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Minimum wage setting risks becoming a political auction: Koh Poh Koon

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In Parliament (15 Oct), Dr Koh Poh Koon describes 2 risks associated with a single blanket minimum wage.

Effectiveness in helping low wage workers

The first risk of a single blanket minimum wage for all sectors is its effectiveness in helping low wage workers.

It is difficult to find the right minimum wage that applies to ALL sectors.

If the minimum wage is set too low, its benefit to workers will be limited and therefore, its purpose of helping low wage workers is defeated.

On the other hand, if it is set too high, then businesses, especially SMEs, cannot afford to pay. They will either have to pass the cost on to consumers or cut back on employment of workers with lower education or skills, or even go out of business.

The risk of a political auction that will price out low skilled workers

Let’s say today, we could all agree to $1300 minimum wage. But what happens next?

In a political contest, Dr Koh said, another party can come along and say $1300 is the ‘moral’ imperative but $1500 reflects a higher moral imperative. Yet another can come along and say $1700 represents the ‘divine’ moral imperative.

Minimum wage setting becomes a political auction. When this happens, who loses?

“When this process gathers momentum, and becomes detached from market realities, the minimum wage escalates beyond what employers are able to pay, and the jobs of our more vulnerable sisters and brothers are threatened,” Dr Koh said.

The cure should not be worse than the problem it tries to solve

“We can and we should do more to help the lowest paid in our society. But we must go about it in a way that ensures the upside while minimising the downsides. The cure should not be worse than the problem it tries to solve.”

A political auction will price out our lower-skilled workers and disadvantage our smaller businesses.

“This is not an academic issue, and we are seeing this political auction in other countries,” Dr Koh said.

Aljunied GRC MP Leon Perera questioned why the minimum wage would be politicised and not the PWM

Leon must have missed Dr Koh’s speech when he explained how the minimum wage can be politicised. The minimum wage is set by a party, a political party. For example, $1300 is set by the Workers’ Party. Another political party can come along and set a higher minimum wage to be more popular.

Dr Koh explained that the Progressive Wage Model is not decided by one party. It is decided by a tripartite group. Therefore there is no risk of a political auction.

Progressive Wage Model

What is most significant about the Progressive Wage Model is the wage ladder. The PWM is really a sectoral minimum wage set through a tripartite negotiation process involving government, union and other industry representatives.

In addition to setting a minimum wage, they also set wage rungs, giving workers a way to seek out a pay increase by improving their skills. It is a Minimum Wage Plus because it specifies an income and skills ladder that goes beyond the flat minimum.

Its advantage is that it allows for customisation to the needs of a sector. It allows for the setting of a minimum wage that the sector is able to sustain without job losses.

Not ideologically against a minimum wage but a different approach

As Dr Koh Poh Koon said in Parliament:

“Let me state that we are not ideologically against a MW. In fact, the first rung of the wage ladder in the PWM is a form of sectoral MW. SM Tharman has also called the PWM a “Minimum Wage Plus” – Minimum Wage plus a ladder for wages to increase through upskilling.

So the idea of having some form of a Minimum Wage is not new and we share the objective to uplift the incomes of low wage workers. Where we differ is the approach to getting there.”

Reference:

  1. Debate on strategy to emerge stronger from COVID-19: Koh Poh Koon on minimum wage

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