In-depth research. Perceptive insights.
In-depth research. Perceptive insights.
Monday, May 20, 2024
Tan Meng Wah
In-depth research. Perceptive insights.
Wage Outcomes from the Three Wage Systems
in terms of wage outcome, Singapore’s hybrid model compares poorly with that of both the US and Sweden. Singapore’s minimum wage of US$735 (or US$955 if S$300 WIS is included) is far behind that of Sweden’s US$3,139 or US’ US$1,160 (or US$2,400 when the hourly minimum wage is adjusted to US$15).
19 November 2018
Notably, even without minimum wage, the workers in Nordic countries are among the best paid in the world. Monthly wages range from a high of US$3,742 for Finland to US$3,139 for Sweden and a low of US$2,706 for Denmark.[1] Because of Swedish workers’ stronger negotiating position compared to many other countries, real wages increased almost 60% between 1995 and 2016. Today, the Nordic countries are among the most inclusive economies in the world.
In contrast, the US is the least inclusive among the OECD countries because of its low minimum wage. In 2018 dollars, the real minimum wage hit a high of US$11.55 in 1968 before it started declining to a low of US$6.41 in 2006.[2] This was despite productivity jumped by 83% from 1973 to 2006. Had the minimum wage risen correspondingly with overall productivity rate of its economy since 1968, it was projected that workers would be earning about US$21.72 per hour by 2012, instead of the US$7.25 they were getting only since 2009.[3]
As for link between wages and overall economic growth, even though national output doubled between 1979 and 2005, rise in after-tax household real income was only 6% for the bottom fifth of income earners and 21% for the middle fifth but 80% for the top fifth and 228% for the top 1%.
In short, despite robust economic growth and impressive gains in productivity, particularly during the 1980s and the 1990s, the Americans were actually taking home less over the years.
Today, more and more US companies and state governments are recognizing that the current federal minimum wage level of US$7.25 is too low to even guarantee a socially inclusive standard of living. They have begun adjusting it substantially. In 2012, for example, the Obama administration signed an executive order to raise the minimum wage for all workers employed on federal contracts to US$10.10 an hour.
Meanwhile, cities and states are also exercising their option to push up their own minimum wage. Three years after a nationwide movement “Fight for $15” began in 2013, thirty states had set their minimum wages higher than the US$7.25 federal minimum wage by end of 2016. California, New York, Massachusetts, and DC have committed to raising theirs to US$15. In August 2018, Anaheim, the host city of Disney, passed a living wage ordinance requiring large companies to pay employees at least US$15 an hour, rising to US$22 an hour by 2022 and keeping pace with inflation thereafter. In October 2018, after receiving strong criticisms that one third of its employees are on public assistance, Amazon raised minimum wage to $15 for all 350,000 US workers. In March 2019, a bill to raise the federal minimum wage to $15 cleared a legislative hurdle. It is now due for a vote by the House of Representatives.[4]
The effects of a legislated minimum wage in the US have been debated for decades. Studies in the past have contended that increases in minimum wage can lower workers’ earning potential because employers often respond by reducing hours. However, this is negated by several studies including one conducted by the US Census Bureau and published in March 2018.[5] More pertinently, the study also found that a 37% rise in the federal minimum wage in the years leading up to the Great Recession would have slowed income inequality. This is because giving low-wage workers a “fair starting point” helps them enjoy meaningful future wage growth in absolute term.
Not surprisingly, in terms of wage outcome for workers, Singapore’s hybrid model compares poorly with that of both the US and Sweden. Singapore’s US$735 (or US$955 if S$300 WIS is included for workers aged 35 and above), which is what a cleaner earns, is far behind that of Sweden’s US$3,139 or US’ US$1,160 (or US$2,400 when the hourly minimum wage is adjusted to US$15).[6]
Note:
^ US$955 include S$300 WIS for workers aged 35 and above.
# The US’ minimum wage is in process of being adjusted to US$15 per hour in the coming years. The monthly wage of US$1,160 is based on current hourly minimum wage of $7.25 while US$2,400 is based on hourly minimum wage of $15.
* Unemployment rate among native Swedes is at 4%. The figure for foreign born is more than 15%. Sweden saw an influx of about 600,000 immigrants in total over the past five years. The labour force has grown by 7.8% since early 2014, compared with 4.7% in Denmark and 4.9% in Norway. Immigration is one of the most contentious issues facing Sweden today. The high unemployment of the immigrants due to mismatch of skills is draining the government fiscal surpluses.
@ Number in parenthesis indicates the country’s ranking.
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Comparison Using Other Performance Indices
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Remarkably, Sweden’s high ‘minimum’ wages have not dented its overall economic competitiveness. It has the highest GDP per capita among the three countries and its low unemployment rate of 4% for Swedish natives also contradicts the argument that higher real wage growth will inevitably cost jobs.[7] More importantly, Sweden’s low wage inequality has enabled it to achieve more favourable social outcomes, as evidenced by its international rankings based on Human Development Index and Happiness Index, not to mention also its high total fertility rate of 1.909 compared to Singapore’s 1.14.
Comparatively, therefore, Singapore workers at the lowest rung are paid substantially lower than their counterparts in the US and Sweden. The combined workings of WIS and PWM have so far failed to help low-wage workers here obtain an equitable wage compared to American workers under the legislated minimum wage system or the Swedish workers under their bona fide union-led collective bargaining.
The implementation of the WIS is said to have been inspired by the Earned Income Tax Credit (EITC) programme practised in the US.[8] But the experience of the US shows that the implementation of the EITC has not negated the need for a minimum wage, particular one that is pegged to living costs. Today, Singapore is part of the fewer than 10% of countries globally that do not have a legislated minimum wage policy.
Given that the WIS is merely a supplement, it cannot be expected to make up for the sizable shortfall caused by the absence of a minimum wage pegged at least to a living wage. The ‘blame’ should be rightly attributed to the PWM which has failed to lift wages workers at the lowest rungs to a “fair starting point”. As a result, as pointed out by Professor Lim Chong Yah in his 2012 proposal of a ‘Wage Shock Therapy’, any wage adjustment today based on the PWM will not translate into meaningful increment for the low-wage workers.
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REFERENCES
[1] Calculated based on work week of 40 hours using 2014 or 2015 hourly rates extracted from sources such as TradingEconomics.com and WageIndicator.org.
[2] See Annalyn Kurtz, Tal Yellin and Will Houp. (2019). “The US minimum wage through the years.” CNN Business. April 9, 2019.
[3] See Park. B.(2013).
[4] See Alina Selyukh. “Bill Raising Federal Minimum Wage To $15 Heads To U.S. House Floor.” NPR, March 6, 2019.
[5] See Kevin Rinz & John Voorheis. (2018). “The Distributional Effects of Minimum Wages: Evidence from Linked Survey and Administrative Data.” US Census Bureau. March 2018.
[6] Assuming a cleaner earns S$1,000 a month, works 5.5 days (44 hours) a week and exchange rate to be S$1.36 for a US dollar.
[7] See Karl-Petter Thorwaldsson. (2018). “Sweden's secret to keeping wages high.” WEF. 15 Jan 2018.
[8] Se MOM. (2018). “Opinion Editorial by Minister Josephine Teo on Mnimum Wage.” 7 November 2018.