Anti FT policy: Middle Income stagnation

[Without_a_car]

Title : Middle class wage stagnation could lead to social instability

By :

Date : 11 January 2007 1856 hrs (SST)

URL : Middle class wage stagnation could lead to social instability - Channel NewsAsia

 

 

SINGAPORE: Middle class wages have been stagnant in the past 5 years, according to economists, and this could lead to social instability.

 

These concerns were shared by economists at the annual Institute of Policy Studies Singapore Perspectives conference, who also added that the government is taking steps to address the problem.

 

Economists believe a US economic slowdown in business and consumer spending may cause problems for Singapore, but as Singapore is tops in the ASEAN resilience index, it should be able to weather external shocks, thanks to a diversified economy and strong Asian demand.

 

They predict that growth going forward will be above 3 to 5 percent.

 

The long-term growth limits for a mature economy was previously in the 3 to 5 percent range.

 

However, economists are asking who this growth is for. The income of the bottom 30 percent of the population has fallen. What is more worrying is the fact that the majority of Singaporeans in the middle class has only seen about a one percent increase in their nominal income in the last 5 years.

 

This is not not just a Singapore problem say economists who point out that stagnant wages is a global problem.

 

The chief reason for this is globalisation, especially with India and China introducing a large pool of skilled and unskilled labour to compete with the labour forces of industrialised countries.

 

Singapore is susceptible to this because of its open economy.

 

Manpower Ministry data shows that 124,000 jobs were created last year and 45 percent of these jobs went to foreigners.

 

"With the rate of immigration, even among unskilled and semi skilled labour at a rate twice of what we experienced in the 90s, at a rate fastest in the developed world, the question is - does this dampen our real wages as we grow? Does the strategy itself dampen real wages and depress real wages at the low and middle end of the spectrums? They are sacred cows but we should step back and think about them," said Yeoh Lam Keong, Vice President, Economic Society of Singapore.

 

Another reason cited for middle class wage stagnation is the move by the government to cut CPF employer contribution rates for older workers by 4 percentage points over the last 2 years.

 

"So if you were a worker in the 50-55 age group, you could have seen your wages fall as much as 10 percent over the last 3 or 4 years. Now with the economy improving, the government could bring that back, the increase is 1 or 2 percent. I'm in support of CPF tinkering but probably it happens far too often, but I think there's probably some justification to look back and think that the restructuring was a bit too aggressive on the CPF side and it has contributed somewhat to a very sandwiched middle class," said Chua Hak Bin, Director, Asia Pacific Econ & Market Analysis, Citigroup Global Markets Singapore.

 

The government is looking at increasing CPF by 1 to 2 percentage points in 2007.

 

Economists say workfare should become a more permanent pillar of the economy so as to cushion growing inequality.

 

- CNA /dt

[Without_a_car]

GST Hike: Helping the Sandwich Class

by Ms Seet Cher Lui Stephanie

Sengkang West Division of Ang Mo Kio GRC

Assistant Secretary, Young PAP

Dated : 14-02-2007

 

PAP - News & Stories

 

Economic Climate on the Middle Class

 

While the elderly and lower income groups will be better off with the GST offset package, recent economic restructuring appears to affect the middle income class the most. Given the climate of economic reforms, the impact of the GST hike on this group should not be evaluated in isolation.

 

The economy appears to have fully recovered from the 1997 Asian financial crisis, with 2006 registering a better-than-expected 7.6% growth. The government has also announced plans to restore CPF cuts.

 

There are, however, indicators of leaner times ahead, with the growing income divide being magnified with the emergence of a dual economy. Reports of middle class wage stagnation over the past ten years hardly suggest that the bullish economy benefits the majority of income-earners.

[Without_a_car]

First world country, but not First World wages?

Asiaone - S'pore firm offers

 

Tue, May 18, 2010

The Straits Times

 

By Sue-Ann Chia, Senior Political Correspondent

 

 

For years, companies have creamed off a larger share of economic gains - larger than those in other developed countries or industrialising economies in Asia.

 

As a result, workers get a slice of Singapore's gross domestic product (GDP) that is considered unusually small compared with their counterparts' share in those countries.

 

Workers' wages account for less than half of Singapore's GDP. In contrast, wages take up more than half of GDP in developed countries.

 

This means that Singapore may have achieved one of the highest per capita GDPs - at $51,656 last year - but the superlative showing may not reflect the wealth of workers or benefit them as much.

 

It has led some analysts to wonder if Singapore is a First World economy with what is closer to a Third World wage structure.

 

'Factually, our wage levels are much higher than Third World (economies'). Otherwise, so many foreign workers would not be flooding into Singapore,' notes economist Manu Bhaskaran from Centennial Asia Advisors.

 

'The problem is not our wage levels, which are reasonably high, but whether they are commensurate with our per capita GDP level.'

 

So are wage levels keeping pace with economic growth? Or is Singapore's low wage share of GDP an indication that workers have been losing out?

 

 

 

 

Higher profit share

 

THE issue of Singapore's low wage share has surfaced time and again.

 

In 2000, a paper by the Singapore Statistics Department highlighted this anomaly, noting that it could be due in part to conscious efforts by the Government to moderate wage increases and maintain high returns to investment largely from multinational companies.

 

The GDP is split three ways: One share is paid out in wages, another to companies as profits, and lastly, to the Government as taxes.

 

In 1980, the wage share was a low 38 per cent, climbing to a peak of 48 per cent in 1985, due to high wage policies during that high-growth period.

 

But recession hit in the mid-1980s, and the high wage policies were seen as adding to the severity of the situation as they eroded the profitability of companies.

 

Since then, the wage share has moderated to an average of 43 per cent to ensure a competitive wage structure.

 

It is, however, not on a par with that in other countries with similar GDP rates.

 

In 2000, Singapore's wage share was 42 per cent, lower than the United States' (58 per cent), Japan's (57 per cent) and France's (52 per cent), according to the paper by the Statistics Department.

 

In contrast, Singapore's profit share was 48 per cent, higher than these countries', which were closer to 35 per cent.

 

In fact, countries such as South Korea, New Zealand and Spain have a higher wage share than Singapore even though they have lower per capita GDP.

 

'These observations suggest that Singapore has First World per capita income but a Third World cost or productive structure,' the paper stated.

 

But it is not necessarily bad, the paper went on to explain, adding: 'As the economy matures, and wages and per capita income increase, the tendency is for the remuneration share of GDP to rise.'

 

Yet, a decade later, the wage share has not risen much. At last count, it was 44.9 per cent in 2008.

 

In March last year, economist Linda Lim said Singapore's economic growth model has tried to 'do too much, and achieved too little' in delivering returns for Singaporeans, relative to foreign firms and foreigners.

 

She cited the low wage share (41 per cent in 2007) and high share of profits, interest and dividends (more than 50 per cent). Foreign share of domestic production and income has also increased.

 

Similarly, a survey by Swiss bank UBS on prices and earnings last year showed a sobering picture for Singapore workers.

 

On a list of 73 cities, Singapore is the 24th most expensive city - moving up eight spots from the previous survey in 2006. It is costlier than Chicago, Hong Kong and Sydney.

 

But when it comes to wage levels, Singapore slipped two notches to 40th position. It is just one rung above Moscow, which is way down the 'expensive cities' list at No. 56 - or 32 places below Singapore.

 

With prices rising more than wages, Singapore workers cannot afford to buy as much as people in many other cities.

 

Purchasing power in Singapore declined 10 spots to 50th place, behind cities like Bratislava in Slovakia, Johannesburg in South Africa and Kuala Lumpur in Malaysia.

 

While some observers question the accuracy of such comparative studies, one inescapable conclusion is that wage increases have not been on a par with economic growth.

 

What accounts for this phenomenon?

 

 

Worrying trends

 

IT GOES back to the issue of low wage share - for two main reasons.

 

One, the dominance of foreign multinationals, which are likely to repatriate a large proportion of their profit rather than distribute it back to workers as wages, Citigroup economist Kit Wei Zheng noted in a paper last November.

 

He pointed out that the Economic Survey of Singapore in the first quarter of 2004 made the same point.

 

'The success of Singapore's efforts to attract foreign investments meant that foreign investors also earned a larger proportion of the returns to capital in Singapore...Partly reflecting this, the growth in personal disposable incomes, from which households could finance their consumption, was lower than GDP growth in Singapore.'

 

Two, an increase in the number of lower-skilled jobs created over the last decade, many of which are filled by foreign workers who depress the wages of the bottom fifth of workers here, says labour economist Hui Weng Tat from the Lee Kuan Yew School of Public Policy.

 

Both trends are worrying.

 

As Mr Bhaskaran puts it: 'It is certainly a cause for concern since the point of economic growth is to improve the welfare of the people.

 

'So if the rise in GDP is increasingly going to companies rather than individuals and most of the profits go to foreign companies, the welfare improvement from economic growth in Singapore is not as great as it might have been.'

 

Yet, some labour economists such as Professor Hoon Hian Teck have a different outlook.

 

'It would be misleading to suggest that because Singapore's wage share is low, its workers' wages are stagnant despite economic growth,' says the Singapore Management University professor.

 

'Basically, the idea is that even if the wage share is comparatively small, workers as a whole can still benefit enormously from growth because the size of the national pie is growing strong.'

 

National University of Singapore economist Shandre Thangavelu also notes that wages here remain very competitive.

 

He cites international data which shows that the average hourly pay in Singapore was consistently higher in the past decade than that in Taiwan, South Korea, Hong Kong, and Asean and Latin American countries.

 

 

Widening wage gap

 

BUT whatever the difference in views, there is consensus on one issue: How the gains of growth are spread among the different groups of workers is critical.

 

In this regard, low-skilled workers tend to get the short end of the stick compared with their higher-skilled peers, as their wages have stagnated while salaries of the rest have improved over the years.

 

For instance, the median monthly wage of cleaners and labourers was $1,270 in 2008, lower than the $1,389 in 1998. They were the only group of workers whose wages did not progress, according to the Manpower Ministry's report on wages last year.

 

The result is a widening wage gap between occupations at the top (managers) and bottom (cleaners and labourers). Those at the top earned four times more than those at the bottom in 1998; this grew to 5.12 times in 2008.

 

This means the low-skilled workers 'have a less than equal share in the fruits of rapid economic growth', notes Associate Professor Hui.

 

Associate Professor Shandre adds: 'Income distribution is a key concern and this might be driven by economic shocks as skilled workers are better equipped to ride the business cycles as compared to the unskilled.

 

'As industries restructure to higher value-added activities after each business cycle, the demand and wages for skilled workers increase.

 

'It is likely that we will see some vulnerable groups that might not be able to keep up with structural changes in the economy, and thus we need more social welfare to help them.'

 

Other developed countries have also not been spared the spectre of a growing income gap, with wages rising rapidly for the top 10 per cent - especially the top 1 per cent - at a much faster pace than for the rest.

 

Part of the explanation again leads back to how the profit share of GDP has risen at the expense of wages, as some top earners such as business owners also reap a bigger proportion of profits.

 

According to the Bank for International Settlements, wages as a share of national income in the Group of 10 countries - the US, Japan, Germany, the United Kingdom, France, Italy, Canada, the Netherlands, Belgium, Sweden and Switzerland - declined from 63 per cent in 1980 to less than 59 per cent in 2006.

 

In the meantime, the profit share of GDP in these countries increased from around 11 per cent to more than 15 per cent in the same period.

 

This shift is due in part to the massive surge of workers from developing countries such as China and India into the global market, which has weakened the bargaining position of workers in the advanced economies.

 

Does the solution for more even growth distribution lie in increasing the wage share of GDP, to tilt the balance in favour of all workers, including the low-income earners?

[Without_a_car]

FT policy may have helped widen income gap: panel - Yahoo! News Singapore

Yahoo! Newsroom

[Kungming]

Too lengthy to read but nice avatar bro~

[Without_a_car]

Too lengthy to read but nice avatar bro~

 

Thanks...

[SimonTan]

So what? I am not worried about my salary or lost decades.

My HDB appreciated chow chow 50% over the last 5 years.

I feel rich and anytime I can sell it off to have cold hard $500,000 in my bank. I am half-millionaire leh.

 

 

[KARTer]

Thanks for sharing the information. Any chance for a summary in say point form?

[Without_a_car]

In 1973,

 

a 4 room flat (92 sq m) is $15.5K

a plate of chicken rice is 70 cents.

a fresh poly grad pay is $400 pm

a fresh univeristy graduate pay $800 pm

a minister pay is 3-4k pm, about 40K per year.

 

In 2012

 

same flat is $300K. (19x)

chicken rice $3.00 (4x)

salary of fresh poly grad $1.4 to $1.8K pm (4.5x)

salary of fresh university graduate $2800-$3600 (4.5X)

minister pay say $1 m per year (25x)

 

Rightfully minister pay should be no more than $200,000 per year ($40,000 x 4.5)

 

adjusted for inflation... workers starting pay remain constant... so this 40 years only ministers' productivity went up?

Edited May 2, 2012 by Without_a_car

[Ladykillerz]

So what? majority votes speak.

[KARTer]

So what? I am not worried about my salary or lost decades.

My HDB appreciated chow chow 50% over the last 5 years.

I feel rich and anytime I can sell it off to have cold hard $500,000 in my bank. I am half-millionaire leh.

You know how long can the money last for a family of 4 or 5, right?

[KARTer]

In 1973,

 

a 4 room flat (92 sq m) is $15.5K

a plate of chicken rice is 70 cents.

a fresh poly grad pay is $400 pm

a fresh univeristy graduate pay $800 pm

a minister pay is 3-4k pm, about 40K per year.

 

In 2012

 

same flat is $300K. (19x)

chicken rice $3.00 (4x)

salary of fresh poly grad $1.4 to $1.8K pm (4.5x)

salary of fresh university graduate $2800-$3600 (4.5X)

minister pay say $1 m per year (25x)

 

Rightfully minister pay should be no more than $200,000 per year ($40,000 x 4.5)

 

adjusted for inflation... workers starting pay remain constant... so this 40 years only ministers' productivity went up?

It does seem there exist two worlds on this tiny island.

 

[Without_a_car]

adjusted for inflation... workers wages have been stagnant for very long...

[Freestylers09]

In 1973,

 

a 4 room flat (92 sq m) is $15.5K

a plate of chicken rice is 70 cents.

a fresh poly grad pay is $400 pm

a fresh univeristy graduate pay $800 pm

a minister pay is 3-4k pm, about 40K per year.

 

u got a diploma and uni in 70s u very big shot liao

 

average workers that time still leverage the housing same or more than now

 

In 2012

 

same flat is $300K. (19x)

chicken rice $3.00 (4x)

salary of fresh poly grad $1.4 to $1.8K pm (4.5x)

salary of fresh university graduate $2800-$3600 (4.5X)

minister pay say $1 m per year (25x)

 

given food cost and salary, i buy more X of food now..

 

Rightfully minister pay should be no more than $200,000 per year ($40,000 x 4.5)

 

Minister pay ya,up too much

 

adjusted for inflation... workers starting pay remain constant... so this 40 years only ministers' productivity went up?

Edited May 2, 2012 by Freestylers09

[Without_a_car]

So what? I am not worried about my salary or lost decades.

My HDB appreciated chow chow 50% over the last 5 years.

I feel rich and anytime I can sell it off to have cold hard $500,000 in my bank. I am half-millionaire leh.

 

 

as of current HDB/CPF rule, 50% of the profits, $250,000 you earned from the sale will have to be locked in CPF...

the next HDB loan will be less 50% of the $250,000 you have in hand, less $125,000 if you should decide to buy a new flat from HDB...

 

[Kungming]

So what? I am not worried about my salary or lost decades.

My HDB appreciated chow chow 50% over the last 5 years.

I feel rich and anytime I can sell it off to have cold hard $500,000 in my bank. I am half-millionaire leh.

 

Errm bro, then where u gonna stay? At the Istana?

 

[Without_a_car]

@freestylers09

 

hawkers are the ones truly subsiding Singaporeans...

[Without_a_car]

pre 2003 HDB down payment 20%

Now down payment 10%.

For all you know next time HDB down payment 5%.

 

1970s mortgage 15 years, single income to service

1980s mortgage 20 years, single income

1990s mortgage 30 years, single income

2000s mortgage 30 years, dual income

2010s mortgage 35 years, dual income

2020s mortgage , next generation can inherit the mortgage