Monday, 24 January 2011

Beefing up Workfare

I believe that Singaporeans have a right to a decent standard of living -- but how we get there is an open question. I am ambivalent on the minimum wage, because of the possible or likely undesirable side-effects.

Workfare is not new and is not a PAP invention. Instead, it is based on the idea of a "negative income tax". But Workfare in its current form tweaks the idea, and channels what is in my view a disproportionate amount of money into CPF. Which then makes its purpose quite different from the objective of a minimum wage.

[note: this was first published in TODAY]

Beefing up Workfare

The economic principles underlying Workfare work but more has to be done for it to deliver help

by Siew Kum Hong
05:55 AM Jan 24, 2011

In the past few months, various eminent persons have weighed in on the debate over a minimum wage. Last week's Parliamentary debate saw Members of Parliament (MPs) endorsing the Workfare Income Supplement Scheme (WIS) as a superior option.

Yet, a number out there seem to remain unconvinced.

I believe it is misconceived to frame the issue as a choice between Workfare and a minimum wage. Workfare in its current incarnation pays employees about 29 per cent of each payment in cash, and the rest into their Central Provident Fund (CPF) accounts. For self-employed persons and informal workers, everything goes into Medisave.

The bulk of Workfare therefore seems to be primarily aimed at helping recipients save for retirement. Indeed, the CPF Board's website states: "… we should not downplay the importance of building up CPF savings as many low-wage workers have difficulties saving enough for their retirement. The WIS that is paid into CPF helps them do that."

Putting it in another way, Workfare today represents an investment by the Government today, to reduce its potential future financial burden of caring for the future elderly and ill. It may not be intended as such but that is the implication.

While it might be argued that the CPF component can be tapped for current housing loan repayments and hospital bills, only 29 per cent of Workfare goes directly towards mitigating today's difficulties in making ends meet. Self-employed and informal workers - arguably the ones who most need help - do not even get this cash component.

A minimum wage, on the other hand, directly addresses low-wage workers' present-day difficulties. It puts cash directly into their hands, to survive today to see tomorrow at a level deemed acceptable by society.

This is why I think it is incorrect to frame the debate as a choice between Workfare and a minimum wage. They ultimately solve different problems. This also explains the cognitive dissonance experienced by those who remain unconvinced after last week's Parliamentary debate.

I do not believe that Singaporeans support a minimum wage for its own sake. Instead, Singaporeans support the fundamental philosophy behind a minimum wage, which is the idea that everyone should be entitled to a decent living wage. That is to our collective credit, speaking as it does to a shared commitment to a caring, compassionate society.

According to Professor Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy, Government surveys found that a household of four needs about $1,700 per month for a decent standard of living. So the real question should be, what is the best way to get breadwinners to that number?

I am not a trained economist. But to my mind, it is not entirely clear that introducing a minimum wage today will inevitably lead to better overall results for society. A minimum wage will surely lead to some loss of jobs, and the precise number is unknowable. The status quo is not ideal, but introducing a minimum wage may not necessarily be better.

But that is not to say that we have no other options. The economic principles underlying Workfare, well, work. Radical adjustments to Workfare will be necessary, but we can use the same principles to improve low-wage workers' present-day lives.

We can help workers achieve the decent living wage that they deserve, without the costs of a minimum wage - albeit with different costs, which would presumably have to be borne up front by the Government.

There has been a lot of focus on improving the operational details of how Workfare is currently administered. But what we really need are fundamental changes to Workfare. I have three broad recommendations.

Firstly, the cash component must be significantly increased. Otherwise recipients will continue to struggle to meet their present-day needs, and the calls for a minimum wage will persist.

Secondly, the eligibility criteria must be relaxed. In particular, we have to make Workfare more meaningful, relevant and beneficial to those who need help the most, namely the casual workers.

Finally, and most importantly, the Government must spend dramatically more on Workfare. It currently spends about $400 million a year to benefit 400,000 workers, all of whom earn $1,700 per month or less.

That equates to an average of $1,000 per worker per year, or $83 per month. That would hardly seem near what is needed by Workfare recipients to reach the decent living wage mentioned by Professor Mahbubani.

To put it in perspective, $400 million is 0.8 per cent of the Government's estimated expenditure of $46.4 billion last year. We can definitely do better and do more towards ensuring that all Singaporeans benefit from economic growth.

In many ways, I am heartened by the strong support for a minimum wage, which shows that so many Singaporeans have their hearts in the right place.

I am also a little disappointed that while the supporters of Workfare agree that low-wage workers need help today, they fail to recognise that Workfare in its current form does little to deliver that help.

We need to fundamentally re-think the objectives of Workfare and re-engineer it accordingly - and we need to act soon, for the sake of those workers.

Siew Kum Hong is a corporate counsel and a former Nominated Member of Parliament.