Why Singapore prefers the Workfare scheme instead of a minimum wage

In an opinion editorial, Minister of Manpower, Josephine Teo, has affirmed that there is no short cut to helping low-wage workers move up, whilst explaining Singapore's approach to tackling wage inequality.

"Why did Singapore introduce Workfare instead of a minimum wage? Workfare reflects Singapore’s approach to go beyond the debate over minimum wage – one which many economists still cannot agree on after many years – to find a solution that works for our society," she writes.

Talking about its background, it was inspired from the Earned Income Tax Credit (EITC) practised in the United States. By providing lower-paid workers with tax credits, EITC increased their take-home pay.

Similarly, Workfare payouts are targeted at those with poor household support, with more going to older workers. It can comprise up to an extra 30% of the worker’s monthly income. For example, a 65-year old worker earning S$1,200 a month would receive S$300 more through Workfare monthly, of which S$180 goes into his CPF, writes Minister Teo.

Workfare is complemented with the Special Employment Credit (SEC) which helps employers offset the cost of hiring older workers. Together, Workfare and SEC could add up to an extra 40% to the worker’s monthly income.

Most Workfare recipients also qualify for other forms of social support, such as the Silver Support and GST Voucher schemes. For the worker in example above, government transfers for him would amount to nearly six months’ salary every year - three months of Workfare (of which 1.2 months is in cash), two months of Silver Support cash pay-outs and nearly a month of GST Vouchers.

This year marks the tenth anniversary of the first Workfare Income Supplement payout, about 830,000 Singaporeans have benefited from the S$5.5 billion disbursed.

Progressive wages

Affirming that support must not start or end with government top-ups, Minister Teo writes: "The recent debate on wage inequality points to a deeper sense of social fairness that wants to see everyone progress together. More than hand-outs, we want a hand-up," pointing to the introduction of the Progressive Wage Model (PWM).

"PWM recognises that there is no short cut to helping low-wage workers move up. To progress, they must have opportunities to acquire skills, to be assigned work that make use of those skills, and be paid more for enlarged responsibilities or improved productivity," she adds.

How is PWM different from a minimum wage? First, it is a ladder not a floor, and every worker has the chance to earn more through better skills, a larger job or higher productivity, Minister Teo writes.

Second, its takes into account sectoral differences and is not one-size-fits-all. Third, PWM offers a way of uplifting pay which both employers and employees can accept. Each PWM is therefore an example of how the tripartite partners come together to make wage growth attainable and sustainable for workers.

Over 70,000 workers have benefited from mandatory implementation of PWM in the security, cleaning and landscaping sectors. Between 2011 and 2016, the real median gross wages of full-time resident cleaners, security guards and landscape maintenance workers increased by 5.7%, 6.4% and 3.0% per year respectively, exceeding resident median income growth of 2.3% per year.

Keep efforts going

Minister Teo writes: "Proponents of a minimum wage share the same strong desire as the Government in wanting to mitigate inequality and enable a better distribution of gains in our society. The real debate is not on the ends but the means by which we achieve them."

Workfare and PWM, together with many other support measures have uplifted low-wage wages while keeping employment levels high and unemployment levels low. "But is our job done? Not at all," she says, citing the following next steps:

• Workfare is regularly reviewed to ensure the target groups continue to be helped.
• There is scope to expand PWM to other sectors where wages have stagnated and where practices such as outsourcing reduce the incentive to upskill workers and limit their bargaining power.
• We should take advantage of industry and business restructuring to transform jobs at the lower-end so that workers have potential to earn more.

Photo / Mahmoud