One of the biggest topics of GE2015 so far has been the implementation of a Minimum Wage in Singapore. Naturally, there’s been much back and forth over how useful the imposition of a minimum wage and the consequences of it. Words like “economic disaster”, “unemployment” & “bringing up the most vulnerable groups” are commonly mentioned when talking about the minimum wage.

But are these necessarily true? Is a minimum wage really a disaster that could happen? Or could it really help the more vunerable groups of our society?

Here’s the two sides of the minimum wage for you to make up your own mind.

Why we should have a Minimum Wage?

A minimum wage basically creates a floor for salaries and becomes the lowest daily or monthly wage that employers can legally pay to their workers. Those who support the imposition of a minimum wage tend to cite the following benefits:-

  • Increases workers’ standard of living
  • Reduction of poverty through increasing wages
  • Closes the inequality gap
  • Boosts the morale of workers
  • Forces inefficient businesses to close or become efficient

Generally, arguments for a minimum wage tend to center on its moral aspect, rather than the economics side of the matter. It is generally seen as a populist measure and  are seen as an attempt to improve social mobility. Proponents of a minimum wage tend to believe that firms have a responsibility to ensure that workers have enough to survive. Proponents also believe that without a minimum wage, wages especially for the lower-wage groups would stagnate at a level that is insufficient to live on. Others believe it will encourage economic growth.

Those in Singapore have often criticised the People’s Action Party for not implementing a minimum wage because they are overly business-friendly.

Why we should NOT have a Minimum Wage?

Opponents of the Minimum wage cite many problems with the imposition of a minimum wage. It is usually believed that a minimum wage would have the following consequences:-

  • Leads to higher general unemployment
  • Does not reduce social inequalities
  • Increases wage stagnation
  • Limits worker’s potential earnings
  • Leads to higher prices for goods and services

Arguments for a minimum wage tend to look at the economic and employment side of things. In a paper released by the American Enterprise Institute in 2013 did find that Western Europe nations that the average jobless rate is twice as high in countries with a minimum wage compared to those that did not have it.

(Source: American Enterprise Institute)

Beyond this paper, a study by Baskaya and Rubinstein in 2011 found that on a nationwide level, they did find “notable wage impacts and large corresponding disemployment effects”. The neo-classical model of the labour economy simply believes that unemployment will result from a minimum wage.

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(Source: PointsAndFigures)

Beyond that, a minimum wage is believed to lead to wage stagnation. Basically, this means that even in periods of inflation, companies will tend to continue paying the minimum wage. Companies simply do not have any incentive to pay workers anything higher than the minimum wage set by the government. Instead of being a minimum wage, it becomes a maximum wage. Additionally, the minimum wage level may be a small improvement over their current wages but that is certainly not going to be enough in the long run.

Opponents of the minimum wage also believe that a minimum wage leads to companies neglecting to send their people for further upgrading training and improvement, as would be done in the progressive wage model. After all, if employers already need to pay higher wages, it is unlikely that they would be willing to spend much higher on upgrading.

So, minimum wage or not?

At this point, economists remain mixed on whether a minimum wage actually benefits society on the whole but empirical evidence does show that a low enough minimum wage should not have a significant impact on employment. However, a mildly high minimum wage has been more or less confirmed to cause high rates of youth unemployment.

On the other hand, another wage model proposed in Singapore is the progressive wage model, where wages would increase through further training and improving productivity. This would be done through working with industry partners to help re-skill and upgrade low-income earners and older workers.