The minimum wage is one of the popular ways meant to reduce the problem of having people receiving meager salaries in any country and this case Singapore. However, it should be admitted that it is not a complete solution, though it sets the labor standards. The benefit of the minimum wage is that the government can set a floor below which any stakeholder cannot risk going due to the huge penalties and fines for those found guilty (Bernstein, 2013). The low wage workers are faced with a problem of lacking a bargaining clout, and this is the reason comes in to help them by setting minimum wage laws. It becomes fundamental these days to have a critical evaluation of the policies set to ensure that they offset inequalities in income distribution and stagnation of the wages more so for individuals experiencing low budgets.
For most of the people, the debate is on inequality, and the constant real incomes and the whole problem is directed at the workers. It is often argued out that the workers lack the skills needed by employers and again business the wage they receive reflects the value they add on commodities produced (Bernstein, 2013) (Fisher, 2016). However, in countries like Singapore, the government does not dictate the minimum wage. Alternatively, the government prefers the demand and supply for labor to determine the wage.
As of today, close to 30000 people in Singapore earn less than 1000 dollars monthly in industries such as hospitality and logistics. The low wages in such industries is because the country depends on labor from other countries which is cheap. It is due to such factors that a minimum wage is required to ensure that the locals in Singapore earn a decent living. However, despite the advantages that come with minimum wage, there are some challenges with such a policy.
Minimum wage could cause some of the workers lose jobs more so the wage employees. The most objections against minimum wage in Singapore are that the policy would make many workers lose jobs hurting employees that benefit from low wages (Jeraldine Phneah, 2017). The current situation in Singapore characterized by unemployment a situation resulting from minimum wage is a dream far from reality. Presently, due to the quota for work permits being tightened, many firms are faced with the challenge of finding the locals to fill positions with the firms. In raising the wages, more Singaporeans could be attracted to fill positions with the firms.
Another likely outcome with a minimum wage is that it is likely to make Singapore lose her competitiveness. It is true that Singapore is not richly endowed with resources such as Scandinavia and Australia (Jeraldine Phneah, 2017). The country has no resources that it can rely on. The country has succeeded in surviving because of its competitive edge. With the minimum wage, the country will be eroding its edge in competition. In comparison to other nations such as China and India, the country will lose since China and India have a large number of workers that are willing to work at a lower wage.
Minimum wage tends to make the poor unproductive. Economists argue that with a minimum wage in Singapore, it would result in workers having less incentive to motivate them (Jeraldine Phneah, 2017) (Bernstein, 2013). The conclusion is true more so for the poor individuals as it is argued they remain poor because they failed to work hard. Scientific principle and convention dictate that the poor lack ability to make critical decisions on important aspects of their lives such as finances and academic life creating a mental Helthcare burden that inhibits their intelligent quotient. It also limits the ability of the poor in making long-term strategies on making future investments. It beats logic that if people cannot have finances to support their families, then they cannot be in a position to improve and upgrade their skills. For many years, Singapore has been relying on cheap labor from foreign nations that are often referred to as low skilled labor (Mankiw, Economics, 2014). It is for such reasons that Singapore has been reluctant on relying on automation and improving skills or technology in the work place. Raising wages for individuals who had low salaries helps boost the morale of employees who consider themselves being treated fairly.
Social security is a scheme that facilitates the flow of income in the old age when one retires. The retirement varies from country to country with some countries such as the US is 62 years. Social security is necessary in the case a worker becomes disabled since such persons are covered ensuring a stream of income. In nations such as the United States, social security was designed to help those who have no jobs ensuring that such individuals at least have something at the end of the month (Internations).In other developed nations, the social security has been strengthened such that the poor and the desperate can have some earnings at the end of the month raising the GDP of such nations (Koeing & Al Myles, 2013). A country like Singapore operates under Central Provident Fund a scheme that was established by the British during colonization.
The scheme one way of providing scheme provided pensions for the employees from industries and was later expanded by Kuan Yew (Koeing & Al Myles, 2013). Substantial evidence shows that the scheme could have more benefits to the working population from an investment perspective. It is true that the social security enabled many people in Singapore own houses a move that was almost impossible and for others, they invested in lucrative business opportunities.
One negative effect associated with social security is the fact for high-income earners benefit less in future when claiming their benefits (Franklin, 2015). Such an argument arises from the fact that there are taxes accompanied with such schemes. The higher the income, the less the benefit from social security due to high taxes as one's income increases. Though the government benefits as an agent of the taxes, the intended purpose of the tax incentive is not achieved (Rothstein, 2008).
On the other hand, there are spiraling effects of a social security scheme, for instance, it indirectly increases inflation in a country. With social security, people earn some income assuming it is a big number, and then it translates to having a lot of money chasing few goods in the economy. Whenever there is high demand for goods and services, then prices tend to increase. In the case it is a general increase in prices then the economy will experience inflation (Mankiw, Macroeconomics, 2014). Inflation reduces the standards of living as people purchase very few goods and services with the same amount of money that could have purchased many commodities before inflation.
However, social security has many outstanding benefits compared to the disadvantages. In the old age, people benefit from pensions enabling such old people to lead normal lives without depending on other people to help them.
The law of unintended consequences is full of many criticisms towards programs run by the government. The critics are for the fact that there are more costs to the programs making it difficult for the government to achieve the desired goals and objectives. Despite the fact that social security has helped alleviate poverty, for the many citizens. However, economists are for the fact that social security has many costs that extend beyond taxes levied on workers’ payroll and employers.
As for the Singapore economy, (Norton) social security will make workers save less presently for the future old age since they are sure they will receive monetary gains from social protection programs after retiring. It is from such discussions that it can be concluded that there will be fewer savings making investments on the other hand less. Such effects affect the economy in that will grow slowly, and also the wages tend to rise slower than if the social security was not present. Investments are a function of savings, if savings decline, then investments also falls. However, an increase in savings tends to grow investments leading to an increase in the marginal propensity to invest.
Tax credits were introduced to help families that earned low incomes by increasing their wages with the aim of making work have a pay and reduce poverty. However, tax credits also entail and involve families that are unemployed, yet they have children. (Fisher, 2016) There were debates across the country that was focusing on the effects of tax credits on eliminating poverty and improving incomes of the households. Tax credit programs have the effect of changing incentives linked to choices of lifestyle and behaviors in some ways that may have implications for the recipients and their dependents. In many studies more so Singapore, tax incentives have helped individuals get involved in active labor and are one of the ways of raising incomes for the poor households (Fisher, 2016). It as has been found and proven beyond reasonable doubts that tax incentives have more complications in people’s lives that was unintended.
High birth rates have been reported among the recipients of tax credits. In fact, it encourages people to have more children; in some countries such as the UK it encouraged poor individuals to breed. The case with Singapore would be more devastating leading to a population pressure in years to come. Tax credits in Singapore lower costs associated with additional children and further result in the demand for more children, other effects are working in the opposite direction. For instance, a woman who is engaged in formal employment following tax credits is likely to lose in terms earnings foregone following an additional child (Fisher, 2016). Though studies on effects of tax credits on whether they lead to increased birth rates it is clear that encourages people to have more children more so in Singapore.
Families that earned low incomes tend to become like middle-income families in their spending. Previous studies in other countries have revealed that tax credits have changed spending patterns of households following the introduction of tax credit schemes (Fisher, 2016). In Singapore following the fact it is a developed nation, low-income families with children would tend to increase their spending habits on children’s products, vegetables, and books something that is done by middle-income households. Also, it would be expected that low-income families would to cut their spending on items such as alcohol and cigarettes and as such behave like middle-income households (Rothstein, 2008). Such a change of behavior could be attributed to a decline of stress following an improvement of financial status.
Single mothers and children are cautioned from effects of a breakup. With the introduction of the tax credit in Singapore, there are enormous benefits for children that are raised by single parents (Koeing & Al Myles, 2013) thus boosting self-esteem and reduce the rate of school dropout. Cases of children dropping out of school are many among individual families due to the low self-esteem and also due to unhappiness experienced by the teens.
Socially, tax credits have the effect of influencing decision making in families. As such, it can be the case where women are the ones receiving tax credits leading to a conflict of interest in a family. When women receive tax credits over their male counterparts, then the spending habits will shift towards woman commodities and children stuff whereas men are left out in the budget allocation.
Bernstein, J. (2013, December 4)The Minimum Wage and the Laws of Economics. Retrieved August 3, 2017, from Economix Blog: https://www.economix.blogs.nytimes.com
Fisher, p. (2016, January). What are the hidden effects of tax credits. Retrieved August 3, 2017, from OUPblog: https://blog.oup.com
Franklin, M. (2015, March 3). Social security's negative returns. Retrieved August 16, 2017, from investmentnews: https://www.investmentnews.com
Internations. (n.d.). Social security in Singapore. Retrieved August 16, 2017, from Internations.org: https://www.internations.org
Jeraldine Phneah. (2017, January 16). The case for implementing a minimum wage in Singapore. Retrieved August 16, 2017, from jeraldinephneah: https://www.jeraldinephneah.com
Koeing, G., & Al Myles, M. (2013, September 5). Social security's impact on the National Economy. Retrieved August 16, 2017, from AARP: https://www.aarp.org
Mankiw, G. (2014). Economics. Cengage Learning EMEA.Management.
Mankiw, G. (2014). Macroeconomics. Cengage Learning.
Norton, R. (n.d.). Unintended Consequences. Retrieved August 16, 2017, from Library of Economics and Liberty: https://www.econlib.org
Rothstein, J. (2008, MAY 12). The unintended consequences of encouraging work.Tax incidence and the EITC. New Jersey, Princeton, United States of America.