Not A Minimum Wage, But A Negative Step Nonetheless

BMI View: While far from constituting a national minimum wage, the Singapore government's latest initiative to set a wage floor in the cleaning industry is nevertheless a significant development. In line with our expectations for the ruling People's Action Party (PAP) to introduce increasingly populist policies in order to shore up support among the electorate, we believe that such measures reflect the ongoing maturation of Singapore's democratic process, which will have notable implications for the city-state's business environment.

In a surprise move, the Singapore government has introduced an amendment to its labour laws mandating a wage floor of SGD1,000 for cleaners and security guards. The proposal will be tabled in the upcoming session of parliament, with an implementation target of September 2014. Under the new guidelines, cleaning and security firms will be required to register with the government in order to receive a license, which will be compulsory in order to continue operations. Among the qualification criteria will be the adoption of the new progressive wage scheme, which will necessitate a minimum monthly wage of SGD1,000 for full-time employees at a basic skill level. As its name implies, the progressive wage scheme will also introduce graduated levels of pay for those employees who upgrade their skills in a continued push towards increasing productivity levels across the economy.

Milestone In PAP Policy

Feeling Left Out
Singapore - Average Household Income By Decile

Not A Minimum Wage, But A Negative Step Nonetheless

BMI View: While far from constituting a national minimum wage, the Singapore government's latest initiative to set a wage floor in the cleaning industry is nevertheless a significant development. In line with our expectations for the ruling People's Action Party (PAP) to introduce increasingly populist policies in order to shore up support among the electorate, we believe that such measures reflect the ongoing maturation of Singapore's democratic process, which will have notable implications for the city-state's business environment.

In a surprise move, the Singapore government has introduced an amendment to its labour laws mandating a wage floor of SGD1,000 for cleaners and security guards. The proposal will be tabled in the upcoming session of parliament, with an implementation target of September 2014. Under the new guidelines, cleaning and security firms will be required to register with the government in order to receive a license, which will be compulsory in order to continue operations. Among the qualification criteria will be the adoption of the new progressive wage scheme, which will necessitate a minimum monthly wage of SGD1,000 for full-time employees at a basic skill level. As its name implies, the progressive wage scheme will also introduce graduated levels of pay for those employees who upgrade their skills in a continued push towards increasing productivity levels across the economy.

Milestone In PAP Policy

Despite the fact that the new wage scheme applies only to a select group (approximately 55,000 cleaners, and approximately 35,000 security officers), it represents a relatively substantial milestone in Singapore's economic policy. Singapore's pro-market policy-makers have long eschewed the idea of anything resembling a minimum wage in the country, even as the economy has rocketed into a first-world level of development with GDP per capita nearing US$55,000. In the process, the city-state's gini coefficient has slowly yet steadily risen, climbing from 0.43 in 2000 to 0.48 in 2012. Meanwhile, average household incomes in the lowest deciles have stagnated, with those in the bottom two deciles growing by an average of just 1.6% and 3.4% per annum, respectively, versus 4.6% and 5.7% for the top two deciles. In real terms, the average household income in the bottom decile has actually declined by an average of 0.7% per annum since 2000, while the next highest decile has fared only slightly better with a positive growth rate of 1.2%.

Feeling Left Out
Singapore - Average Household Income By Decile

Given their median monthly pay (according to government estimates) of SGD850, a considerable number of cleaners are likely to belong to households in the lowest two deciles. While the government (as part of the tripartite alliance that also includes labour union and employer representatives) has in the past recommended that a wage floor of SGD1,000 be adopted for full-time cleaners, the major difference this time around is that the floor will become compulsory. While it is true that the measure is not tantamount to a national minimum wage, such an obligatory mandate is nevertheless largely without precedent in Singapore, and in our opinion represents a noteworthy evolution of government policy.

Falling Behind
Singapore - Average Household Income By Selected Decile, real % chg y-o-y

Democratic Process Increasingly Evident

As we have written in the past ( see 'PAP's Shift, Full Employment Yet To Resonate With Electorate', May 2 2013), the ruling People's Action Party (PAP) has struggled to shore up flagging support among an increasingly disenchanted electorate following a relatively weak showing in 2011's general elections. Real wage levels for those in the lowest income deciles have been one of the topics on which opposition parties have seized, pointing to the PAP's relatively liberal immigration policies, as well as the lack of a more rigid wage structure as the chief causative factors. In line with our ongoing expectations for the PAP to embrace slightly more populist policies in order to restore voter support ahead of 2016 elections, we note that the introduction of a wage floor also reflects the ongoing maturation of Singapore's democratic process.

That said, such policies will also have economic consequences. While we retain our position that the PAP will not introduce any measures that could seriously undermine the country's extremely strong business environment, these pro-labour initiatives, along with the continued tightening of foreign worker inflows, will place additional upside pressure on the cost of doing business going forward. Even as this is compounded by the ongoing labour crunch that employers are facing across the services industry, however, we do not expect the PAP to back off of its policy-making trajectory, as both economic and political imperatives dictate the need for the ruling party to stay the course.

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