Singapore, the only Southeast Asian country to avert a recession during the Asian Crisis, became the only Southeast Asian country to fall into a recession, or to quote the Trade & Industry Ministry on 18 May 2001, a “technical recession”. The city-state enjoyed a prolonged period of economic growth between 1986 and 1997 averaging 8.6 percent per annum. However, after the Asian financial crisis, Singapore’s GDP is more volatile
According to quarterly reports by the government, unemployment has been steadily increasing in the run up to the recession. By June 2001, unemployment had reached 3.4 percent, breaching the internationally accepted unemployment level of three percent. The official unemployment rate worsened to 4.7 percent in December 2001, the highest in 15 years, as companies retrenched workers. The rate exceeds the 4.4 percent recorded in December 1998 during the Asian financial crisis. The Manpower Research and Statistics Department published a report, Labour Market 2001, in March 2002 in which the overall unemployment rate was projected to reach about 5.5 - six percent by the second half of 2002. The record rate of six percent was in March 1986 resulting from a recession.1
Meanwhile, the cost of living in Singapore has not been reduced by much even in the economic downturn. During the second half of 2001, the Consumer Price Index (CPI) rose 0.5 percent for households in the lowest 20 percent income group but fell by 0.3 percent for the top 20 percent income group. For households in the middle 60 percent income group, the CPI remained stable in this period. Households in the lowest 20 percent and middle 60 percent income groups registered lower inflation rates of 1.3 percent and 0.4 percent respectively in 2001, the rises being due to dearer cooked food and higher electricity tariffs. The CPI for households in the top 20 percent income group dipped by 0.2 percent in 2001, due largely to lower car prices.2 In a study done by the Relocation Journal & Real Estate News in August 2000, Singapore was the fifth most expensive city to live in after New York, Seoul, Tokyo, and London.
It is with this backdrop that one should understand the wage situation and the impact on workers. Except for unionised companies in Singapore, there is no legal minimum wage. Therefore there is really no jurisdiction over how much an employer should pay an employee or offer a job-seeker.
Between an employer and employee, there exists a contract of service and the terms and conditions cannot run contrary to the Employment Act, which stipulates the minimum standards for an employee, e.g. overtime, annual leave, and maternity benefit, but nothing governs the actual salary that should be paid to an employee, apart from compensation calculations in the Third Schedule of the Employment Act and that employees who earn more than S$1,600 (US$869)3 are not entitled to overtime etc.
In unionised corporations, the minimum wage is spelt out in a collective agreement (CA) between company and union, legally endorsed and renewed once every two to three years. It also provides for an annual increment, being negotiable on an annual basis after National Wages Council (NWC) recommendations. But if the company can prove that it is not doing too well, any agreed increment can be smaller or even waived for the year, and the CA can be re-negotiated before it expires. There is also an Industrial Arbitration Court if employers refuse to up salaries in the CA to a reasonable level.
However, wage negotiations between employer and union rest on the employer’s right to a final say, and typically in Singapore, success rests much on the usual day to day ‘good relations’ between employers and unions, that help foster the possibility of securing better benefits for workers. Direct confrontation between employer and employees, using the courts, is generally frowned upon.
The Ministry of Manpower in December 2001 backed a call from the NWC for severe restraint or cuts in wages. Citing worsening economic conditions and uncertainty in 2002, the government urged companies to freeze or cut wages in the city-state’s worst recession yet. A survey quoted in the Straits Times revealed that 18 percent of Singapore-based companies had already frozen pay levels in 2001 and 28 percent planned to do so in 2002. During the financial crisis in 1998, the NWC asked workers to accept wage cuts of between five and eight percent.
At the height of the 1998 financial crisis, the government announced a blanket policy of cutting the employers’ share of monthly Central Provident Fund (CPF) payments to employees from 20 percent to 10 percent. This policy was aimed as a cost saving package to revive the economy but it placed the burden on ordinary wage earners and not on the state’s coffers. This 10 percent cut was applied to all companies regardless of profitability and financial situation. It penalised workers even in companies that were breaking profit records. Overnight, many workers had trouble keeping up their mortgage payments that were serviced through the CPF. Instead they had to dig into their salaries to make up the difference. There was a public outcry and some quick fix measures were assembled to assist those who were unable to continue paying mortgages.
It was then that the NWC recommended the monthly variable component (MVC), to allow companies to adjust monthly wage bills quickly to remain competitive and minimise job losses. This move exempted the government from involvement and becoming the target of bad publicity and collective unhappiness of the workers whose wages are cut. Over the years the number of companies that use the MVC has increased and wages in general have become more flexible. For instance the variable component of total wages was 15-16 percent in 2000 compared to 11 percent in 1997. The Ministry of Manpower is now seeking to speed up the implementation of the MVC even further and to promote performance-based pay structures to replace seniority-based systems. In addition, other components of the employment benefits system, including implementing medical co-payment and changing retrenchment compensation so that companies have greater flexibility in managing wage costs.
The central issue in introducing and operating the MVC is how to define a justifiable cut in each industry, especially in large MNCs where profit transfer between countries could be easily carried out. Since financial situations and management capabilities vary from company to company, it is unclear whether the Ministry of Manpower and the National Trades Union Congress (NTUC) are sufficiently informed about the technical details of industries to function as a watchdog against unjust wage-cuts or to set out intelligent guidelines for a MVC cut.
Major concerns are, how much to allow companies/government to cut the MVC? How to calculate and define a cut? Does a well managed economy require frequent MVC wage-cut to rank and file workers to keep employment levels? Can a company convert part of a worker’s present salary into MVC?
As cited earlier, Singapore is the fifth most expensive city to live in. Of all components of cost, workers’ wages are not the highest contributing cost factor. Workers’ wage levels have actually fallen behind other Asian countries such as Japan, South Korea, and Hong Kong. If factors other than workers’ wages are the biggest contributors to high costs, it is not logical to pursue wage cuts as a priority. More should be done to lower government charges and duties.
There is a concern that adjusting the workers’ wage structure for the sake of keeping business costs low may be abused, leaving workers more vulnerable. For instance, it is not usual for government wage surveys to show that since the Asian crisis wage growth has reached pre-crisis levels. However a comparison of pay increases of rank-and-file employees shows that throughout the 1990s average annual wage growth declined from eight to ten percent in the early half to between five and seven percent in the latter. This is largely due to attempts to keep business costs down, and wage cuts are one way of doing this.
Employers are suspected of using the economic crisis as an excuse to restrain wage increases, creating an employer’s market. For instance, the starting salary of university graduates in the latter half of 2001 fell to pre-1997 secondary school-leaver levels. Without a minimum wage, employers, even when making profits, can offer graduates salaries below what used to be the graduate benchmark of $1,600.
Wage issues remain problematic as they are not regulated by law. The NTUC is said to play a pragmatic role, but a tame one in the perception of some. Part of the problem is that the NTUC is aligned with the ruling People’s Action Party (PAP) and therefore its independence is questionable. Changes arising from economic restructuring, which included job cuts and new forms of employment relationships, are unsettling workers and testing worker-employer relations. But the PAP wants to deepen the tripartite partnership between its administration, the employers, and the NTUC, to preserve ‘harmonious’ industrial relations.
The push for more MVC is in the name of minimising retrenchment in a volatile economy. The increasing attack on wages is explained in part as a result of a drop in workers’ productivity. So workers are presented as receiving less wages because they are less productive and not because the PAP administration has introduced a policy that penalises workers first.
The MVC is a political solution to a political problem. It is of no help in saving jobs at all. It is unclear whether MNCs will stay in Singapore simply because they can cut wage costs by five to ten percent when wages constitute less than ten percent of total costs to most MNCs. Such cuts are increasingly painful for workers when the CPI does not fall in the same period. If workers’ wages are cut by more than ten percent without corresponding reductions in other living costs, more people will find it difficult to make ends meet.
A thorough review of all other aspects of the Employment Act is thus urgently required to meet the fast changing job environment. It is worrisome that historically the government has a tendency to chant policies that favour large MNCs and government linked companies (GLC) and ignores the needs of small- and medium-sized enterprises (SME). Tremendous efforts have to be made to regain the balance where SMEs can co-exist with MNCs and GLCs for a more balanced and sustainable economy.
Because Singapore is small, housing space, land use, transportation, water, and electric supply, must become more efficient. But they are increasingly costly and without subsidies. Additionally, health care, education, food, and recreation are also becoming expensive. There is increasing public pressure to review policies to include further concessions on state subsidies and relief.
With increasing anxiety to make ends meet, more workers are treated for depression as Singapore slips into its deepest recession. The Institute of Mental Health reports that the number of patients has almost doubled since April 2001. Psychiatrists confirm that more people are now treated for depression. Men, especially 30 to 49 year-olds, feel the most heat in the current economic meltdown.
The government has long rejected the notion of a welfare state, preferring short-term incentives to those in need to avoid relying on welfare. In Singapore, families shoulder part of the responsibility and more than 260 private welfare organisations take up the rest, some aided by public money. However the challenge is for the government to provide a safety net for people when the global economy is volatile, impacting the local one, and family and community support is gradually being eroded.
In the run up to the general election in November 2001, the government announced budget measures that included tax relief and rebates for conservation charges and utilities. To boost PAP chances in the elections it introduced New Singapore Shares which is essentially a staggered cash handout. However, such rebates and handouts are not efficient ways to redistribute accumulated state wealth and are not targeted to reduce basic household needs or to create jobs. Most see them as short-term stop gap measures motivated by electoral politics.
There has been some decentralised and delegated social service through the government administered Community Development Councils (CDC) aimed at identifying and helping the poor. Short-term loan schemes have also been introduced. The budget for CDCs grew from S$19 million in 1997 to S$153 million in 2001, largely due to social assistance schemes. But eligibility for government assistance is stringent so as not to encourage a dependence mentality. The Ministry of Community Development and Sports, together with other agencies link short-term financial assistance closely with job counselling, job seeking, training, and placement.
However, short-term assistance is generally judged as not guaranteeing that the unemployed can become economically stable. Job placement services have on many occasions not been successful. A Jobs Task Force has been set up to give training, job assistance, and counselling to those affected by economic restructuring. There have also been promises of jobs in new ‘growth areas’. But what ‘growth areas’ are, how many they will employ, and when, is not clear. Areas such as wafer fabrication and biotechnology that were celebrated as the way forward are high-tech and need specialists so their contribution to job creation is questionable. The promise that more Singaporean companies operating world-wide will facilitate Singaporeans to work overseas is also speculative. Most Singaporean companies overseas are GLCs and it is unclear how good they are at creating new jobs at home.
In this context, there is a need to review the CPF scheme, to ensure that in addition to providing members with adequate savings for housing, medical, and retirement, that there is a scheme where some form of social security is available for sudden job loss and a means to tide over times when jobs are scarce. In the absence of new jobs for older and retrenched workers, rules need relaxing to allow the growth of a ‘regulated informal sector’. Singaporean workers need to be able to operate from home to keep costs down and at the same time to be gainfully employed to make a contribution to the economy and society.
James Gomez is chairman of the Think Centre Asia, based in Bangkok
1 Statistical source: Department of Statistics, Singapore
3 US$1.00 = S$1.84 .
Source: ALU Issue No. 42, January - March 2002