Wages and Wages Policies

The following sections are included:

• PREFACE

• CONTRIBUTORS

• CONTENTS

This paper is a summary of a keynote address given in Hanoi on 28 April 1998 at the International Seminar on Business-Government Deliberation Council. The Seminar was organised by the Vietnam Chamber of Commerce and Industry and the Canadian Institute of Governance.

The National Wages Council (NWC) has been in existence since 1972. Within a quarter of a century, it has witnessed many changes in the Singapore economy. It has seen the economy move from boom to recession and recovery, from labour-intensive export orientation to high-tech export orientation and regionalism, and from the seniority-based wage system to the flexible wage system. This volume, which is in commemoration of the 25th anniversary of the NWC, enables the reader to have a clear perspective on the mechanics of the NWC; the role that it plays in helping the economy gear itself for the challenges of a rapidly changing world in the global economy; and the contributions that it has made…

This is the second article written by the author to commemorate the 25th year anniversary of the NWC. The first article is on “NWC: Targets and Goals”. This article discusses the NWC as a tripartite national bargaining mechanism, the need for unanimity in the decision-making process, the role of the secretariat, the non-mandatory nature of the wage recommendations, and the rationale for keeping the deliberations confidential, but not the recommendations, which are published in the gazette.

This article first discusses the primary objective of the NWC in bringing about an orderly upward wage adjustment each year, and then explores different economic barometers to see whether these have been compromised in the pursuit of the primary objective. The economic parameters evaluated include the unemployment rate, inflation rate, savings rate, exchange rate and international competitiveness. On international competitiveness, other parameters like growth, investment, unemployment and labour share are explored. The chapter also evaluates the NWC pursuit of a flexible wage policy. The discussion on all the topics has been carried out against the entire 25-year period since the formation of the NWC in February 1972 through 1996, with six specially compiled supporting statistical tables and a graph. The author writes as the NWC Chairman himself for the entire 25-year period.

This article is divided into two parts. Part 1 deals with the challenging years faced by the NWC from 1972 to 1996. The challenging years include the global oil crisis years of 1973–74, the restructuring years of 1979–81, the recession years of 1985–86 and the anti-recession years of 1986–87. Part II deals with a number of issues handled by the NWC or of interest to the NWC that have not been covered in the previous two articles written by the author, namely “NWC: Targets and Goals” (Lim, 1997(a)) and “NWC: Politics of Consensus” (Lim, 1997(b)). The issues covered herein include job-hopping, wage indexation, sectoral guidelines, minimum wage, retirement age, part-time employment, participation rate of female workers and the two-tier wage increase system.

The role of the National Wages Council in national wage determination is well known. Its recommendations are followed and considered to be binding. However, its legal nature indicates otherwise. This chapter provides a legal perspective of the NWC exploring its legal status, whether its recommendations are mandatory, and whether it can sue and be sued. It concludes with a discussion on the merits of making the NWC a statutory body.

The NWC is Singapore's key tripartite industrial relations body. In making its annual wage recommendations, the NWC has also contributed to the promotion of stable industrial relations, the restructuring of the economy, the achievement of wage stability and wage reform, and the maintenance of export competitiveness. The adoption of the tripartite approach to solve many of Singapore's economic and industrial relations issues has certainly enhanced Singapore's ability to remain competitive in an era of rapidly changing technology and globalisation.

To be competitive, an economy needs to monitor its costs relative to its capabilities. One way of doing this is to manage the productivity-wage nexus. This chapter gives an overview of wage policies and productivity strategies in Singapore during its different phases of development; and examines productivity and wage trends in the economy. It also highlights strategies to raise Singapore's long-term productivity, so as to allow for wage increases while maintaining competitiveness and overall economic growth.

This study aims to verify whether the upgrading of Singapore's manufacturing industries towards higher capital- and technology-intensity contributed to higher productivity performance over the period of 1980 to 1994. The empirical study suggests that the wage policy adopted under the NWC in Singapore has led to effective substitution of capital for labour in the manufacturing industries since 1980. This change in industrial structure has contributed to higher productivity performance in different industry categories to different degrees. The study shows that labour productivity is the major determinant of total factor productivity growth, while the rapid increase in capital-intensity and unit labour cost negatively affect it.

This chapter provides an account of the evolution of wages and unemployment in the Singapore economy over the past three decades. Over this period, there has been a fairly steady decline in the unemployment rate, which we interpret as primarily a story of the downward shift of the natural rate of unemployment. This shift of the natural rate has occurred along with roughly constant real export wages up to the early 1980s, and fairly steady increase since then. However, as the export price was rising relative to the non-traded goods price since the early 1970s, the real consumption wage has enjoyed an increase since the early 1970s. Our story of the joint determination of wages and unemployment over the past three decades is interpretable within the context of a quasi-Marshallian diagram involving the intersection between an upward-sloping wage curve and a downward-sloping labour demand curve. We argue that the introduction of the NWC led to a rightward shift of the wage curve for two reasons: Firstly, by internalising the problem of upward bidding of wages by firms acting unilaterally, and secondly, by highlighting economy-wide macroeconomic factors and bringing them to bear on the wage-negotiation process, the required wage needed to induce the optimal level of work effort and quit rate was reduced at each rate of unemployment.

The single most important instrument that contributes to high home ownership in Singapore is the financing of housing through the CPF savings. As employer's CPF contributions are part of employees' total remuneration, the NWC has taken into consideration the changes in employers' contribution rates in most of its annual deliberation, although the NWC does not always actively recommend changes in the CPF contribution rates. The ability to finance housing using CPF savings has been the result of the increases in CPF contribution rates. But in the final analysis, the ability of the Government to raise contribution rates and households to be able to commit long-term house financing through CPF savings depends on economic growth. The relationship between the NWC and home ownership is more subtle but not less important than that between economic growth and home ownership. Indeed, it may be argued that had the NWC not contributed significantly to the enormous economic growth in Singapore, we would not be able to achieve such a high home ownership rate today.

The statistical analysis of the employment of females across sectors and by occupational groups clearly indicates a steady increase and upward mobility of female participation in the labour force of Singapore. This significant trend can be attributed to, among other factors, the better educational attainment of women, the need for self-fulfillment and economic independence on the part of women, and the increase in dual-career families. The labour movement (NTUC) has contributed to enhancing the participation and status of women in the workforce. Initiatives such as the NTUC Child Care Services, leadership development programmes for women, and the promotion of part-time and flexi-work arrangements, have aimed to help women juggle their roles and responsibilities in balancing work and family. A critical priority in Singapore's development strategy over the years has been to optimise our limited pool of human resources. National efforts of the tripartite partners (government, labour and management) are focused on better utilisation of manpower and upgrading workers' education and skills, regardless of gender. The NWC's efforts have therefore contributed significantly to the better utilisation of female labour resources in the country.

This chapter examines the relationships between international movements of labour, capital and goods and services in Singapore. These movements are examined in terms of three turning points in the international flows of goods and services, labour and capital. Singapore is one of the East Asian economies which has passed through all three turning points, thus enabling us to view the changes in labour markets and their place in the evolution of the economy, and to interpret Singapore's history in terms of these critical dates. It is argued that the flow of immigration into the Singaporean economy has been substantially affected by the policies of the National Wages Council, whose emphasis on skills acquisition and harmonious labour-management relations have steadily raised the skill levels of Singaporean resident labour.

The National Wages Council (NWC), which is a tripartite forum comprising high-level representation from the Government, employers and trade unions, has played a key role in shaping the wage system in Singapore. Many features of Singapore's wage system are unique creations of the NWC. The wage system today has many flexible elements that should stand the economy in good stead if faced with an economic downturn. Wage costs can be quickly adjusted downwards, if there is a need to do so. On the other hand, when the economy performs well, workers are suitably rewarded with higher bonus payments. The NWC will continue to play an important role in guiding year-to-year wage increases and the development of the wage system. Its future role will be no less significant than that which it has performed for the last quarter of a century.

This paper attempts to determine whether the wage guidelines set by the NWC affect output, employment and wages in Singapore. The Geweke (1982) approach is adopted to determine the existence of such a causality. The estimation results indicate that, as a wage-fixing institution, the NWC does indeed have a significant impact on employment and earnings in Singapore.

This chapter examines some of the issues surrounding the employment of older workers. Projected demographic change over the next two decades indicates not only slower labour force growth, which will exacerbate problems associated with labour scarcity, but also the dramatic ageing of the work force, which will have potentially adverse impacts. Recent changes in mandatory retirement practices and other factors affecting retirement decisions would help to moderate the adverse impacts. However, as there are problems associated with the employment of older workers, there is a need to moderate the seniority-based compensation system and to see to the training of older workers.

Singapore has come a long way. As a learning nation, Singapore has achieved much in a relatively short time. To achieve economic growth with a competitive advantage, this paper argues that there must be effective implementation of two systems: a flexible wage system and a performance appraisal system. A perfect flexible wage system would be ineffective if the objective measurements of performance appraisal are not present. The flexible wage system would be abused by superior officers to reward those they favour. Hence, to have a fair and just system to ensure equity and motivational reward to encourage high productivity, loyalty and commitment of employees, training on effective implementation of the performance appraisal system is salient.

There are relatively few published analyses of wage structures of the same narrowly-defined occupations in different countries and no widely-accepted methods of measuring and comparing occupational wage structures. We expect occupations that require higher skills or longer training to be relatively higher paid. Overall Singapore has strong relationships with the pay structures in developed economies but there are marked differences for some occupations. While the overall wage structure is very similar to those in developed economies, the range and dispersion in the distribution of average occupational pay are large by international comparison. The relative positions of occupations in the league table might be very similar but the percentage differences in pay of occupations are greater in Singapore. The diversity and spread of occupational differentials have narrowed in Singapore since 1985 but are still much larger than in Australia, Cyprus and the Republic of Korea, countries for which comparable time-series data are available. There is seldom any strong relationship between pay structures in Singapore and formerly Centrally Planned Economies. Singapore has a similar pay structure to Cyprus and Hong Kong, but for such occupations as are covered by the data in both countries there is a relatively poor match with Malaysia. Furthermore, differences in average occupational pay for men and women are larger in Singapore than in Australia, Cyprus, Sweden and the USA, but smaller than in Bolivia, China, Denmark and Finland.

This chapter helps to clarify the relationship between wages, competitiveness, profitability and productivity to provide a better understanding of the issues involved. In issues relating to wages, competitiveness and profitability, claims as profits by employers, as wages by employees and as payments for supplying imported raw materials by foreigners must add up to the available output pie. If the average product of labour is constant, then any increase in claims to output by one party must mean a reduction in claims by at least one other party. However, if the average product of labour is growing, increases in claims to output are possible for all parties. This implies that the key to increasing real wages, profitability and competitiveness is to achieve higher productivity through economic growth.

When a firm employs both entrant and insider workers and some insiders tend to quit after acquiring training, the quitting risk transmits training expenditure into a sort of implicit ‘user cost’ of human capital and inserts a hedge between the actual wage and the Solow efficiency wage. The hedge exhibits an asymmetric wage-effort relationship: entrants are ‘underpaid’ whereas insiders are ‘overpaid’. This study implies that, in order to improve labour market efficiency, a more flexible wage system that limits the seniority-based wage element and extends the productivity-based wage elements, such as that recommended by the NWC, is desirable.

The Accord, negotiated between the Australian Council of Trade Unions and the Australian Labor Party in March 1983, established a framework for economic strategy in which the determination of wages was linked to employment prospects and stimulus to real growth of output and investment. Four achievements have been claimed during the first six years of the Accord: favourable outcomes for employment and investment, wage restraint without prejudicing employment while enhancing international competitiveness, provision made for private retirement income, more equitable distribution of tax burdens. However, instability emerged in the second phase, with growth in employment stagnating and unemployment remaining high. During the course of its development through eight stages, the Accord assumed an even wider role in economic policy. The longer term impact was to transform what had been a highly centralised system for wage determination into one providing flexibility and bargaining at the enterprise and plant level. This has been a fundamental change. The focus has shifted from macroeconomic settings associated with general wage determinations to the circumstances fostering the effectiveness of entry to and exit from the workforce in individual industries and firms.