Monday, November 26, 2018

Minimum Wage vs U.B.I.

This was a planned post for the last General Election in Singapore where some debate surrounding minimum wages sparked my interest. It was stated that 90% of all countries have minimum wages and why is Singapore not in that group. Five years on, the world has progressed and today we are talking about U.B.I. or universal basic income and not minimum wages. So like our beloved SAF still conducting training based on WWII tactics, our economic argument on minimum wages had fallen way behind.

We were very fortunate to have survived as a nation state. Looking back, this was only possible at that exact point of human economic development. If Singapore was founded in any other century other than 19th century, we would simply be absorbed by our neighbours. Further if we somehow gained independence in 1915 rather than 1965, we would had perished. We would just become collateral damage given the global belligerence at that time with WWI and WWII. Similarly, if we gained independence today, we stood no chance competing against Shanghai, Hong Kong, Bangkok and Tokyo. We succeeded because of sound economic policies and innovative growth strategies. Let's hope our new 4G Cabinet led by Heng Swee Keat and our current economic strategies will bring us further.

Singapore General Elections, exciting since 1959!

Okay, let's come back to minimum wages. The original arguments against minimum wages were these:

1. It would cause more unemployment because employers would decide not to employ more workers if being forced to choose between hiring one more worker at minimum wage or loading up more work to its current workforce.

2. It would reduce Singapore's cost competitiveness. We have a high standard of living and by setting a minimum wage, we make our cost base even higher, hence further widening the gap between us and our low cost neighbours.

3. Once implemented, there is no turning back and the minimum wage would just keep rising with inflation. This actually hurts SMEs and the poorest the most. This could be true and hence Singapore had moved to use a levy system instead whereby workers will receive both a salary from their employers and a get levy/subsidy from the government if they worked.

Fast forward to today, disruptions and changes in the past few years have made the minimum wage argument irrelevant.

With robots and automation taking over the world, the risk of 50-60% of the world's population losing their jobs is becoming real. The argument has moved on completely. Prominent economists proposed that governments should start thinking about the concept of Universal Basic Income to be given to everyone, rich or poor, fat or thin. (Or more realistically, every household.)

The idea has the genesis that income is a basic need much like air and water. This is probably similar today to mobile phones and internet. We cannot live without these anymore. To deprive someone of income and internet is much like depriving them clean air and drinkable water. So when robots take over 50-60% of all the jobs there is out there, maybe we should give everyone a basic income. Yes, just as industrialization brought in the welfare state catering for the disabled, technological disruption might need to bring about U.B.I.

We just want basic income!

To some extent, U.B.I. is also the logical evolution for the welfare state. Expenses that are already paid out via the welfare system could simply be transferred into the new U.B.I. Alas, Singapore also never implemented a full-scale welfare system. Maybe that would that bring about another set of major political arguments. But no fear! Singapore is the land of Crazy Rich Asians. Assuming our U.B.I. would be $500 a month amounting to $6,000 per year per household, U.B.I. for all citizen households would only cost $7.2 billion, this is just half of our defense budget. We can fund this easily!

There are two important arguments for U.B.I. The first one is that it would eradicate poverty. No children will go without food or shelter. They would be able to afford education, enjoy basic rights, as all kids should. All our aged uncles and aunties would no longer need to clear trays at kopitiams (local coffee shops serving hawker food). This is just socially and morally great! The second argument: it levels the playing field for everyone. While $500 wouldn't mean much for an affluent household, it would pay for good tuition in a middle income family and change the whole game for the low income family. If the Singapore government implements U.B.I., the opposition party would have to think really, really hard to attack the incumbents!

U.B.I would not encourage people to skive because everyone gets it. It is akin to the basic salary in the army. You will always have that. If you are good and get gold for IPPT* or get promoted, you get more. Super lazy bumps or naturally unfit ones might not get IPPT silver or gold or they might stay as a Corporal for the entire National Service but they are not "skiving" bcos of U.B.I. This is an important point and ties back to the previous one: levelling the playing field. 

Most critics would also point to funding, where is the money coming from? Hence it is also key to set the amount right. It cannot be too much nor too little. World experts believe it should be around $500-1000 for most developed economies. Well, as for our own funding, we answered the question, crazily rich Singapore will have no problem funding it.

Huat Ah!

*IPPT stands for the individual physical proficiency test, a compulsory test in the army for all Singapore National Service men. In 2010, 50% of reservists/NSmen failed their IPPT. The test was recalibrated in 2014.

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