Commentary: Budget 2022 doubles up on protecting lower wage workers but that’s only half the story

WAGE INCREASES: THE VIRTUOUS LINK TO PRODUCTIVITY AND WELFARE

If these and future measures to uplift all lower-wage workers are ultimately successful, the broad impetus to wages could propel a major step-shift in the Singapore economy, potentially transforming it into a higher wage, higher price but higher value-added environment based on strong productivity gains.

This could also lead to a significant reduction in the economy’s dependence on lower-skilled foreign labour as this upward shift in the wage structure forces businesses to focus more on productivity.

Taken alone, a boost to the incomes of lower-wage workers would lead higher costs for their employers. If higher costs are simply passed on to customers, this might prompt a wage-induced price inflation spiral which results in negative wage growth in real terms.

However, if such cost increases induce a significant productivity drive, these increases would be more than offset by larger gains in output. These productivity gains thus underpin a virtuous cycle in which all stakeholders benefit.

This could happen in a similar way as the structural reforms implemented in Singapore in response to the 1985 recession, by accelerating the pace of industrial upgrading and promoting innovation and enterprise across the economy. 

Between 1985 and 2010, Singapore’s GDP per capita rose an average 6 per cent each year, much higher than the 3.8 per cent annual growth from 2010 to 2021.

Stimulating productivity-boosting industrial transformation, innovation and enterprise must therefore surely be the overriding objective of this bold move for higher earnings for Singapore’s lower-waged workers. 

Such a strategy will involve many across-the-board adjustments for all stakeholders, some painful and challenging. But perhaps this is what Minister Lawrence Wong meant when he said in Friday’s Budget speech: “All of us – businesses, consumers and taxpayers – will have to do our part and contribute to uplifting our lower-wage workers”.

An all-of-society, whole-of-economy focus on productivity will lead ultimately to sustainable output and wage gains and propel Singapore to continued prosperity and progress.

Christopher Gee is Senior Research Fellow at the Institute of Policy Studies, National University of Singapore.

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