Impact of Local Qualifying Salary Requirement and Expansion of Progressive Wage Model on Costs, Productivity and Jobs

Hazel Asks the Manpower Minister

Ms Hazel Poa asked the Minister for Manpower how many Singaporean employees currently earning under $1,400 per month will not be covered by the changes to the Local Qualifying Salary requirement for companies.

Mr Zaqy Mohamad: I thank Members for their interest in the recent recommendations of the Tripartite Workgroup on Lower-Wage Workers which the Government has accepted. Apart from my reply today, I would also like to encourage them to read the 88-page report of the Workgroup where the reasoning and intent of many of the proposals are laid out in greater detail.

The Workgroup’s vision is for a strengthened social compact where everyone enjoys Singapore’s fruits of growth. We want to enable our lower-wage workers to progress along with other workers. At the same time, society, employers and the Government stand in solidarity with them. We must also recognise that, for our lower-wage workers’ progress to be sustainable, Singapore must maintain a dynamic economy, where businesses can thrive and create good jobs and good careers for our workers.

 Uplifting lower-wage workers has been a priority for the Government over the years. Workfare is the foundation of the Government’s support for our lower-wage workers. We currently spend about $850 million a year on Workfare. The Prime Minister has announced that Workfare spending is expected to increase to $1.1 billion by 2023. This is a clear commitment that Workfare will continue to be a foundation of our policy response. The Government will release more details next year.

 Mr Speaker, building on the foundation of Workfare, the Progressive Wage Model (PWM) provides job and training progression pathways for our lower-wage workers and grows their wages as they improve their skills and productivity. Workfare and Progressive Wages work in tandem and are, therefore, mutually reinforcing.

 Over the last decade, our policies to support lower-wage workers have made a difference in uplifting them to enjoy good wage growth. From 2009 to 2019, real income at the 20th percentile of our resident workforce grew 39% cumulatively, faster than the median worker at 33%. To address Ms Ng Ling Ling’s and Mr Desmond Choo’s questions, I want to stress that these are real income gains; in other words, 39% cumulative income gains, even after subtracting the effects of inflation. 

 Low-income households would, therefore, benefit from our Progressive Wage and Workfare policies. I am sure many Members are aware that there are dedicated efforts to support our low-income households through various schemes, such as subsidies in education, healthcare, housing, as well as financial assistance. Households facing financial difficulties can approach MSF’s Social Service Offices (SSOs), which will look into ways to support them through schemes, such as ComCare assistance. MSF regularly reviews ComCare to ensure that support remains adequate.

The Workgroup achieved tripartite consensus on 18 recommendations, including significantly widening the coverage of Progressive Wages.

First, we will expand Progressive Wages to new sectors like Food Services, Retail and Waste Management, as well as occupations like Administrators and Drivers. We will also extend PWMs to in-house cleaners, security officers as well as landscape workers.

Second, we will introduce a new Local Qualifying Salary (LQS) requirement where employers will need to pay all its local workers at least the LQS, in order to access any foreign worker.

Third, we will introduce the Progressive Wage Mark, or PW Mark, to encourage firms that pay progressive wages.

The Workgroup has not deviated from the broad principle that wages should grow in tandem with productivity over the long term, so as to be sustainable. However, it recognised that there was a case for wage growth of lower-wage workers to outpace productivity. This is because the productivity of frontline workers is not due solely to the industriousness of the worker, but it is also dependent on the firm’s operations and methods of work. The Workgroup also recommended that for the next decade, the wages of our lower-wage workers should continue to grow faster than the median, or what we call the “median-plus” approach. However, when wages at the 20th percentile have gained sufficiently on median wage levels, this would no longer be necessary. We can reflect on other strategies beyond that.

Mr Edward Chia and Mr Sharael Taha asked about the sustainability of these wage increases. These are very important questions. One important way we will do this is to continue the Progressive Wage approach, whereby wage increases are secured by tripartite consensus, that is, the agreement between the employers and the unions remain very important.

 These will be done by sectoral Tripartite Clusters for the Sectoral Progressive Wages, and the National Wages Council for the Occupational Progressive Wages. I know for a fact, and especially during these times, that tripartite negotiations are never easy, and for good reason, as the concerns of different parties, of the employers and workers, need to be balanced.

 Tripartism is our strength, and some say our secret sauce, to make Progressive Wages work for the foreseeable future. I am confident that through such robust discussions, these established tripartite bodies will arrive at common ground that is sustainable and benefits all stakeholders.

 If wage growth of our lower-wage workers outpace productivity growth in the medium term, the sustainable response is for businesses to use this period to urgently enhance their firm-level productivity to better support wage increases for our workers. To Mr Sharael Taha’s query, the Government will continue to support firms through the Productivity Solutions Grant, as well as more specific efforts enabled by the Industry Transformation Maps.

 For many years, firms hiring foreign workers have been required to pay at least the LQS to the local workers that they need to count towards their foreign worker quota, or Dependency Ratio Ceiling (DRC). This is a policy that our businesses are already familiar with. The Workgroup studied this carefully and decided to leverage on the LQS to broaden our coverage of Progressive Wages. From September next year, firms hiring foreign workers will have to pay all local workers the LQS. This builds upon regular increases in the LQS level over the years, such as from $1,000 in 2016 to $1,400 in 2020.

 To Ms He Ting Ru’s query, there are 103,000 full-time resident employees earning a gross monthly income of below $1,400 in 2020, which is about 5.3% of the full-time employed resident workforce. But I would also like to take the opportunity to highlight that in 2020, many of our lower-wage workers were also impacted by the economic impact of COVID-19 and faced reduced work-hours and allowances. These employees work in a wide range of industries, from Food Services to Administrative and Support Services, and occupy a diverse range of jobs, from cleaners to office clerks to shop sales assistants, and we can imagine the impact of COVID-19 on these jobs in the last year or year plus. This was also why the Government provided special support of $3,000 to this segment of workers through the Workfare Special Payment and other social support schemes.

 With the new LQS requirement, an estimated 77% of these employees should see their wages rise to at least $1,400 a month. Many in this group would also see their wages further uplifted beyond LQS, by the Sectoral and Occupational Progressive Wages. The Workgroup expects the PWMs to continue to set the pace on wage growth, with Progressive Wage levels expected to rise beyond the LQS. For example, workers in the Cleaning and Landscape sectors can potentially earn at least about $2,400 a month by 2028.

 To Ms Hazel Poa’s query, the remaining 23%, who are not covered, would be in businesses that do not hire foreign workers. The vast majority of these businesses are very small, hiring fewer than 10 workers and include small family operations, such as hawker stalls and heartland shops. We are all familiar with these microbusinesses; they are familiar faces in our neighbourhoods and typically having family members who are spouses, children or relatives helping out. They do not have the business scale or reach, and we are mindful that sudden wage shifts to these microbusinesses can result in business failure. So, the last thing we want is for job losses for these family businesses.

 While not formally covered by the LQS requirement, these workers here should still see meaningful increases in their wages over time due to market forces. The Progressive Wages will cover eight in 10 full-time lower-wage workers, and the PW Mark is expected to bring the coverage of Progressive Wages up to 94% of full-time lower-wage workers. So, eight in 10 and moving up to 94%, I think we are quite confident that market forces will probably lift the remainder up over time.

 Some Members, including Mr Yip Hon Weng, asked about how the LQS is currently being determined, and under what circumstances would it be reviewed. As the Workgroup’s Report explains, the LQS is a stable benchmark that has been in place for many years. It has been revised four times in the last five years.

 We recognise that the new LQS requirement in 2022 will have a significant impact on employers. We are also mindful and sensitive to the fact that many of our companies are still recovering from the effects of COVID-19 on our economy. Hence, we have no plans to further increase the LQS for now, but will focus on the implementation of the new LQS rules and also for the other Sectoral and Occupational Progressive Wages to establish their relevant wage benchmarks.

 I urge Members not to look at each measure in isolation but to bear in mind the overall and holistic impact on not just the workers but also the employers.

 Members have also asked about the implementation details. I would like to give the assurance that the intent of MOM is for firms to be well-informed of the moves and to have adequate time to adjust before the implementation.

 To Mr Edward Chia’s query, firms that hire foreign workers are already familiar with the concept of LQS for many years. Together with tripartite partners, the Government will continue to reach out to firms before the new LQS requirement and other new Progressive Wages kick in on 1 September 2022. The initial period beyond its introduction will be a run-in period, for which MOM will focus on educating employers on the various Progressive Wage and LQS requirements that they will need to adhere to. In other words, I can assure employers that MOM will not jump straight into strict enforcement, but it will initially focus on improving awareness and compliance, because we are all moving towards a new system. This is the same approach that was adopted when new Employment Act obligations were introduced in 2016.

 In designing the system to support the new moves, we will make the compliance process as smooth as possible. To Miss Rachel Ong’s query, we will keep additional reporting requirements minimal by tapping on existing processes such as CPF salary declarations and returns to MOM’s Business Census.

Employers will also be able to refer to MOM’s website to check the job descriptions of workers eligible for Progressive Wages and the required wages. We will also explore ways to allow employees to check that they are paid the Progressive Wages due to them. So, employees also have a chance to get used to the new system. We note that the Singapore Business Federation has acknowledged that the Report of the Workgroup has taken into consideration their feedback on minimising the burden of compliance for firms.

 To Mr Liang Eng Hwa’s query on how the PW Mark will be administered, we will tap on the same systems that I have just described, to ensure that only firms that pay Progressive Wages are awarded the PW Mark. This will assure companies and consumers that when they purchase from firms with the PW Mark, they are directly supporting the lower-wage workers in these firms. The public sector will take the lead and require its suppliers to obtain the Mark. As the support of private sector buyers is also essential, the tripartite partners will also work with the various trade associations and chambers to raise awareness of the PW Mark, promote its adoption and encourage businesses to purchase from other businesses with the PW Mark.

Mr Speaker, Sir, uplifting lower-wage workers is a whole-of-society responsibility, and the cost of raising their wages will have to be shared. So, workers will have to adopt the right mindset and be ready to adapt and learn new skills to be more productive. Employers will need to increase productivity at the firm-level, which would help them better absorb the additional wage costs.

 The Government will do its part, too. With respect to employers, the Government recognises that employers will need some time to adjust their operations, especially as the economy is still recovering from COVID-19. As such, to the queries of Ms Jessica Tan and other Members, the Government has accepted the recommendation of the Workgroup to provide transition support and is carefully studying the details of that support. This will be announced in due course and, certainly, I want to provide the assurance that this will come before the implementation of the first moves in September 2022.

 With respect to workers, I have already touched on the Government’s commitment to expanding Workfare. So, to Miss Rachel Ong’s question on whether there will be a shift away from Workfare to employers paying for the wages of our lower-wage workers, the answer is no. The Government is committed to Workfare as a permanent scheme; at the same time, employers do their part by offering progressive wages.

 Miss Rachel Ong asked why we are lowering the Workfare qualifying age to 30 years old and whether we will lower it further below the age of 30. Below the age of 30, most workers would have just started work and earning starting salaries. Most will have greater potential for future income growth. Therefore, it will be too premature to consider them for Workfare. They could be better supported through training and upskilling efforts, such as SkillsFuture, to help them access better jobs and grow their wages in a sustainable way.

 For workers aged 30 to 34, however, some continued to remain in the lower-wage range despite the upskilling efforts. At this age, they are just starting their own families or are looking to buy their first home. We believe that Workfare will help them better cope with their current expenses and to start saving for their retirement.

 Miss Cheng Li Hui and other Members asked if businesses will unfairly raise prices. I can certainly understand why this is a big concern for many of us. In the Food Services and Retail sectors, where there are many firms competing and barriers to entry are not high, firms will be expected to think carefully about cost increases. It is also fair to say that we have to expect some degree of cost increase to accommodate higher salaries for our lower-wage workers. This is where we, as consumers, have to do our part in support of our lower-wage workers.

 I, therefore, hope that Singaporeans will not accuse firms unfairly of profiteering, but let us also work together to address any unreasonable price increases or practices. One reason why the Workgroup recommended that the National Wages Council help to provide guidance on wage growth is to enable the tripartite partners to carefully weigh the impact of wage growth, inflation and general economic conditions every year, before finalising their guidance.

 Because the growth of Progressive Wages is negotiated through tripartite consensus, rest assured we have more assurance that wage increases will be sustainable for workers, employers as well as consumers.

 Mr Speaker, Sir, the effort to uplift our lower-wage workers is a massive undertaking, spanning the next decade and beyond. To do this well, we will need to go beyond a whole-of-Government approach, or even a whole-of-tripartite sector approach. We will need the whole of society – workers, consumers, employers, unions, the Government, members of the public – to come behind and support this effort.

 The Government has committed to providing transitional support and increasing spending on Workfare. Tripartite partners have agreed on a roadmap to chart the progress of our lower-wage workers over the next decade. And many businesses and consumers already recognise that they will need to do their part by paying a little more for goods and services. There has been heartening support from society at large since the Prime Minister spoke at the National Day Rally. I would also like to thank the tripartite partners for helping chart this roadmap ahead. So, let us continue on this course, to bring society together behind the goal of supporting our lower-wage workers.

Ms Hazel Poa (Non-Constituency Member): I thank the Senior Minister of State for his reply. I would like to point out that I have listened to his reply, but I still did not get the answer to my question, which was: how many Singaporeans earning less than $1,400 would not be covered by this scheme? On top of that, I have two supplementary questions.

Firstly, would employers who wish to employ foreigners no longer be able to employ part-timers at under $1,400? Would this spell the end of part-time employment?

Last question: the Senior Minister of State mentioned that over the years 2009 to 2019, the real wage growth of the lowest quintile outperformed those of the highest. If we look at only wage growth, it does not include other incomes like investment income or rental income. So, this does not quite give us the full picture of how inequality is changing. Does MOM track similar data but in terms of total income?

Mr Zaqy Mohamad: I thank Ms Hazel Poa for her query. In fact, in response, I did share that 23% of the remainder would be in businesses that do not hire foreign workers. So, it is a minority left: 23% out of your 103,000 full-time employees. So, it is about 20%, or 20,000 or thereabouts. And as I have shared, with progressive wages, you will end up, hopefully, covering up to 94% of our lower-wage workers. You will see the long-term impact in terms of how their wages will grow over time.

Also, bear in mind that the remainder that is left are typically those in microbusinesses. Like I have shared, in heartland shops, they are people you are very familiar with and the last thing you want is to have them collapse in the short term because they do not have the scale. And many of them are uncles and aunties running stalls and I am not even sure whether the uncle pays the auntie full wages. But these are areas in which I think we have to correct over time, but you do not want to collapse them in the short term. So, this is something we are very mindful not to disrupt the whole system in such a way.

On the Member’s second question on part-timers, if you look at the new LQS mechanism today, we do have a rate for part-timers, which is $9 per hour. We also give you half a count for DRC if you employ at least half of the LQS rate, that is, $700 a month for part-timers. So, this is one way in which we still maintain the current system but, at the same time, provide some flexibility for part-time workers, for many of our employees. That one, employers do not have to worry too much because they are familiar with the system and the part-time mechanism still continues. It is just that we now set a $9 rate per hour for part-time workers.

Source : Oral Answers to Questions