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Wednesday, March 5, 2014

ESSAY DRAFT 1 (899 words :X)

Globalization is a widely-know concept in today's world. Even though it is a process that has brought huge uncountable benefits to the world, it is not without sacrifices. Goldin mentioned in this TED talk that rapid globalization has resulted in many problems, one of which is income inequality. One of the components of globalization is transnational labour mobility. This is a significant factor in Singapore ever since it was founded because the forefathers of our country were made up of people from different parts of the world. This aspect of globalization has allowed for the entrance of foreign labours of different calibre in Singapore. While it is crucial that we embrace foreign talent, it becomes unwise to allow a huge pool of cheap or even middle-class foreign workers to 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. 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). This is evidence that the income distribution in Singapore is uneven to quite a large extent. It is a problem as it would hamper the economic growth of the country. According to Joseph Stiglitz (a Nobel Prize winner) (2012), 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 APA style for speech) is happening in Singapore right now. In order to stop this problem from elevating, one step that the Government have taken is to impose 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.”

(http://www.straitstimes.com/breaking-news/singapore/story/budget-2013-foreign-worker-levies-go-quotas-services-and-marine-sector)

Since this was only implemented in July last year, there are no reported effects yet. However, I do think that it is a logical and appropriate step taken by the Government. There is no minimum wage law in Singapore, thus 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 will have to accept that lowered wage in order to secure the job. Both outcomes will cause the gap to widen. Therefore, limiting the number of low wage workers coming into Singapore will result in more jobs for the locals with similar skills and education.

Improvements to be made: continue doing it for the following years, pushing the limit even more until a right percentage is found (meaning those who are sincerely looking for a job finds one-> productivity is maintained or increased.)

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, 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 is a logical step to take since it targets the reason stated above. However, it will cause an increase in cost (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. On the other hand, 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 there are many actions taken by the Government, the success will only be possible with the efforts of local workers by being more dedicated and appreciative of their jobs.

blogged @ 9:14 PM

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