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Tuesday, April 15, 2014
Income Inequality in Singapore
Globalization is a widely-know concept in
today's world. Though it has brought uncountable benefits to the world, it is
not without sacrifices. One of the key 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 labourers of different calibres into Singapore. While
it is crucial that Singapore embrace foreign talent, we should not allow a huge
pool of lower-class foreign workers enter Singapore. Among the many negative
consequences of welcoming cheaper labourers without filter, the
most urgent and important consequence is the widening of income inequality, the measurement of distribution of income amongst
the citizen, which was mentioned by Goldin in his TED talk (2009) as one
of the problems of globalization. This occurs when employers hire cheaper
foreign labourers rather than the locals, causing the locals to be unemployed,
thus widening the income gap.
The income gap is visible using the Gini
coefficient. Singapore's Gini coefficient in 2013 was 0.412 (after adjustment
for taxes and transfers; with 0 being absolutely equal and 1 being absolutely
unequal in terms of income of people in a country.) (Lim. S., 2013). This is
evidence of Singapore’s uneven income distribution, which can hamper the
economic growth of Singapore. According
to a Nobel Prize winner Joseph Stiglitz, (as cited in Giam, 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 has already imposed a limit on the number
of low wage foreign workers coming into Singapore. Quoting our Deputy Prime
Minister Shanmugaratnam in the 2013 Singapore Budget discussion,.
“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” (Toh, 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 Singapore government. Since there
is no minimum wage law in Singapore, when foreign workers come to Singapore,
the supply of labour for a particular sector increases and wages in the same
sector will decrease.
The decreased wage will result in two
outcomes: either Singaporeans do not take up the jobs 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 find 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 rather than locals is because the latter will most likely demand
higher wages due to the higher cost of living in Singapore. However, the hiring
of foreigners cannot be a long term measure as it would cause unemployment
rates in Singapore to increase and the income gap to widen. In response to this
reason, the government decided to increase the levy for foreign workers (Toh, 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 of the increased
levy is unknown, but it was a correct move 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. On the other hand, this move should
have 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 resulting from income
equality that need attention. It is shocking to witness such a high income
inequality gap for a small country like Singapore and it is necessary to narrow
it quickly. 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.
872 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
Giam, 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
Toh, C.Y. (2013). Budget 2013: Foreign worker levies to go up, quotas for services and
marine sectors cut. Straitstimes.com
[online]. Retrieved from:
http://www.straitstimes.com/breaking-news/singapore/story/budget-2013-foreign-worker-levies-go-quotas-services-and-marine-sector
Lim, S. (2013). Press
Release: Key Household Income Trends, 2013 [online] Retrieved from: http://www.singstat.gov.sg/news/press_releases/press18022014.pdf
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