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Monday, March 10, 2014

ESSAY DRAFT 2

Globalization is a widely-know concept in today's world. Though it has brought huge uncountable benefits to the world, it is not without sacrifices. One of the components of globalization is transnational labour mobility. This has always been a significant component in Singapore; even our forefathers were from different countries. This has allowed the entrance of foreign labours of different calibre into Singapore. While it is crucial that we embrace foreign talent, it is unwise to allow a huge pool of lower-class foreign workers enter Singapore. There are many negative consequences of welcoming cheaper labourers without filter and the most urgent and important consequence is the widening of income inequality-- measurement of distribution of income between the rich and poor in a country—which was mentioned by Goldin in his TED talk (Goldin, I.,2009) as one of the problems of globalization. This occurs when employers hire cheaper foreign labours rather than the locals, causing the locals to be unemployed, thus widening the income gap.

Singapore's gini coefficient in 2012 was 0.459 (after adjustment for taxes and transfers) (Yahoo Singapore Finance, 2013). This is evidence of Singapore’s uneven income distribution and this problem can hamper the economic growth of Singapore. According to a Nobel Prize winner Joseph Stiglitz, (as cited from Gerald.G, 2013) income inequality will cause the poorer people to think that they are unfairly treated and they will start to lose trust in the government, which according to Non-Constituency MP, Gerald Giam (2013), is what is happening in Singapore now. To stop this problem from elevating, the Government imposed a limit to the number of low wage foreign workers coming into Singapore. Quoting our Deputy Prime Minister Tharman Shanmugaratnam in the 2013 Singapore Budget, “The quota for the services sector will be cut from 45 per cent now to 40 per cent from July this year…also have their S pass quota cut from 20 to 15 per cent…the marine sector, the number of foreign workers a firm can hire for each local will be cut from five to 4.5 in January 2016. It will fall further to 3.5 foreigners per local worker in 2018.” (Straits Times, 2013)

Since this was only implemented in July last year, there are no reported effects yet. However, I think that it is a logical and appropriate action taken by the Government. Since there is no minimum wage law in Singapore, when foreign workers come to Singapore in hope of getting a job, they are willing to and it is possible for them to accept a lower pay than what Singaporeans expect. This will result in two outcomes: either Singaporeans do not take up the job or they are forced to accept that lowered wage to secure the job. Both outcomes will cause the income gap to widen. Limiting the number of low wage workers coming into Singapore then results in more job vacancies for locals with similar skills and education.

The Government should continue doing this yearly with new limits until an appropriate percentage is found, meaning locals who are sincerely looking for a job finds one while still maintaining or increasing the productivity.

This is a form of legislative rule so it would be very effective in targeting the problem mentioned. However, it might cause other negative consequences which the Government might need to take note of following this rule.

One reason why employers prefer hiring foreigners than locals is because the latter will most likely demand for higher wages due to the higher cost of living in Singapore. However this cannot be a long term measure as it would cause unemployment rates in Singapore to increase and income gap to widen.

In response to this reason, the Government decided to increase the levy for foreign workers (Straits Times, 2013) so that the cost of hiring a local and a foreigner would be more similar than how it is now. It was implemented in July last year along with the measure stated above.

Again, the effectiveness is unknown but it was a correct move made since it targets the source of the problem. However, this increases the cost of production (whether they hire foreigners or locals) and it might affect small and medium enterprises which do not have enough funds to handle this change. With regards to this, the Government can provide temporary financial aid to companies that possess economies of scale but do not have the monetary reserves to handle the increase in wage. This will ensure that companies with growth potential will not need to shut down because of this increase in capital cost. In contrary, this move has limited effects on bigger companies with large pool of resources as the increase might be too little for them to change their hiring policy.

In conclusion, there are many social and economic problems that would result from income equality and this problem really needs attention as it is alarming to see such a huge number of 0.459 for such a small country like Singapore. Even though the Government took actions on their part, success will only be possible if the locals do their part by being more dedicated and appreciative of their jobs.

843 words (excluding in-text citation and title)

References

BusinessDictionary.com. (2014). What is income inequality? definition and meaning. [online] Retrieved from: http://www.businessdictionary.com/definition/income-inequality.html

Gerald, G. (2013). Budget 2013 speech – ncmp gerald giam. [online] Retrieved from: http://wp.sg/2013/03/budget-2013-speech-ncmp-gerald-giam/

Goldin, I. (2009). Navigating our global future. [online] Retrieved from: http://www.ted.com/talks/lang/en/ian_goldin_navigating_our_global_future.html

Y.C., T. (2013). Budget 2013: foreign worker levies to go up, quotas for services and marine sectors cut. [online] Retrieved from: http://www.straitstimes.com/breaking-news/singapore/story/budget-2013-foreign-worker-levies-go-quotas-services-and-marine-sector

Yahoo Singapore Finance. (2013). Singapore’s income inequality on the rise: dept of statistics. [online] Retrieved from: http://sg.finance.yahoo.com/news/singapore-income-inequality-rise-dept-135226813.html

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