How labour policies can help Singaporeans achieve the Singaporean Dream
Public Policy Challenge 2009
Preliminary Round Qualifying Entry
How labour policies can help Singaporeans achieve the Singaporean Dream
Since her independence in 1965, Singapore has been a model of economic success with high annual growth rates. Much of this growth is attributed to the large amount of skilled workforce present in Singapore. In recent times however, with the slowdown of the global economy and the increase in labour competition from countries such as China due to globalisation, the smaller lower income groups are encountering difficulty in sustaining income growth. Attention is thus being drawn towards the widening income gap and the difficulties faced by low-income groups in coping with rising costs of living.
This paper will analyse and identify the main cause of the increasing income disparity and unemployment within Singapore’s low-income population, review current social support policies in place to help low-income families and most importantly, propose recommendations for new policies which will be focused on encouraging lower skilled workers to become self-motivated in learning new skills that improve their employability. The issue of whether to extend aid towards higher income groups within the middle-income range will also be analysed and addressed.
i. Low-income wages.
Despite the efforts of current policies like the Workfare Income Supplement (WIS) to increase the take home pay of low-wage workers to motivate them to work, the crux of the matter remains unsolved. Due to globalisation the downward pressure exerted on the wages of low-skilled workers is overwhelming. Competition from low-wage workers coming from China and India has led to a 2.8 percent decline in real wages for the bottom 20 percent of the Singaporean workforce (Sue-Ann, 2009).
To try and offset the decline in wages of local low-skilled workers by artificially increasing their wages does not address the problem. What should be of priority is to increase the skill level of our lower-skilled workers so that they are able to rise above the competition and move up to the next employment level where their wage rate will not be competing with foreign labour. We have thus identified this area as a key cause to the growing income disparity and also the main area of improvement that will have the most impact on the productivity and employability of our low-wage workers.
ii. Middle-income aid.
While the lower income group is experiencing falling wages, households in the middle-income range are also experiencing a slowdown in the growth of their average monthly income due similarly to competition from semi-skilled and skilled labour from low-wage countries. There have thus been calls for aid to be extended to these groups to help them cope with the rising cost of food and energy.
We feel that the main issue in this case is still regarding the skill level of the workers. If we are able to increase the skill and knowledge level of the labour in this segment, they will be able to become more productive and compete better with the foreign labour. Thus we propose to segment the middle income group into the lower-middle income range and the high-middle income range. However, we extend extra aid to only the lower-middle-income range and only in terms of skills upgrading since these households are already much more able to cope with living costs than their low-income counterparts.
III. Review of current policies
In order to implement new policies without using up any more of Singapore’s limited resources, we propose to modify and cut back on some of the current policies that we have identified to be ineffective.
i. Jobs Credit.
Currently, the government is giving employers a 12 percent cash grant on the first 2500 dollars of monthly wages for each employee on their CPF payroll to encourage employers to keep Singaporeans employed. We realise that this amounts to a maximum of 300 dollars per employee which will only be a significant amount for the lower and lower-middle-wage workers. For the higher skilled workers that are commanding a higher pay, their skills are in demand even more so during this tough period and will not be needing this subsidy to keep their jobs.
The current policy costs the government $4.5 billion (Singapore Budget 2009, 2009) to maintain. Thus in order to cut back on unnecessary spending, we propose that the cash grant percentage to be raised to 15% on the first 2500 dollars for the low-income workers and then decreased on a scale according to the pay amount of the worker as illustrated below.
Income per month
$2500 and below
15% on the first $2500
$2501 to $4000
10% on the first $2500
$4001 to $6000
7% on the first $2500
$6001 and above
4% on the first $2500
This will cost about 600 million a year (Annex A – Calculation A1) and will lead to large potential savings while improving the effectiveness of the policy in maintaining the employment rate of Singaporeans. Furthermore, as the economy starts to improve, the need for the government to subsidise employee’s wages will gradually decrease.
ii. Skills Programme for Upgrading and Resilience (SPUR).
The current SPUR programme consists of two parts, one being SPUR for employers and the other for individuals. While SPUR for employers is effective in protecting local employment and at the same time effective in getting workers to upgrade their skills, it is not so effective when it comes to motivating low-wage employees to constantly seek to improve themselves. This is because this plan leaves it to the employers to send workers to courses and thus the employees themselves may not necessarily want to enroll in such courses. Low-wage employees are also very unlikely to be chosen to be sent to upgrade courses.
What the policy should focus on is therefore the SPUR for individuals where workers can choose the courses that they would like to go for. Currently, SPUR for individuals mostly caters to the unemployed workers as the policy does not allow for employed workers to voluntarily go for training and still receive an absentee payroll. A radical change will be required in this policy to further involve the low-wage workers in Singapore, the full plan will be outlined below as a new proposal.
IV. New Proposals
As currently employed low-wage workers are unlikely to be chosen to be sent for upgrading courses under SPUR, they will not receive any benefit from the whole SPUR programme. We propose an extension of the absentee payroll system to low-wage employees in the bottom 20% of the working population.
Under this Edusave inspired policy which we named Laboursave, only low-wage employees will be given a Laboursave account with Skills Upgrade credits of 200 dollars to enroll in any Laboursave approved training course of their choice. Unused credits will stay in the worker’s Laboursave account which has a maximum credit limit of 200 dollars and is topped up at the end of every year. Employers are obligated to accept request of any application for leave from these low-wage employees should they be attending those classes. In addition, employers will receive absentee payroll subsidy at the same rates as in SPUR.
This policy will give employed low-wage workers a chance to improve themselves and expose them to the benefits of learning new skills. Giving the workers a choice in the classes they want to attend also makes them feel more independent and in control, thus making them more motivated learners.
We estimate this programme to cost around 250 million dollars a year (Annex A – Calculation A2) and can be funded by the cost savings made in the changes to the Jobs Credit policy.
ii. HDB Studio Apartment ownership for low-income families.
The latest statistics of our home ownership level in Singapore indicates that 13% of the low-income families do not own a house as compared to 5% for the middle-income households (Singapore Department of Statistics, 2005). We hope to improve this situation as a family without a permanent place to call home will have much difficulty putting effort into any kind of career advancement as the top priority would be to secure a home for themselves. We propose to adapt the current studio apartment scheme into a new policy for the low-income families and provide easier home ownership for them.
The studio apartment scheme is intended to be an economical housing option for the elderly, thus studio apartments can only be bought by Singapore Citizens of at least 55 years old. Studio apartments also cannot be sold in the open market and must be returned to HDB if they are not used. The new studio apartment ownership scheme for the low-income families will not have any of these restrictions as we want to allow them to own homes in the same way that the majority of Singapore residents are enjoying.
By making the ownership of the studio apartment permanent for the low-income families, they will be given a better sense of belonging and stability. This will enable them to look towards other improvements in their lives such as their jobs and their income.
iii. Encouraging older women participation in the workforce.
Employment rate of older Singapore women is lower than developed countries such as Japan and Korea. (Annex B – Table B1). This shows an untapped labour segment. If more efforts are made to encourage these women back to the workforce, it could help the families in their livelihood, especially for those in the lower income group. Hence, my group proposes encouraging older women participation in the workforce.
Firstly, employers can be encouraged to hire older staffs on an hourly basis. The cost savings such as reduced employer CPF contribution from hiring part-time workers such as older women should be highlighted to employers. Government can fund training courses for older women who are entering the workforce. to ensure that the courses are kept affordable for people from low household income. Since we are only recommending simpler jobs to the older women, such as clerical work and assistants, basic skills such as conversational English, computing skills or instructional courses for a particular job would be sufficient. More publicity through mass media could also be done to increase awareness of women on the relevant re-training courses and job opportunities available. Job recruitment agencies can also play a part by helping the older Singapore women to match their skills to the possible jobs available so that the job search process can be made simplified for women. In return for successful job matches, part of the pay will be given to the recruit agency.
From Table A1, Singapore’s women labour participation rate in 2007 across the various age groups is 4.88% lower than the combined average of women labour participation in some countries of the Organisation for Economic Co-operation and Development (OCED). 512,100 women are 50 and above in mid 2008 (Annex B – Table B2). To increase the labour participation rate of older women by 4%, especially women from lower income households, my group estimate approximately $10 million of spending by the government willl be required on funding of re-training courses and on publicity. (Annex A – Calculation A3) Part of this $10 million required could be taken from the $840 million spent on Workfare Income Supplement (WIS) scheme to encourage older low wage workers to work. The initial startup costs would be negated by savings on government spending when families have additional income and reduce their need for social and financial assistance from the government.
The “Singapore Dream” is an aspiration for Singapore where there are opportunities for everyone. In extending the aid to the lower middle income group, we ensure that no Singaporean is left behind.
“Give a person a fish and you will feed them for a day. Teach them to fish and you feed them for a lifetime.” Our proposed policy goes in hand with the existing policies and focuses on motivating and equiping our citizens with appropriate and useful skills that will help us survive in this competitive world.
With continual review of the existing policies, we will cope with the changing global landscape and hence lead to better usage of our resources to assist our citizens. In conclusion, we believe that by catering to both the psychological need for a sense of belonging and a sense of security, we are able to motivate and assist our citizens in progressing to the next level. Furthermore, with greater particpation of all genders, we will succeed in making the Singapore Dream possible for everyone.
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