June 3, 2021

Singapore’s Progressive Wage Model (PWM) is portrayed as a better alternative to the minimum wage policy. The PWM ties an individual worker’s minimum monthly salary to the worker’s responsibilities and the amount of training received by the worker, promising workers stable career progression and improvements to productivity levels at work. As a result, the PWM is often established as diametrically opposed to the minimum wage policy.

In the Straits’ Times Ask: NUS Economists series, Senior Lecturer Dr. Ong Ee Cheng (NUS Economics) and Ms. Jennifer Yao, honors graduate with a degree in economics, answer the question, “What are the pros and cons of the Progressive Wage Model (PWM)?”. They argue that the two wage policies should not be constructed and perceived as dichotomous to each other and that the strengths of a blanket minimum wage policy can complement the existing PWM.

The authors point out that the strengths of a blanket minimum wage policy can address the observed shortcomings of the PWM. Firstly, the PWM has only been rolled out in particular economic sectors and does not provide adequate coverage. The policy does not support all the workers in the bottom quintile of the wage distribution. In addition, there are administrative loopholes that make it possible for workers in these sectors to still be paid less than the required monthly salary as stipulated by the PWM. For example, the PWM applies to workers employed in licensed firms that supply outsourced cleaning jobs. This is an administrative loophole. Companies can directly employ in-house cleaners. These cleaners can be paid less than PWM’s stipulated basic monthly salary. A blanket minimum wage policy can close this loophole by supporting workers that have fallen through the cracks.

Secondly, the implementation of the PWM has been slow, rendering insufficient support to vulnerable workers in specific sectors. The authors note that the PWM’s slow rollout was the result of the extensive coordination and communication required between various key stakeholders. These stakeholders are the government, employers, and labor unions in Singapore. As argued by the authors, a minimum wage policy can be implemented relatively quickly at little administrative cost.

A common objection against implementing a minimum wage is that the policy could lead to an increase in the retrenchment rates of low-wage workers; a result predicted by the classical demand-and-supply model in a perfectly competitive market, where every worker and employer accepts the wage levels set by the market. Responding to this objection, they argue that this assumption does not hold true. A number of employers do hold market power which, in turn, affords them the ability to set wages. This suggests that, despite what classical economic theory predicts, we will not observe an increase in retrenchment levels after the implementation of a minimum wage in Singapore.

Dr. Ong and her co-author conclude by pointing out that the ongoing pandemic has only highlighted the extent that Singapore relies on these workers. Their roles are crucial, and the onus is on the government to introduce wage policies that reflect their importance of these and their increase in productivity levels. This further highlights a need to relook current labor policies in order to adopt a multi-pronged approach to uplift these vulnerable workers.

Read the article here.