, this land of record millionaires needs such a solution because it has for years been significantly under-paying its poorer workers.

The rich are becoming richer, and the poor poorer, not the best way to win votes.

The Boston Consulting Group said that 15.5% of Singapore households have at least S$1mil (RM2.4mil) in liquid assets, the highest percentage in the world.

But the earnings of the city’s 20% lowest paid had declined during the past 10 years.

The unequal growth was not due to globalisation or technological change, but the mass influx of foreign workers in the past 10 years, said prominent diplomat Prof Tommy Koh.

He said Singapore had a per capita income similar to Denmark, Finland, and Sweden, yet cleaners in these countries were paid some seven times more than those in Singapore.

Prime Minister Lee Hsien Loong’s response to Prof Lim was a firm “no” and said such pay increases must be matched by a rise in productivity.

That is virtually impossible as this growth slowed to an average 1% a year in the past decade.

However, I’m glad no one said “never” to Prof Lim. Due to the seriousness of the problem, it is unlikely any leader can swear that the concept will not be relooked at one day.

In fact, since Prof Lim’s controversial suggestion, a series of steep pay increases resembling — and even exceeding — his suggestion has been announced — although only for a duration of one year.

Prof Lim’s proposal was for an average of 16%-17% a year for a consecutive three years.

The recent ones included the following:

> SMRT announced that it was raising bus drivers’ salaries by 35%, but for a six- instead of five-day week.

> Public health workers, including nurses, will have had increases of up to 17% from last month.

> Social workers can expect pay rises of up to 15% this year.

> NTUC, the large union movement, announced that non-executive staff will get up to 15.8% in wage increment and adjustment.

> Several thousand junior and mid-level civil servants will get pay increases of between 5% and 15% this year.

The increases are, of course, unconnected to Prof Lim’s proposal but some observers believe the government is worried over, and may be responding to, the growing public unhappiness about stagnant salaries.

In its way, the job market seems to be lending support to Prof Lim’s proposed measures. The economic imbalance is the second worse in the world, next only to Hong Kong.

But Premier Lee disagreed.

“Although we want our workers to earn more, we cannot simply push up Singaporean wages as we would like,” he wrote on his Facebook page.

“The only way for our workers to do better is to compete on knowledge and innovation, upgrade our skills, and stay ahead of the pack.”

Critics, however, say this is near crisis time and it is not sufficient for the premier to stick to a conventional approach.

Meanwhile, the national wages advisory council, of which Prof Lim is former chairman, has for the first time since 1984 recommended a minimum quantum of pay raise.

It suggested S$50 (RM120) plus an unspecified percentage for workers earning less than S$1,000 (RM2,400) a month.

Although critics say it is a far cry from what is needed, it is apparently aimed at drawing a minimum line.
The authorities have always rejected calls for a minimum wage in Singapore.

Ryan Ong of Yahoo Moneysmart commented: “No offence and all, but that’s about as helpful as a pair of blunt scissors.

“I guarantee a whole bunch of companies are already reading ‘unspecified percentage’ as ‘nothing’.”

Some Singaporeans welcome the recent pay increases as a step forward but critics view them as tweaking, rather than resolving, a fundamental problem.

But as the debate flows, a dark shadow is appearing on the horizon that can worsen the situation and threaten any prospect of strong pay increases.

The global economy appears to be slowing down as it faces woes from Europe, which Singapore has strongly invested in, and an economic slowdown in China.

More employers are likely to become more concerned about avoiding being pulled down rather than how much to raise staff salaries.

A local daily reported that some industries, including shipping, are already feeling the pinch from the slowing Western markets.

Some are planning measures to reduce costs or retrench workers as a short term solution, TODAY reported.

This puts the squeeze on the government’s social compact of promising jobs and a reasonable living standard to Singaporeans in return for their political support.

The grounds at home and abroad are becoming tougher for everyone.

INSIGHT: DOWN SOUTH By SEAH CHIANG NEE

cnseah05@hotmail.com 

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Foreign worker flow choked in Singapore

INSIGHT: DOWN SOUTH By SEAH CHIANG NEE

From July, manufacturing firms will see their quota of foreign workers reduced from 65% to 60%, while the quota in services will drop from 50% to 45%.



FOR the first time in years, Singapore is cutting back on the intake of foreign workers to placate widespread public resentment.

“In the next five years, we have decided to tier down our need for foreign workers,” declared the strategy’s architect, former prime minister Lee Kuan Yew.

It was a tacit admission that its ambitious immigration strategy had run into trouble among Singaporeans and needed to be cut back – at least temporarily.

Lee’s son, Prime Minister Lee Hsien Loong, added: “We should consolidate, slow down the pace. We can’t continue going like this and increasing our population 100,000 to 150,000 a year, indefinitely.

“And we should give Singaporeans time to adjust, and our society time to settle, and integrate better the new arrivals.”

He mentioned no time-span for the reduction, but Lee Senior spoke of five years, evidently to take into account the next general election due in 2016-17.

A strong anti-People’s Action Party vote could make the policy more uncertain. But if it performs well, the doors may be opened even wider, according to analysts.

This in effect means the next election will serve as a referendum on future immigration.

The cutback is as follows: From July, manufacturing firms will have their quota of foreign workers reduced from 65% to 60%, while the quota in services will drop from 50% to 45%.

This was announced by Finance Minister Tharman Shanmugaratnam in his recent Budget speech.

He also said that the dependency ratio ceiling for “S” Pass holders – mainly mid-level skilled foreigners – would also be reduced to 20% from 25%. This affects middle-class Singaporeans most of all.

“The number of foreign workers has risen 7.5% each year for the last two years and account for a third of the city-state’s work force,” Tharman told parliament.

“We have to reduce our dependence on foreign labour. It’s not sustainable. It will test the limits of our space and infrastructure. A continued rapid infusion of foreign workers will also inevitably affect the Singaporean character of our society.”

A number of foreigners here – especially permanent residents – were a little rattled by the move, particularly Indians and Filipinos.

One family of PRs contacted me to ask if I thought this was prelude to a reversal of policy or a start of worse things to come.

The government has said those who are already here would not be affected.

There are other reasons for the review. One is a feared economic decline ahead and an expected drop in employment chances.

Another is the sustained drop in productivity growth from 11% (in 2009) to 1% last year, partly blamed on the import of too many cheap, low-skilled workers.

During the past year, the authorities had already been tightening rejection rates. The rise in foreigners slowed from 4.8% to 4.1%, and PR growth also slowed. From 6% a year from 2005, it rose by only 1.5% this year.

Lee Kuan Yew, who had long been the staunchest champion of the immigration policy, appeared to have softened his stand a year ago.

He said then: “We’ve grown in the last five years by just importing labour. Now, the people feel uncomfortable, there are too many foreigners.

“Trains are overcrowded with foreigners, buses too, property prices have gone up because foreigners with permanent residence are buying into the market.”

Actually, Singapore’s attitude towards low-skilled foreign workers runs counter to that a generation ago when the manufacturing era and large economies like China and India were emerging.

Sensing a threat in the 70s and 80s as they could offer more and cheaper workers and land to foreign factories, Lee – then at the height of his leadership – ordered a restructure to move Singapore’s economy to higher skill levels.

By the late 1980s state leaders raised salaries and cost of operations for low-skilled manufacturers to operate in Singapore. The idea was to move them to nearby Batam, Malaysia and Thailand.

“We don’t want investors to come here to manufacture low-margin products like umbrellas, plastic and clogs,” one government economist said.

I remember as a newspaper editor I sat in on a briefing by Economic Development officials in Brussels who told Lee Kuan Yew that they were faced with several requests from European investors to relocate to Singapore.

These were medium-size operations, but Singapore could not meet their demand for Singapore workers.

“We can tell them to operate in one of our nearby hub cities in Malaysia or Indonesia to make use of their workers under Singapore supervision,” Lee suggested.

The officials replied: “No, Sir, they insist on Singapore workers; otherwise they would have set up business in other countries.”

The industrial revolution was still in full swing. But Lee saw the shortcoming in Singapore’s small size in manpower and land.

The solution was to move to high-skilled levels, especially in services. Tertiary education and job retraining went full swing.

At the time he was against the intake of too many unskilled foreigners.

In several briefings, he sniffed at Europe’s mass import of low-skilled workers from Asia and Africa, saying it is something Singapore will not emulate.

The rich Europeans were addicted to imported cheap labour to do “dirty jobs” that locals refused to do, a reliance long turned into a national addiction.

As a result, more and more unskilled foreigners were needed.

Today with the strong reliance on “cheap foreigners”, it is becoming a lot harder to turn back to the original strategy of high-skilled services by using trained Singaporeans.

Singaporeans earning more

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The Star By Cai Haoxiang

Wages are on the rise and so are the number of elderly employees – and the government hopes to cash in on the situation.

THE monthly salaries of Singapore workers went up this year, for the second year in a row.

Their median income - the mid-point in a range - was $2,633 (RM6,410.88) in June compared to $2,500 (RM6,087.05) a year ago, a 5.3% increase, led by economic growth and a tighter labour market.

The rise is even steeper when part-time workers are taken out of the equation, according to a Manpower Ministry report recently on the earnings and employment of residents, including permanent residents.

 

Wealthy lot: Fuelled by strong employment growth and curbs on the inflow of unskilled labour, the monthly income of Singaporeans has seen an encouraging rise this year. – The Straits Times
 

It shows full-time workers’ median income to be $2,925 (RM7,121.85) a month against $2,708 (RM6,593.49) last year - an 8% rise.

After taking into account projected inflation of about 5%, their real wages rose by an estimated 2.8%, said the ministry’s Singapore Workforce 2011 report.

But for all workers, including part-timers, the real wage increase was just 0.1%, said labour economist Dr Hui Weng Tat of the Lee Kuan Yew School of Public Policy.

Noting the Government’s goal to raise real median incomes by 30% over 10 years, Dr Hui said it would require an average increase of 2.7% a year.

“Attention thus needs to be focused on improving the wages and work opportunities of the 194,700 part-time workers, as they are increasing in number, and half of them indicate they want to work longer hours,” he added.

The report also disclosed for the first time median income figures that include the Central Provident Fund (CPF) contributions of employers.

With CPF, the income of full-timers soared to $3,250 (RM7,913.16), which is $250 (RM608.70) more every month than last year.



Explaining the new move, a ministry spokesman said employer’s CPF contributions form a “significant part of compensation, and can be used for housing and health care”.

Hence, it would publish the figures yearly to give “a more complete picture of residents’ income growth”, she said.

The rise in income this year builds on last year’s increase, which was a turnaround from the decline caused by the 2008-09 recession.

Last year, the strong economic recovery lifted the monthly income by 3.3%, from $2,420 (RM5,892.26).

This year, the increase was fuelled largely by strong employment growth, especially in the services sector, coupled with curbs on the inflow of unskilled labour and stricter conditions on employing skilled foreign workers, said economists interviewed.

“Wages were pushed higher with the big projects like the Marina Bay Sands and Sentosa resorts needing a lot of labour, together with the tightening of foreign worker inflows like increased levies,” said National University of Singapore economist Shandre Thangavelu.

These moves pushed the employment rate to a new high of 78% for residents aged 25 to 64.

At the same time, immigration conditions were tightened, causing a decline in the number of permanent residents.

As a result, the resident labour force went up by just 1.6% to 2.08 million, compared to an annual average of 2.6% in the past 10 years.

On the other hand, more older residents and women are working this year. A record 61.2% of residents aged 55 to 64 are working, up from 59% a year ago.

Similarly, with women aged 25 to 54, the number employed rose to 73%, from 71.7% last year.

Labour leader Cham Hui Fong cheered the increases in these two groups, saying they show that efforts of unionists are paying off.

Said Cham, assistant secretary- general of NTUC: “Companies are now prepared to hire and spend time training these workers.”

Also, more government funds were available, she added, citing the Advantage scheme that helped companies redesign jobs for older workers.

Another is the Inclusive Growth Programme, which gives grants to companies to invest in high-tech equipment and redesign jobs for low-wage workers in return for raising their pay.

“We hope these schemes will continue because we need to build up the momentum,” said Cham.

Malaysia's Migrant Economy!

Striking a balance in foreign labour

By CECILIA KOK cecilia_kok@thestar.com.my

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Harbouring the hope of providing a better future for her family, Sutimah left her village in Surabaya, Indonesia 23 years ago and travelled almost 2,000 km by boat to Peninsular Malaysia in search of a better-paying job.

She started work as a housemaid, earning less than RM400 a month. But for Sutimah, that was a sufficient amount that could alleviate the poor living conditions of her family.

“I tried to send as much money home as possible each month so that my family could live more comfortably, and my children could have access to better education,” says the 45-year-old mother of four.

Nor Zahidi Alias says rapid economic development is the primary reason for many countries’ increasing dependence on foreign labour

Sutimah, who has just been granted permanent resident status in Malaysia, is now working as a cleaner with an agency that pays her a monthly salary of RM1,000. She still sends back a big portion of the money that she earns each month, as the financial burden of her family keeps growing, particularly since her husband became paralysed a few years ago and could no longer work as an odd-job labourer.

“I have never thought of going back to Indonesia to work. I couldn't, it's just too difficult to make ends meet and to provide for my family,” she says.

Sutimah's experience, though not representative of all, speaks of a typical factor that drives people to leave their homelands and work in another country. Invariably the migrants will cite poor living conditions and a lack of opportunity for upward social and economic mobility as the main reason in their quest for greener pastures.

Promised land?  For south and southeast Asian economies, especially those that are lagging behind Malaysia, many migrant workers perceive the latter as a land flowing with milk and honey.

Official data show that Malaysia attracts a huge number of migrant workers into the country. According to official record, the number quadrupled from less than 500,000 in 1999 to more than two million, representing about 17% of the country's workforce in 2008.

It is believed that the number has since reduced to less than two million over the last two years as many migrant workers were sent home at the height of the global financial crisis in 2009. As at the end of February 2010, total registered foreign workers stood at 1.8 million, down from 1.9 million at the end of December 2009.

What's more intriguing is the fact that the actual number of migrant workers living in Malaysia could be more than double of what the official data suggest. It is believed many of these migrant workers have entered, or re-entered the country illegally.

While Malaysia cannot claim that it offers the lucrative benefits that many first-world nations have, its relatively better economic prospects and political stability have been the major pull factors.

So, is that a boon or a bane to the Malaysians economy? According to experts, it can be both ways.



“It goes without saying that foreign workers have indeed contributed to the growth of our economy, especially in sectors where we have an acute shortage of workers such as construction,” says the Malaysian Trade Union Congress deputy president Mohd Jafar Abdul Majid.

“But our economy is swamped with foreign workers who are unskilled or have low skill sets that could not contribute meaningfully to Malaysia's aspiration of becoming a high-income economy; and I think we have been too dependent on this group of foreign workers for far too long,” he adds. This is based on the significant increase in the number of unskilled or low-skill migrant workers in the country over the past two decades.

Filling the gap

In the Economic Report 2010/2011 compiled by the Finance Ministry, it was stated that of the 1.8 million registered migrant workers in Malaysia, 38.2% were employed in the manufacturing sector, 16% in the construction and 14.2% in the plantation sectors.

Indonesia accounted for the highest number of registered foreign workers in Malaysia at 50.9% . This was attributable to their country's proximity to Malaysia and its cultural and language similarities with Malaysia.
Bangladesh was second highest, accounting for 17% of the total foreign workers in Malaysia, followed by Nepal at 9.7%, Myanmar, 7.8%, India, 6.3% and Vietnam, 4.2%.

“The high dependency on foreign labour is not a characteristic unique to Malaysia,” says Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias.

He says countries that have been experiencing high growth rates such as Singapore and the Gulf states, including the United Arab Emirates and Saudi Arabia, are also experiencing the same phenomenon of having to rely on foreign labour in many sectors in their economies.

“Rapid economic development is the primary reason for the countries' increasing dependence on foreign labour,” Zahidi explains.

In general, the rising standard of living and educational levels that usually come in tandem with economic development will to lead to an aversion to the 3D (dirty, demeaning and dangerous) sectors by the local population. The void in these sectors has to be filled by unskilled migrant workers and Malaysia is not spared.

Robust economic growth in the past two decades has led to higher standard of living and improved the literacy rate among the people.

In addition, the sustained boom in economic activities has also led to substantial job creation as employment expanded faster than the labour force.

A tight labour supply situation further fuelled the growing demand for foreign labour, especially in the manufacturing and construction sectors.

Flawed strategy?

Since the 1980s, Malaysia's economy has been driven largely by the export-oriented manufacturing sectors, especially the electrical and electronic segments. The Government, perceiving migrant workers as a cheap source of labour that could enhance the country's export competitiveness had been encouraging the deployment of foreign labour in the 1990s.

As a result, local manufacturers had been able to enjoy a steady supply of cheap labour for the past two decades, and Malaysia has been able to maintain its competitiveness.

Migrant workers have been used as the foundation of the country's rapid-growth strategy. The presence of migrant workers in the country has been more than just filling the gap in the 3D sectors.

But economists are questioning if the huge influx of foreign labour is indeed the right move.
Some economists say it has been a flawed strategy.

Professor Datuk Dr Mohamed Ariff of the Malaysian Institute of Economic Research says the opening of the floodgates for cheap foreign labour in the past is a major mistake that has put Malaysia in the middle-income trap.

“It was a short-sighted growth strategy that attempted to maintain the country's competitiveness based on a low-wage system,” he explains, adding that he firmly believes that if Malaysia had not allowed the massive influx, local manufacturers would have been forced to innovate, automate to boost productivity to maintain their competitiveness so that they could move up the value chain.

Economists concede that the continuous dependence on cheap foreign labour would be a drag to the country's economy, as it would not encourage local corporations to mechanise - the initiatives of which are necessary to push the economy into a high-income level as defined by World Bank.

In addition, the huge number of unskilled or low-skilled foreign workers in the country has also raised concerns of security and incidences of highly contagious diseases in the country.

They are also seen to be putting additional strain on the Government's fiscal position as foreign workers could also have access to subsidised facilities including fuel and medical care.

“Over-reliance on foreign workers can have detrimental consequences, and that is why the Government is looking at ways to reduce dependence on them. The nation's prevailing dependence on low-skilled foreign workers cannot be done away with overnight, as a sudden repatriation of them can have serious repercussions on the economy, especially in sectors like manufacturing, construction and plantation,” he explains.

“Production activities will stall as quick replacements are not readily available. This will inevitably lead to a loss of competitiveness, closures or stagnations of businesses,” Zahidi says, adding that the distinctive roles of foreign labours in the 3D sectors cannot be underestimated.

To lift Malaysia to a higher developmental plane, economists say more incentives should be introduced to spur businesses to become less labour-intensive.

“For certain, it is only when businesses become accustomed to capital-intensive modes of production can their reliance on low-skilled foreign labour be reduced,” Zahidi says.

Skilled foreign labour

Not all foreign workers in Malaysia are unskilled or have low skill sets. A small number of them are highly skilled professionals who play an invaluable role in enhancing the country's productivity and competitiveness.

Generally termed as expatriates, these professionals are considered to be an asset to the country, as they bring with them the knowledge and skills that could enrich the local labour force.

“Inflows of skilled foreign labour should not be discouraged. As demonstrated by other countries such as Singapore and some of the Gulf states where highly skilled foreign labour are critical in the spurring a country's development. There is certainly a positive role that certain classes of foreign workers can play in any economy,” Zahidi says.

According to Economic Report 2010/2011, as at the end of July last year, the number of expatriates in Malaysia stood at 31,371, accounting for less than 2% of the migrant workers in the country.

They were mostly employed in the services (64.8%) and the manufacturing (22.2%) sectors, and they came mostly from India (17.8%), China (10.2%) and Japan (7%).

Under the 10th Malaysia Plan, the Government planned to attract highly-skilled expatriates to promote a knowledge and innovation-based economy, especially in the technical and professional services. Part of this effort is reflected in Talent Corporation Malaysia Bhd, which aims to attract, motivate and retain high-skilled human capital in the country.

Finding the right balance

The Government's effort in reducing the country's dependency on low-skilled foreign workers has been ongoing, as evidenced in the gradual reduction in the number of registered foreign workers over the last two years. Its target is to reduce the number of foreign workers to 1.5 million by 2015.

But this would be a challenging task. “Economic transition has not been easy; neither has the country's policy to reduce its heavy reliance on low-skilled imported labour because the technology base of Malaysia is still relatively low,” says independent consultant Dr Vijayakumari Kanapathy (formerly a senior analyst with the Institute of Strategic and International Studies).

“So, given the structure of Malaysia's economy, the reliance on imported labour in the immediate future is likely to continue,” she adds.

Mohd Jafar concurs, saying: “To be fair, all stakeholders play a role in reducing the country's reliance on migrant workers. Employers need to move away from their dependence on cheap foreign labour and go up the value chain, while policymakers need to implement better regulation and improve on the enforcement part, especially in preventing the illegal immigrants from entering the country.”

Malaysia needs to shift its focus from importing cheap labour to managing labour flow that can maximise growth and facilitate its structural adjustment towards a higher income economy.

This will also minimise the negative social impact brought about by these foreign nationals. But striking a balance between short and long-term needs of the economy will prove to be a complex challenge.

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