The Pros, The Cons & The Trade-offs

3 weeks ago, when the Ministry of Manpower announced its implementation of an enhanced minimum wage for foreign workers across the sectors, there was a mix of reactions on whether this is the solution for the Singapore workforce.

The textbook definition of minimum wages is explained with “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed”. Source

But what give rise to such a concept and what are its benefits and disadvantages?

Here are a few points to understand on this subject

It’s underlaying principle is to protect workers

The purpose of minimum wage is to prevent employees from being exploited by employers. This act serves to ensure that the workers are adequately provided for to afford livelihood. Without such an act it may allow employers to have an unfair advantage during salary negotiations.

 Not all employees are covered

That’s right. Not all types of employments are covered under minimum wages. In fact, under the Singapore’s Employment Act there are several categories which are explicitly singled out which are not covered;

1. Seaman
2. Domestic Workers
3. Managerial/Executive with salaries exceeding $4,500
4. Employees under statutory board or Government services

Sources: https://www.startupdecisions.com.sg/singapore/business-laws/singapore-employment-act/

Key Advantages of Minimum Wages

• It is meant to help boosts productivity
• It reduces income inequality
• Spur economic growth
• Improves employee retention

The argument of placing minimum wage is largely hinged on the effects of the employees having a better condition to their lives which in turn should allow them to provide better services to their employers and have a further output of the company’s product & services.

The reverse can also be true that if the conditions are not favourable for the employees they may leave the company easily or perform below their capabilities.

Key Disadvantages of Minimum Wages

• Increased labour cost
• Reduce local employment
• Increase cost of living
• Increased stress on businesses

In most countries, implementation of a minimum wage is an unfunded mandate which the employers will have to shouldered themselves and it starts the motion of higher outsourcing elsewhere that has cheaper labour. In turn it could lead to lower local employment and higher local poverty.

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