Deputy Prime Minister Tharman is Wrong

Deputy Prime Minister Tharman Shanmugaratnam said last week that “a minimum wage system has crippled countries in Europe and the United States, particularly in worsening employment conditions.” Such a statement demonstrates a careless disregard for facts.

The economic crisis which led to the high unemployment rate in the US and Europe was not brought about by the minimum wage system but by the criminal acts of Western bankers who played fast and loose with the financial system.

It was the buying and selling of credit default swaps and the subprime loans in the US that triggered the financial collapse in 2008. This – and not the minimum wage system – caused the destruction of the economy which led to massive unemployment.

If minimum wage has crippled economies, how do we account for Switzerland and Norway which have unemployment rates and economic performances similar to Singapore’s? The minimum wage in both countries is set through collective bargaining.

Australia’s economy, which includes one of the highest levels of minimum wage (A$16.37 per hour) in the world, has been out-performing ours. In the last 5 years, the annual GDP growth averaged 3.4% for Australia and 1.3% for Singapore.

Perhaps, the most significant indicator is that the citizens of these countries enjoy a quality of life and experience a sense of well-being and happiness that Singaporeans can only dream of.

Another case in point is Hong Kong which introduced minimum wage in 2011. The territory’s Minimum Wage Commission (MWC) found that since the introduction of the law, the number of long-term unemployed persons (i.e. unemployed for six months or above) actually fell in the period after the implementation of minimum wage. The Commission concluded that:

“In sum, local enterprises did not seem to cut down recruitment significantly after the implementation of the initial [minimum wage] rate. On the contrary, with the expanding economic activity, the number of establishments increased in tandem. Incentives for business start-up stayed positive generally.”

Then there are the so-called breakout TIP nations (Turkey, Indonesian and the Philippines) which have been singled out as economies that show the most promise going forward. They all have minimum wage.

To give the idea that minimum wage is the cause of high employment, as Mr Tharman (who is also the Finance Minister) does, is to cherry-pick information and present the case in a manner that is devoid of intellectual rigour.

The truth is that minimum wage is not the magic pill that causes economies to excel. But neither does it cause them to fall apart or unemployment rates to go up.

Minimum wage is one of the many measures that, if designed and implemented intelligently, protects workers in low-income groups and helps a society to progress in a sustainable manner.

While the PAP government has taken a step in the right direction by mandating that cleaners be paid no less than $1,000/month, it is disappointing that, given the dire situation of our wide income gap, the Government continues to refuse to implement a national minimum wage law. Worse, it resorts to using dubious analysis to support its position.

By refusing to do what is almost universally accepted as an essential economic measure (joining countries like Burundi, Tonga, Somalia, UAE and Yemen), the PAP Government continues to hurt the most vulnerable in our society.

The SDP will present a comprehensive case for minimum wage for our workers in our forthcoming alternative economic plan.

Singapore Democrats

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