Renewed call for wage shock therapy

Lim Swee Say -

“But the income gap is only this wide”

It looks like Lim Chong Yah is not one to back down easily. Given his prominent status as founding chairman of NWC, architect of the previous wage shock therapy, and the first and only Emeritus Professor of both NUS and NTU, can the government continue to ignore him?

When Prof Lim first called for a repeat of wage shock therapy in April this year, both PM Lee Hsien Loong and NTUC Secretary-General Lim Swee Say publicly dismissed the proposal in the space of two weeks. There was no effort at all to engage him, to hear out his views in detail. What we saw instead was an overzealous attempt to defend the status quo.

This is playing out again this past week with the renewed call from Prof Lim (see speech here). And again, we see how the press is responding. This is all too predictable. As how I described in my previous post, other economists and stakeholders were interviewed giving opposing views that are in line with the government’s stand. Then a report comes out with the typical doomsday scenario headline: Singapore could lose its competitive edge, locals could lose jobs.

Now, I am in no position to argue who’s right and who’s wrong. I doubt any of these experts know for sure. But even as a layman, I do wonder if these economists interviewed have actually considered what Prof Lim said.

For example, the usual counter is that a cap on top wages will lead to talent flight. This completely ignores Prof Lim’s reasoning that a 3-year top wage freeze is much less likely to scare people off than higher income taxes — a likely outcome if current issues are not addressed. Even PM Lee has warned that we may have to increase tax rates to fund greater social spending.

Then there’s the reasoning that increase in low wages has to commensurate with rise in productivity. No one is arguing with that. But where do we draw the line with this wait for productivity to improve? The government maintains that productivity growth is hard to achieve. So do we continue to wait for it to improve while letting our Gini Coefficient continue to worsen? Do we choose not to act now based on this notion that wage increase has to follow productivity growth, only to revisit the issue again 3-5 years down the road and have this debate all over again but with the income gap at a dangerous level? What then?

It is precisely because Prof Lim believes that we are reaching this critical stage and can no longer afford to leave the situation unaddressed that he is proposing such drastic action. It must be a little insulting to him that nobody has bothered to give him a proper rebuttal based on the actual points he raised so far.

And, of course, there’s the issue of minimum wage. There are many who believe there is a case for a minimum wage in Singapore. It doesn’t mean that they are blinded by the idealism of championing for the poor and have become oblivious to its disadvantages. Prof Lim himself acknowledged the potential problems but believe it may be necessary if wages remain stagnant after two years. You have to wonder why, if minimum wage is indeed such a bad idea, every other developed country in the world has it. Do we really think it’s because we are smarter or politically more steadfast than all these countries?

There has to be proper debate on all these issues beyond the stock counter-arguments.