One of Singapore’s main policy dilemmas is how to address economic inequality. NG KOK HOE and TEO YOU YENN explain one approach.
LIVING WAGE
The idea of a living wage is built on the premise that workers should be paid wages that allow a decent standard of living. This standard reflects the particular time and place in which the workers live. In developed economies, a basic standard of living today goes beyond survival needs such as food, clothing and shelter, to also include things like education, healthcare, transport and social participation.
Proponents of a living wage have pointed to these rationales: from a macroeconomic perspective, the ready availability of low-wage labour discourages investment in capital and technology — the ingredients of productivity. Suppressed wages over time can lead to low productivity growth and sluggishness in innovation. For individual businesses, offering adequate wages can help reduce labour shortage, turnover and the related costs of hiring and training. When workers are paid decently, they have greater capacity to save and build up financial buffers for their households. This buffer is a source of resilience during family emergencies and economic shocks. A living wage can bring societal benefits insofar as it also gives people some freedom and security to take risks, such as pausing work for training; setting up a small business; or starting a family. Parents who are paid adequately are better able to provide a supportive environment for their children. A living wage may also help to reduce extreme income inequality that threatens political stability and social peace.
In the international community, a living wage is recognised as a basic right. Article 23 of the United Nations Universal Declaration of Human Rights states that “Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity.” Similarly, the preamble to the International Labour Organization’s (ILO) constitution lists “the provision of an adequate living wage” as a measure for delivering social justice and “universal and lasting peace.”
The majority of countries around the world have a minimum wage that employers are legally required to pay. In countries such as Mexico, Namibia, and India, this is written into their national constitutions. Minimum wage levels are usually determined and regularly updated by taking into account the goal of poverty avoidance, current economic conditions and potential impact on employment levels. Research has found that when a minimum wage is carefully calibrated, there is minimal impact on employment, which may even increase as higher wages draw more people into the labour force.
A living wage, on the other hand, is usually voluntary and does not carry legal weight. Wage levels are determined with emphasis on providing an adequate standard of living. In the UK, the Living Wage Foundation promotes a voluntary living wage that more than 7,000 businesses have signed up to, covering more than 250,000 workers between them. This is on top of a legal (and lower) minimum wage. Many businesses have also adopted the principle of paying a minimum or living wage that allows workers to meet their basic needs.
To date, Singapore does not have a legal minimum wage or recognise a living wage, although the recently expanded Progressive Wage Model (PWM) now covers a number of traditionally low-paying sectors and occupations. As the PWM is not enforceable by law and wage standards vary across sectors, its actual impact will depend on the effectiveness of implementation and the adequacy of wage levels.
– By Ng Kok Hoe, Senior Research Fellow and Head of the Social Inclusion Project, Lee Kuan Yew School of Public Policy, National University of Singapore and Teo You Yenn, Associate Professor, Sociology, Nanyang Technological University. Excerpted from Ng Kok Hoe and Teo You Yenn, “A Living Wage for Singapore” published in the Singapore Institute of Directors’ Directors Bulletin 2022 Q2. Read the article, including how a living wage can be calculated.