When I see people slogging away at Subway, I sometimes feel bad that the amount I’m paying for my 6-inch Cold Cut Trio sandwich costs more than their hourly wage. In the same way, when I look at elderly workers in food courts that are promoting Pioneer Generation discounts, I can’t help but feel a little awkward again.
After all, they’re probably earning an hourly wage that would actually require them to use their Pioneer Generation discount if an hour of their backbreaking work is going to buy them a meal at their workplace. So when the idea of a minimum wage came up again at this year’s General Elections, I was intrigued.
Singapore currently doesn’t have any set minimum wage, and remains in the minority among developed and developing countries who have implemented it. So when the PAP started shooting down the opposition’s calls for a fixed minimum wage, I guess it’s about time we delved deeper in to this subject. You can’t be squealing and yelling support at rallies if you don’t even know what minimum wage means right? Right.
“Honestly, ah…. I don’t know what a minimum wage scheme actually is”
Well, if the name didn’t give it away, it’s a law that sets the lowest salary one can earn, usually on a monthly level. If passed, it means employers cannot pay employees an amount below the minimum wage. While the minimum wage is often set across a country, there can be different standards for workers under 21, or new workers to the labour force.
So, how does it work? Just anyhowly tikam-tikam a number?
Well, setting the minimum wage depends on a lot of factors. The main deciding factor is the country’s median wage. To oversimplify it somewhat, you look at how much the middle class is earning and base the lowest wage from that. The US, for example, has set the nation-wide minimum wage at about 27% of the median wage, while New Zealand sets it at about 60% of the median wage.
Other factors considered may also include unemployment rate, inflation rate and cost of living. So if you want to lower unemployment, you may set a higher minimum wage to encourage more people to work. At least, that’s how it’s supposed to work.
What we are not addressing in this article is the link that minimum wage schemes have to taxes. Obviously, the money has to come from somewhere, and this is something that seems to have been buried under a rug when it comes to rally speeches this time round. That being said, what we are looking at here are the schemes themselves and what we can learn from them.
Okay, enough with the theory. How does it work in practice?
Let’s look at three examples from around the world where the minimum wage seems to be working well.
Our neighbours down under are often hailed as the perfect case study when proposing a minimum wage. It has the highest minimum wage in the world, but at the same time, it’s managed to keep unemployment below 6%. Not only that, in Australia, minimum wage has increased almost every year for the past decade and beyond. Right now, it’s 17.29 Australian dollars. Per hour.
That’s pretty crazy.
This amount is 15% more than the hourly minimum wage in 2010, and 25% more than the hourly minimum wage in 2007. It’s unsustainable, and Australia knows it. Facing a slowdown in the economy, there are some calling for the minimum wage increases to slow down, especially in the face of steadily rising unemployment.
But the other criticism is that the minimum wage is currently pegged too high. In Australia, the minimum wage has hovered around 52% to 55% of the country’s median wage for the past decade. What does that mean? It means that the minimum wage is more than half the salary of the middle-income earners.
So has having a high minimum wage negatively affected the Australian economy? Not in itself. High minimum wages are not directly linked to the unemployment rate in Australia. However, when the economy slows down, and unemployment rises, it becomes an easy target.
What can Singapore learn from Australia? That a high minimum wage doesn’t necessarily lead to unemployment, but a high minimum wage can only be sustained if the country’s economy is doing well. Also, there is the danger of setting the minimum wage too high as a percentage of the country’s median salary.
Ireland currently sets their minimum wage at 8.65 Euros per hour. This makes it one of the highest minimum wages in the world. However, this amount was set since 2007 and has remained the same since.
Finally, after almost a decade, the minimum wage is expected to finally be adjusted up, by 50 cents, to 9.15 Euros per hour in January next year.
That’s mainly because, according to a group of workers unions, economic research institutes and other campaigners in Ireland, it now cost 11.50 Euros per hour to have a decent standard of living in Ireland, including your basic needs of clothing, food, housing, transportation, health, education and more. They call this the “living wage”.
The minimum wage in Ireland is currently about 48% of the country’s median wage. When it was first set in 2007, it was about 52% of the median wage.
Setting a minimum wage in Ireland has not affected the country’s economic recovery since the global financial crisis. Employment has been slowly going up and the expectation is for wages to increase accordingly. However, now that there is an upcoming increase in the minimum wage, some businesses are naturally concerned that the increase is too soon, and that the Irish economy isn’t ready for it yet.
What can Singapore learn from Ireland? Apart from some very nice River Dance moves…… We can learn lessons about how setting a high minimum wage doesn’t mean that you have to keep increasing it year by year. However, when the country’s economy is doing well, there will be expectations that the minimum wage should be increased. Also, there is a danger of setting the minimum wage as a percentage of the median wage, and not according to the cost of living of the country.
Japan doesn’t have a national minimum wage per se. It differs according to industry and region. It’s a policy that makes sense, since the cost of living would naturally be different across regions in Japan. However, even in the most expensive region of Tokyo, the minimum wage is only 888 yen per hour, or about the cost of 1.5 bowls of ramen. On a national average, Japan is actually looking at 780 yen per hour.
This number is far below the median wage of the country. While it has slowly been increasing from 30% and 39% of the median wage over the past ten years, it is still not keeping up with the country’s inflation. The irony, of course, is that some businesses in the country are experiencing a labour shortage despite the minimum wage. Increasing the minimum wage is expected to increase employment, help consumption, and generally boost the economy all round.
What can Singapore learn from Japan? Should Singapore be in need of addressing labour shortages in certain businesses in the country, setting a minimum wage may be a worthwhile alternative to hiring cheap labour from overseas.
So, there’s really no perfect answer to the minimum wage question…
Singapore, like the PAP is fond of reminding us, is a unique country that needs unique solutions to its unique problems. While we can look at how other countries are implementing a policy, we cannot rely on their results alone to determine if it will work for us or not.
That being said, neither should we dismiss the idea of a minimum wage scheme outright. If implemented, it should complement, not replace existing grants and schemes to help lower-income households.
Has this changed your opinion of minimum wage schemes? Do you think it can be implemented in Singapore?