July 22, 2020

In its response to the Covid-19 outbreak, Singapore’s global success story transformed into a narrative of institutionalised neglect. Scrutiny was drawn to the dismal living conditions of migrant workers as their infections skyrocketed. With regards to potential improvements in the housing standards of worker dormitories, there are two key questions to consider: ‘who pays’ and ‘who should pay’ for mandated improvements in foreign workers’ living conditions. Associate Professor Jessica Pan (NUS Department of Economics) and Assistant Professor Ong Pinchuan (NUS Business School) discuss these issues dividing commentators and observers in their Straits Times editorial, ‘Raising Workers’ Dorm Standards: Who Pays?’.

When considering the underlying economics of ‘who pays’, Assoc Prof Pan and Dr Ong argue that it is easier to shift higher costs to workers. This is because foreign workers have less bargaining power than either their employers or Singapore’s consumers. When considering ‘who should pay’, a key question to consider is the extent to which Singaporeans are willing to bear any increased costs associated with providing better standards for migrant workers.

There are several key insights. Firstly, there is no way of compelling employers to absorb the full extent of higher housing costs. Since employers have more bargaining power, they can offset the higher costs, while migrant workers are more likely to put up with reduced wages. For instance, employers can hire cheaper workers if payroll taxes rise for one group of workers. Secondly, it is also difficult to get consumers to absorb the higher housing costs. Despite the perspective that businesses can and should absorb the cost increases by reducing profits or passing those costs on to consumers, the reality is that companies are profit-seeking and consumers are price-sensitive. Both companies and consumers do not behave according to moral dictates and principles.

There are potential solutions. One policy solution is to set a minimum wage for migrant workers that would in effect cover the higher accommodation costs, forcing employers and consumers to bear the increased costs. Another alternative is to use the tax revenue collected from foreign worker levies to subsidise the costs of providing better housing conditions.

However, these solutions pose challenges to Singaporean society. It remains unclear whether to allocate tax dollars to the social aim of caring for Singapore’s migrant workers, when compared to other competing social uses. Assoc Prof Pan and Dr Ong raise the difficult question of whether, and how much, Singaporeans are willing to bear the increased costs of migrant workers’ living arrangements. This long-term solution requires Singaporeans to consider what they value as a society.

Read the full article here.