Speech at Parliament on Motion on Inclusive Growth

Mr Gan Kim Yong, Minister for Manpower, Parliament

1. Mdm Deputy Speaker, thank you for allowing me to speak. First, I would like to thank Mrs Josephine Teo for introducing this motion. I would also like to thank Members for supporting the Government’s efforts and approach to help these workers and for making useful suggestions.
2. Madam, I agree with Members that Singapore’s economic growth must be inclusive and sustainable. This means that everyone who has put in their best efforts must be able to share in this growth and look forward to better lives.
3. Over the years, lower-income families have indeed benefited from our economic progress. Take household incomes, for example. In the last decade between year 2000 and 2008, the first quintile of employed households saw their household incomes after taxes and transfers grow by an average of 3.9% per year, from $19,000 to $25,900. Even after taking inflation into account, real income grew by 1.7% per year. Members like Mrs Josephine Teo, Mr Yeo Guat Kwang and Mdm Halimah Yacob, have also shared heartwarming examples of individual low-wage earners making progress.
4. Madam, we must accept the reality that the pace of growth will be uneven across our population. Highly-skilled Singaporeans are globally mobile and will command salaries that are similar to their counterparts in the US and Europe. On the other hand, our unskilled workers will face competition from the less-developed countries. Being a small and open economy, we have no choice but to remain globally competitive and manage the income differences the best we can. If we become uncompetitive, we will risk stagnation and have fewer resources to help the lower income. Everyone will lose out. This is not a race among ourselves, but a global race between Singapore and the rest of the world.
5. Last year, the Government reinforced its commitment to helping the lower-income and accepted the recommendations of the Economic Strategies Committee (ESC) on inclusive growth. In particular, the Government agreed to raise productivity through skills and innovation and to moderate the dependence on foreign workers through our foreign worker levy mechanism. The first two rounds of levy increases were effected in July last year and earlier this month, with more to come. When the announced increases are fully completed, the levy will range from $200 to $450 per foreign worker per month. If you add the WIS (Workfare Income Supplement) that the low-wage workers will receive, the advantage for local workers can be as high as almost $700 a month versus a foreign worker. With higher foreign worker levy, therefore, we tilt the balance in favour of local workers, in particular our low-skilled, low-wage workers.
6. As Members have pointed out, the notion of inclusive growth is not new to the Government. Over the years, the Government has introduced many initiatives to help low-wage Singaporeans. Let me just highlight a few.
7. Housing is one example. In addition to substantial subsidies for first-time homeowners and concessionary interest rates on housing loans, lower-income families enjoy an additional CPF Housing Grant of up to $40,000. Among households in the first quintile, 85% own their flat. The average home equity of their flats, which is the market value minus the outstanding loan, is about $242,000. Few countries in the world, if any, have achieved such a high level of home ownership and asset value among their low-income families.
8. Healthcare is another example. Our public hospitals and polyclinics are heavily subsidised. Mdm Halimah asked about capacity and accessibility of nursing homes. Minister Khaw has already given his reply on Monday to a similar parliamentary question and, therefore, I will not go into the details. In general, the “3M” framework of Medisave, MediShield and MediFund, ensures that no Singaporean will be denied of good healthcare. For those who do not have the means, the group which Mr Viswa Sadasivan is most concerned about, the MediFund serves as the safety net. MediFund pays out $64 million in 2009 as direct subsidies and we will top it up from time to time.
9. Mr Sadasivan also asked whether low-income families could be given more help. For families who face serious financial difficulties, there is ComCare. A total of $210 million has been disbursed since it was introduced in 2005. Today, ComCare not only targets the Government’s assistance at needy and low-wage workers but also mobilises the community to help them through the "many helping hands" approach, as highlighted by Mr Zainudin Nordin, who is also the Mayor of the Central CDC. The CDCs also provide a lot of support.
10. For older low-wage workers, we introduced Workfare in 2007. I will talk more about Workfare later.
11. Mrs Josephine Teo mentioned the Inclusive Growth Programme (IGP), which was one of the first programmes endorsed by the National Productivity and Continuing Education Council. Mr Seng also shared a few examples of those who benefited from IGP. I am pleased to hear the encouraging results after just a few months. The Council will review the programme after two years. There are many other programmes as highlighted by various Members: Best Sourcing Initiative, Customer-Centric Initiative, JRP, and so on, all aimed at helping these low-wage, low-skilled workers.
12. From time to time, the Government implements special budgetary transfers, which are weighted in favour of these less well-off. These include top-ups to CPF, GST Credits, U-Save vouchers, Growth Dividends, and so on. Between 2007 and 2009, households in the first quintile income group received over $650 million from the various Government transfers.
13. Mr Low Thia Khiang talked about Gini Coefficient. Madam, Workfare and Government transfers helped to improve our Gini Coefficient from 0.478 to 0.453 in 2009 – this is lower than 0.456 in 2001 before Government transfers. This means that these measures have helped to slow down the widening of the income gap. In comparison, the Gini Coefficient in the United States increased marginally over the same period. But we should not read too much into the Gini Coefficient, which is just a statistical measure. It does not tell us how well our low-wage workers, our low-income families are doing as it does not account for housing, healthcare and other benefits, which Singaporeans enjoy.
14. Mr Heng Chee How is right in saying that these Government transfers, though helpful and timely, are not long-term solutions. As pointed out by several Members, education and training are fundamental to uplift low-wage workers and their families. We must continue to invest in our children – the next generation. We have recently announced a series of measures to raise the affordability and quality of our education, especially the pre-school education and childcare services. Our education policies have been designed to level the playing field and ensure that all children receive high quality education and have an equal chance of success in their lives, regardless of the socio-economic status of their parents.
15. Our programmes to help the lower-income share three basic principles. First, they must not diminish our strong work ethic, culture of self-reliance and the tradition of family support. Singapore could only come this far through the drive and energies of our people. We must therefore preserve this unique spirit that makes us Singaporean.
16. Second, they must address the workers' fundamental needs. The schemes that we introduce must provide immediate relief for these workers, but should also deal with the underlying causes of their lower wages. Otherwise, we risk keeping them permanently trapped in their low-wage conditions rather than helping them.
17. Third, our programmes must be practical and sustainable, taking into account the local context. We must not simply follow what other countries have done.
18. It is these principles that guide our approach to Workfare. We introduced Workfare in 2007 to help older low-wage workers deal with the challenges of globalisation. Today, some 400,000 Singaporeans earning a gross income of up to $1,700 a month receive about $400 million a year from Workfare.
19. Workfare helps low-wage workers in three ways. First, the Workfare Income Supplement (WIS) supplements their income by up to 25%. WIS is paid in cash and CPF. The cash helps workers to meet their most immediate requirements which Mr Viswa Sadasivan was concerned about. The CPF component is for longer-term needs, such as housing, education, healthcare as well as retirement.
20. Second, Workfare encourages workers to continue to work. Those who were previously out of the workforce will also be more motivated to get a job because of the higher total income they can enjoy. By making regular work a condition for Workfare, we are actually helping to strengthen self-reliance.
21. Third, Workfare helps low-wage workers to upgrade. To lift them out of low-wage work, we need to help them acquire skills to take on higher-value jobs. The Workfare Training Support (WTS) scheme that we introduced last year helps to achieve this, through a combination of incentives to encourage the low-wage workers to go for training, as well as generous subsidies on course fees and absentee payroll support for their employers. We understand the concern expressed by Mrs Mildred Tan and Assoc. Prof. Paulin Straughan that training for low-wage workers has to be accessible and preferably near their homes and workplaces. Indeed, we have rolled out a number of programmes together with our partners including HDB, as well as merchant associations in the shopping malls, to provide training programmes right at the centre of the shopping areas in the heartlands so that these retail workers can have access to these training programmes during their break time. It is convenient for them, and we encourage them to participate in these training programmes.
22. Ms Denise Phua asked about CET for the disabled. My Ministry will discuss with MCYS how best to address this issue.
23. Madam, through training we help low-wage, low-skilled workers to progress to a better job and earn a better pay. Members may have read about Mr Sivakumar Munisamy, who was featured in the Straits Times last week. He is a security guard at a primary school in Woodlands, and a WIS recipient. With his good performance, I understand that he may be promoted this year and will receive a higher salary. While he may no longer be eligible for WIS as a result of his pay rise, we should be happy for him as this means that he has succeeded in moving up in his career. There are also many others like him. Between 2008 and 2009, about 20,000 workers graduated from WIS because their incomes had grown. With higher incomes, they are in a better position to provide for their families.
24. Some Members such as Mrs Josephine Teo, Ms Denise Phua, Ms Irene Ng and Mr Low Thia Khiang have suggested various ways to adjust and fine-tune WIS. I thank them for their suggestions and my Ministry will study them. We have to be mindful not to over tweak WIS. We must allow time for the scheme to be implemented, for the effects to benefit the workers. But we will take in their recommendations and suggestions in our review of WIS.
25. Madam, now and then we hear calls to impose a minimum wage to lift the incomes of the low-wage workers, just as many advanced countries have done. Mr Sadasivan asked if we could consider a minimum wage because many countries have done so. We should be mindful that each country’s situation is unique and each must find the best way to address its challenges. We should resist the temptation to follow others blindly. In fact, contrary to what Mr Sadasivan believes, the experiences of economies with a minimum wage show that they are not at all happy. Let me just share a few examples.
26. Hong Kong, for example. Hong Kong’s minimum wage law will come into effect in May this year, at HK$28 an hour which is approximately S$4.66. By the way, domestic helpers in Hong Kong also receive a Minimum Allowable Wage of HK$3,580, or about S$600 a month. However, both the law as well as the level of the minimum wage have created a lot of problems in Hong Kong. Businesses are concerned that the minimum wage will inject inflexibility into the labour market and increase costs. A data and research outfit, the Business Monitor International, has cautioned that the minimum wage may partially erode Hong Kong's economic advantage as a leading free market economy. Professor Francis Lui, an economist and former government advisor, has also estimated that up to 100,000 low-wage workers may lose their jobs when the minimum wage law takes effect. The impact will be worse during a recession because employers are more likely to retrench low-wage workers who are drawing the minimum wage as they cannot adjust their wages. These workers will bear the brunt of job losses.
27. Even with the impending minimum wage, unions have criticised the law for not doing enough, lobbying for a higher minimum wage of HK$33 per hour, approximately S$5.49 per hour. But a higher minimum wage carries higher economic costs and risks and could instead hurt low-wage workers. So the minimum wage has created these undercurrents in Hong Kong, between businesses, unions and the government.
28. Next, in Taiwan. The adjustment of the minimum wage level has also been a contentious issue. Between 1997 and 2007, the minimum wage in Taiwan remained constant, for fear that higher labour costs would affect their economic competitiveness. This is exactly what Minister Lim Swee Say talked about – the “sticky wage”. In July 2007, the Taiwanese government decided to increase the minimum wage by 9.1%. Businesses reacted strongly and the government had to scramble to provide relief packages to lessen the financial impact. However, this added a financial burden to the government and the minimum wage ended up being a double-draw on the economy, from both businesses and the government. But this year, Taiwan’s minimum wage will be further increased.
29. On the other hand, unions have been unhappy with the Taiwanese government’s earlier decision during the recent recession to maintain the minimum wage at the 2007 level. Instead of working on cutting costs to save jobs, the unions wanted to raise the minimum wage. Even with this year’s increase, the unions in Taiwan remain dissatisfied, claiming that the increment is not enough. This constant disagreement over the minimum wage level is harmful to tripartite relations.
30. The experiences of Hong Kong and Taiwan are just a sample of the practical difficulties that economies face with a minimum wage. Apart from implementation difficulties, a minimum wage may also hurt low-wage, low-skilled workers, the very same group that such a policy was designed to help. How is this so?
31. First, a minimum wage carries the risk of displacing low-wage workers. This is simple demand and supply. If the price of labour goes up, employers will look for alternatives: cut jobs to save costs, rather than cut costs to save jobs. They will reduce benefits or working hours to lower wage costs. Workers may end up receiving less. Employers will not want to pay a salary that is higher than what is justified by the productivity and skills of their workers.
32. Our unemployment rate is lower than most other countries, even during times of recession. This can be attributed to our flexible and responsive labour market and, certainly, the flexibility of our wage system. Let me show Members this chart. This chart shows that our unemployment rate was one of the lowest in the world during the recent downturn and, in fact, it is the lowest most of the time.
33. Madam, today, we foster a culture of continuous learning to achieve productivity growth. However, our efforts may be reversed by a minimum wage policy, as it could discourage upgrading and mobility. A guaranteed level of income may remove the incentive for training for the less productive. Lower-skilled workers, if they earn the same wages as the higher-skilled workers, there is no incentive for them to upgrade. When the minimum wage level is raised, both will enjoy the same higher wages. There is no incentive for them to work harder, to work smarter, to innovate and to improve their productivity. This way, the minimum wage will become their maximum wage.
34. Thirdly, a minimum wage will affect the competitiveness of businesses as the cost is borne by the employers. If businesses cannot compete, they may choose to move to another country. New investments will slow down. The end result will be that our local workers, not just low-wage workers, but all workers will have fewer jobs. Instead of earning a minimum wage, they may end up earning no wage at all, just like Mr Heng Chee How pointed out.
35. Because of these concerns, and others which some Members like Mr Heng Chee How, Mrs Josephine Teo and Ms Jessica Tan have highlighted, the Government is not in favour of a minimum wage. I am glad that Mr Low has just stepped in and he has confirmed that the Workers' Party is also not asking for a minimum wage for now. We all agree that we are all for helping low-wage workers and this is where Workfare comes in.
36. Workfare is better than a minimum wage. Like a minimum wage, it helps our low-wage workers earn a better income. But unlike a minimum wage, Workfare does not risk displacing low-skilled workers because the cost is borne by the Government. Employers are not burdened with paying a high wage that is not supported by the productivity of the workers. I mentioned that Workfare provides income supplement of up to 25%. Can you imagine setting a minimum wage that requires the employers to pay an additional 25% to the low-skilled workers? Madam, Workfare is not cheap. It is a programme that not many countries can afford, as Minister Lim pointed out. These countries do not have as strong a fiscal position as Singapore. And we are able to do so because we have enjoyed strong economic growth for a number of years.
37. Workfare is also more inclusive as it includes self-employed persons, unlike a minimum wage which only applies to employees. This is important as around one-fifth of low-wage workers in our workforce are self-employed. More importantly, Workfare sets low-wage workers on a sustainable path to income growth by obtaining better skills. This is in direct contrast to a minimum wage which discourages training and upgrading.
38. Assoc. Prof. Paulin Straughan was concerned about the working conditions of low-wage workers. Madam, beyond Workfare, we work with our tripartite partners to improve working conditions for low-wage workers and encourage fair and progressive employment practices. For example, Mr Zainudin Nordin talked about the Unit for Casual and Contracts Workers (UCCW) and how it helps workers improve their working conditions. My Senior Parliamentary Secretary chairs a tripartite committee to look into ways to improve working conditions of these low-wage workers. We will continue to do more.
39. Madam Deputy Speaker, may I now conclude in Mandarin.
40. (In Mandarin): Madam Deputy Speaker, the Government has always been concerned about low-wage workers. We should avoid creating an artificial support system that may slowly erode our values. We help our low-wage workers in ways that are effective and sustainable. We provide assistance for their immediate, daily needs through support mechanisms such as ComCare as well as housing and healthcare subsidies. We encourage them to work so that they can be self-reliant and earn more through WIS. We also provide support to help them build a better future for themselves through training and skills upgrading under WTS. Helping the low-wage workers is like a farmer looking after his crops. The farmer wants the seedlings to grow strong, but he can't pull the seedlings up to make them grow. He must take care of them with love and care. If he forces the seedlings to grow, they will end up withering instead. Therefore, we must continue to push forward our various incentives and schemes to help the low-wage workers. We should not consider a minimum wage system.
41. (In English): I would like to assure the House that the Government has been concerned about low-wage workers. We should avoid creating an artificial support system that may slowly erode our values. We help our low-wage workers in ways that are effective and sustainable. We provide assistance for their families, we will provide help for their immediate needs through support mechanisms such as ComCare as well as housing and healthcare subsidies. We encourage them to work so that they can be self-reliant and earn more through Workfare. We also provide support to help them to build a better future for themselves through training and skills upgrading through Workfare Training Support scheme. Our approach preserves the strong work ethic of our people and addresses the fundamental cause of income inequality.
42. Madam, we need not follow in other countries' footsteps. We have consistently shown courage and innovation in developing our own solutions, such as the Jobs Credit Scheme, the Skills Programme for Upgrading and Resilience during the recession; and also Workfare, as the way to help our low-wage workers. I am pleased that Members support this approach. The Government will continue to work with our tripartite partners to foster inclusive growth for all Singaporeans. Together, we will create our own Singapore Dream where we progress together as one nation and as one people.
43. Madam Deputy Speaker, I support the motion.