Breaking the Poverty Cycle – Minimum Wage is not the Magic Bullet
In an affluent society like Singapore, it is hard to imagine that they are people who are still in poverty or that poverty trap does exist. Though we have both the PAP and the oppositions screaming the “nobody left behind” battle cry, the truth is many are left stranded and trapped in poverty. So what can we do better?
We have heard arguments from PAP and from Oppositions regarding the minimum wage scheme. However, if minimum wage is such an easy way to eradicate poverty, the world would have already adopted it. However, poverty still exists in most countries that have minimum wages in place. Minimum wages, if implemented properly, may have some positive effect on the economy by reducing sweat shops and exploitations. However, there are many side effects of minimum wages that require serious thoughts before it can be implemented.
Minimum wage could really increase unemployment if other policies are not put in place. It is a double edged sword. Whilst it is true that employers may not pay less than the minimum for the workers’ services, it is also true that workers may not offer any services less than the minimum. Using the SDP’s argument of $300 dollars a week argument, would a company hire a cleaner for $1200 monthly to sweep the floor when the equivalent sum could be used to get a trained clerical staff? It is very unlucky and companies may react by migrating the job scope to other staff. Using a domestic helper’s analogy, many Singaporeans would not mind spending $1000 per month to relieve them of some burden and hence enjoy a higher quality of life. However, if the price is prohibitive (uncompetitive in the industry), then they would redistribute the workload of the domestic helpers amongst the family members. Hence, if implemented blindly, these policies could hurt the quality of lives those who remained employed and reduce employability of the lower-skilled workers.
Secondly, minimum wage could also affect the overall wage across all levels. Even for the lower skilled workers, there is great disparity in terms of skills and the current wage has a range that commensurate with their responsibility and skills. If the wages of those who are at the minimum wage level or marginally higher is not adjusted, there would be widespread discontent. Why should a person go for clerical courses and take on additional responsibilities if the pay would be no difference from another who sweeps the floor without any stress? If the pay is adjusted upwards across all ranks, then surely inflation would erode any benefits of the minimum wage. Moreover, these would make people who are lowly skilled resistant to additional responsibilities or skills upgrades as there wouldn’t be any carrots to offer.
Next, minimum wage could also erode our human capital. Even in today’s society, we have heard of many schools students dropping out of school or seeking part time employment. With minimum wage implemented, these students would be tempted with the quick money available and may drop out of schools completely. Hence, we could see a drop in the number of skilled workers in the futures. If the minimum wage policy does not cover certain age group, company could offers incentives to lure students to work for them at wages that are attractive enough and are lower than the minimum wage to save cost. This would harm the employability of the people who really needs the money to support their family.
In short, minimum wage across the board would do no good to alleviate poverty. However, it could be implemented in certain industries (skilled jobs) to prevent the proliferation of sweat shops and exploitation or encourage employers to upgrade the skills of those workers to justify increase in pay. There are already many countries with successful implementation of minimum wage and we should learn from them and not use it as a magic bullet.