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.
Showing posts with label income. Show all posts
Showing posts with label income. Show all posts
Monday, 24 January 2011
Monday, 19 February 2007
Revisiting the Questions for Written Answers: 12 February 2007
In an earlier post, I set out my Questions for Written Answers filed for 12 February 2007. This post explains why I filed them, and my thoughts about the results.
The first WPQ was about the median and mean monthly household per capita income figures from 2001 to 2005 (the Minister kindly provided the figures for 2001 to 2006), for all resident households in Singapore and also for each quintile (20% divisions) of resident households broken down by income.
There were 3 tables in the answer. Unfortunately, I simply can't get the tables to display properly on this blog. So I'll simply state the relevant figures. If anyone wants to have the tables themselves, drop me an e-mail and I will send the complete answers to you.
I've always been curious about these figures, because up to 12 February 2007, the Department of Statistics had only ever published mean figures for household incomes, without a per capita breakdown. In the lead-up to the Budget, there was some talk about help for the "sandwiched class", and one of the criteria mentioned by commentators (including myself) for assessing eligibility was household per capita income. I for one saw this as a useful metric, because it indirectly measured the number of dependents (and hence the costs that a given income must bear) as well, which a flat household income figure does not.
But there was just a lot of guesswork involved here, because of the lack of official figures. So I filed the question, to get them out once and for all.
The numbers published raised a couple of interesting facts. Firstly, the gap between the mean household per capita income for the 61st-80th and 81st-100th quintiles was substantial -- the figure for the 61st-80th quintile was 42.92% in 2001, steadily dipping to 40.28% by 2006. Secondly, while the mean and median figures for the bottom 4 quintiles were relatively close, the median for the top quintile in 2006 was $3,940, compared to a mean of $5,090. In percentage terms, the median was 79.81% of the mean in 2001, dropping to 77.41% by 2006.
Taken together, these two facts suggest that there is a relatively broad and flat middle class in Singapore going all the way up to around the 80th percentile (or maybe even higher). But after that, the income seems to spike significantly after the 90th percentile. In fact, within the top quintile, there seems to be a widening income gap as well.
And that is backed by the DOS occasional paper released on the same day. In table 5 at page 6 of the occasional paper, the DOS breaks down per capita household income by decile (10% divisions). In 2006, the 81st-90th decile had a mean per capita household income of $3,120, compared to $6,880 for the 91st-100th decile.
Let me repeat this in a different way: the mean for the 81st-90th decile was 45.35% (less than half!) of the mean for the 91st-100th decile. The corresponding percentage for 1997 was 49.24%. So not only is there a widening income gap between the rich and the poor, the rich are also getting increasingly richer than the well-off and the upper-middle class.
That's one headline that the newspapers certainly didn't see fit to publish.
And since I'm on the DOS paper, another headline that you didn't see in the media was that not only are the rich getting richer faster than everybody else, they also seem to be experiencing slower price increases than the rest of the population.
If you look at Tables A1 and A2 at pages 10 and 11 of the DOS paper, you will see that the real income figures for the top quintile for 2006 were higher than the nominal figures, suggesting that their purchasing power had actually increased since 2000 (since the real figures were based on 2000 dollars). This should be contrasted with everyone else in 2006, whose nominal figures were higher than the real figures. This difference arose because the DOS does compile different CPIs for the lowest 20%, middle 60% and top 20% of households, and these different CPI figures were used to calculate the real income figures in these tables.
The DOS' Monthly Digest of Statistics for January 2007 is consistent with this conclusion, at least with respect to 2005 and 2006. Using 2004 as the baseline year, by June 2006, prices for the top 20% had risen only 0.2% since 2004, versus 2.5% for the bottom 20% and 1.3% for the middle 60%. That would explain why the complaints about the rising costs of living have appeared to come predominantly from the lower-income.
The second WPQ was about the mean and median monthly amounts of CPF funds used for mortgage payments. I filed this question because I was concerned about people using the increased CPF contributions they were going to get for mortgage payments, on the theory that people may maximise the use of CPF contributions for mortgage payments so as to increase the amount of cash available. If the Government then reduces the CPF contribution rate in a downturn a few years down the road, they would then be caught out.
The answer was that, as at the end of December 2006, 690,067 CPF members were making mortgage payments using CPF contributions, with the mean and median monthly payments being $662 and $500 respectively.
In retrospect, I probably constructed the question erroneously, because it did not tie in the amounts contributed by persons to CPF. But extrapolating from the DOS occasional paper on household income trends, a household at the 40th percentile would have two income earners making a total of around $3,800 per month (based on a mean per capita household income of $1,000 and a household size of 3.8). (I selected the 40th percentile on the rough assumption that the top quintile would be living in private property, hence the 40th percentile represents the approximate median of the HDB-buying population.)
Their CPF contributions to the Ordinary Account (which is what can be used for housing) would be around $836 if the income earner(s) are below 35, and $760 if they are below 35-45 (and lower for older workers). But the mean and median figures of $662 and $500 are for individual CPF members, whereas the figures of $836 and $760 are for two income earners combined.
This does suggest that people are in fact maxing out the use of their CPF contributions to pay for mortgages. That is worrisome, because the Government has shown a historical willingness to use CPF contribution rates as a counter-cyclical economical tool. So in a downturn, precisely at the time when people (and really, the economy) needs their cash the most, many could well be forced to use their cash to service their mortgages because of a shortfall in CPF.
The first WPQ was about the median and mean monthly household per capita income figures from 2001 to 2005 (the Minister kindly provided the figures for 2001 to 2006), for all resident households in Singapore and also for each quintile (20% divisions) of resident households broken down by income.
There were 3 tables in the answer. Unfortunately, I simply can't get the tables to display properly on this blog. So I'll simply state the relevant figures. If anyone wants to have the tables themselves, drop me an e-mail and I will send the complete answers to you.
I've always been curious about these figures, because up to 12 February 2007, the Department of Statistics had only ever published mean figures for household incomes, without a per capita breakdown. In the lead-up to the Budget, there was some talk about help for the "sandwiched class", and one of the criteria mentioned by commentators (including myself) for assessing eligibility was household per capita income. I for one saw this as a useful metric, because it indirectly measured the number of dependents (and hence the costs that a given income must bear) as well, which a flat household income figure does not.
But there was just a lot of guesswork involved here, because of the lack of official figures. So I filed the question, to get them out once and for all.
The numbers published raised a couple of interesting facts. Firstly, the gap between the mean household per capita income for the 61st-80th and 81st-100th quintiles was substantial -- the figure for the 61st-80th quintile was 42.92% in 2001, steadily dipping to 40.28% by 2006. Secondly, while the mean and median figures for the bottom 4 quintiles were relatively close, the median for the top quintile in 2006 was $3,940, compared to a mean of $5,090. In percentage terms, the median was 79.81% of the mean in 2001, dropping to 77.41% by 2006.
Taken together, these two facts suggest that there is a relatively broad and flat middle class in Singapore going all the way up to around the 80th percentile (or maybe even higher). But after that, the income seems to spike significantly after the 90th percentile. In fact, within the top quintile, there seems to be a widening income gap as well.
And that is backed by the DOS occasional paper released on the same day. In table 5 at page 6 of the occasional paper, the DOS breaks down per capita household income by decile (10% divisions). In 2006, the 81st-90th decile had a mean per capita household income of $3,120, compared to $6,880 for the 91st-100th decile.
Let me repeat this in a different way: the mean for the 81st-90th decile was 45.35% (less than half!) of the mean for the 91st-100th decile. The corresponding percentage for 1997 was 49.24%. So not only is there a widening income gap between the rich and the poor, the rich are also getting increasingly richer than the well-off and the upper-middle class.
That's one headline that the newspapers certainly didn't see fit to publish.
And since I'm on the DOS paper, another headline that you didn't see in the media was that not only are the rich getting richer faster than everybody else, they also seem to be experiencing slower price increases than the rest of the population.
If you look at Tables A1 and A2 at pages 10 and 11 of the DOS paper, you will see that the real income figures for the top quintile for 2006 were higher than the nominal figures, suggesting that their purchasing power had actually increased since 2000 (since the real figures were based on 2000 dollars). This should be contrasted with everyone else in 2006, whose nominal figures were higher than the real figures. This difference arose because the DOS does compile different CPIs for the lowest 20%, middle 60% and top 20% of households, and these different CPI figures were used to calculate the real income figures in these tables.
The DOS' Monthly Digest of Statistics for January 2007 is consistent with this conclusion, at least with respect to 2005 and 2006. Using 2004 as the baseline year, by June 2006, prices for the top 20% had risen only 0.2% since 2004, versus 2.5% for the bottom 20% and 1.3% for the middle 60%. That would explain why the complaints about the rising costs of living have appeared to come predominantly from the lower-income.
The second WPQ was about the mean and median monthly amounts of CPF funds used for mortgage payments. I filed this question because I was concerned about people using the increased CPF contributions they were going to get for mortgage payments, on the theory that people may maximise the use of CPF contributions for mortgage payments so as to increase the amount of cash available. If the Government then reduces the CPF contribution rate in a downturn a few years down the road, they would then be caught out.
The answer was that, as at the end of December 2006, 690,067 CPF members were making mortgage payments using CPF contributions, with the mean and median monthly payments being $662 and $500 respectively.
In retrospect, I probably constructed the question erroneously, because it did not tie in the amounts contributed by persons to CPF. But extrapolating from the DOS occasional paper on household income trends, a household at the 40th percentile would have two income earners making a total of around $3,800 per month (based on a mean per capita household income of $1,000 and a household size of 3.8). (I selected the 40th percentile on the rough assumption that the top quintile would be living in private property, hence the 40th percentile represents the approximate median of the HDB-buying population.)
Their CPF contributions to the Ordinary Account (which is what can be used for housing) would be around $836 if the income earner(s) are below 35, and $760 if they are below 35-45 (and lower for older workers). But the mean and median figures of $662 and $500 are for individual CPF members, whereas the figures of $836 and $760 are for two income earners combined.
This does suggest that people are in fact maxing out the use of their CPF contributions to pay for mortgages. That is worrisome, because the Government has shown a historical willingness to use CPF contribution rates as a counter-cyclical economical tool. So in a downturn, precisely at the time when people (and really, the economy) needs their cash the most, many could well be forced to use their cash to service their mortgages because of a shortfall in CPF.
Wednesday, 14 February 2007
Questions for Written Answers: 12 February 2007
There are a few parts to a Parliamentary sitting. The first part, and to me the most interesting, is Question Time. This is where Ministers answer questions filed by MPs. It takes place in the first 1.5 hours of a normal Parliamentary sitting (I understand that may be different for Budget sittings), i.e. from 1.30pm to 3.00pm.
MPs can file 2 types of Parliamentary Questions (PQs), either an OPQ (Question for Oral Answer) or WPQ (Question for Written Answer). Each MP is limited to 5 PQs, of which up to 3 may be OPQs. An OPQ is for the Minister to reply to in Parliament itself, and MPs can follow-up with supplemental questions. A WPQ is a question that the Minister will provide a written answer to, and hence by definition does not permit supplemental questions to be asked. So WPQs are normally used to elicit information.
I had filed 3 OPQs and 2 WPQs for yesterday's sitting (on 12 February 2007). There was not enough time to get to my OPQs, but I expect 2 of them to be answered on Thursday (14 February 2007). The 3rd is quite a bit further back in the queue and almost certainly will not be dealt with on Thursday. I did get answers to my 2 WPQs.
I will post OPQs and their answers as and when the official Parliamentary report for a sitting is out. I will also try and post newspaper coverage on those OPQs.
Anyway, my 2 WPQs are below. I am still collecting my thoughts on the responses and will post those thoughts (together with my reasons for posing these WPQs) another time, maybe tomorrow.
First WPQ
Mr Siew Kum Hong: To ask the Minister for Trade and Industry, for each year from 2001 to 2005, what were the median and mean monthly household per capita income for (i) all resident households in Singapore; and (ii) each quintile of resident households broken down by income.
Mr Lim Hng Kiang:
1. The mean and median monthly income from work per household member among resident households up to 2006 is shown in Table 1 below. Income from other sources is only available once in five years from the Household Expenditure Survey. Income data for employed households is used, instead of for all households, in order to isolate the effects caused by changes in the proportion of retiree households.
Table 1: Mean and Median Monthly Income from Work Per Household Member Among Employed Households
[table omitted -- essentially, the mean and median for 2006 were $1,950 and $1,310 respectively]
The mean and median income from work per household member among employed households by quintile is shown in Tables 2 and 3. The lowest quintile group showed a slight drop in the mean income between 2001 and 2003 but recovered from 2004.
Table 2: Mean Monthly Income from Work Per Household Member Among Employed Households by Quintile
[table omitted -- essentially, in 2006, the figures for 2006 (by ascending quintle) were $420, $850, $1,320, $2,050 and $5,090 respectively]
Table 3: Median Monthly Income from Work Per Household Member Among Employed Households by Quintile
[table omitted -- essentially, in 2006, the figures for 2006 (by ascending quintle) were $430, $850, $1,310, $2,010 and $3,940 respectively]
[These are figures that, to the best of my knowledge, have never been published. Perhaps not coincidentally, on the same day, the Department of Statistics issued an occasional paper on income statistics titled "Key Household Income Trends, 2006" that made headline news today.]
Second WPQ
Mr Siew Kum Hong: To ask the Minister for Manpower what are the mean and median monthly amounts of CPF funds used for mortgage payments.
Dr Ng Eng Hen:
1. The mean and median monthly amounts of CPF funds used for mortgage payments[1] were $662 and $500 respectively, as at end December 2006.
[table omitted -- the table basically reproduced the above information, and added that there was a total of 690,067 members, presumably being members who were using CPF funds to make mortgage payments]
[1] Public Housing Scheme (PHS), Residential Properties Scheme (RPS) and Non-Residential Properties Scheme (NRPS)
MPs can file 2 types of Parliamentary Questions (PQs), either an OPQ (Question for Oral Answer) or WPQ (Question for Written Answer). Each MP is limited to 5 PQs, of which up to 3 may be OPQs. An OPQ is for the Minister to reply to in Parliament itself, and MPs can follow-up with supplemental questions. A WPQ is a question that the Minister will provide a written answer to, and hence by definition does not permit supplemental questions to be asked. So WPQs are normally used to elicit information.
I had filed 3 OPQs and 2 WPQs for yesterday's sitting (on 12 February 2007). There was not enough time to get to my OPQs, but I expect 2 of them to be answered on Thursday (14 February 2007). The 3rd is quite a bit further back in the queue and almost certainly will not be dealt with on Thursday. I did get answers to my 2 WPQs.
I will post OPQs and their answers as and when the official Parliamentary report for a sitting is out. I will also try and post newspaper coverage on those OPQs.
Anyway, my 2 WPQs are below. I am still collecting my thoughts on the responses and will post those thoughts (together with my reasons for posing these WPQs) another time, maybe tomorrow.
First WPQ
Mr Siew Kum Hong: To ask the Minister for Trade and Industry, for each year from 2001 to 2005, what were the median and mean monthly household per capita income for (i) all resident households in Singapore; and (ii) each quintile of resident households broken down by income.
Mr Lim Hng Kiang:
1. The mean and median monthly income from work per household member among resident households up to 2006 is shown in Table 1 below. Income from other sources is only available once in five years from the Household Expenditure Survey. Income data for employed households is used, instead of for all households, in order to isolate the effects caused by changes in the proportion of retiree households.
Table 1: Mean and Median Monthly Income from Work Per Household Member Among Employed Households
[table omitted -- essentially, the mean and median for 2006 were $1,950 and $1,310 respectively]
The mean and median income from work per household member among employed households by quintile is shown in Tables 2 and 3. The lowest quintile group showed a slight drop in the mean income between 2001 and 2003 but recovered from 2004.
Table 2: Mean Monthly Income from Work Per Household Member Among Employed Households by Quintile
[table omitted -- essentially, in 2006, the figures for 2006 (by ascending quintle) were $420, $850, $1,320, $2,050 and $5,090 respectively]
Table 3: Median Monthly Income from Work Per Household Member Among Employed Households by Quintile
[table omitted -- essentially, in 2006, the figures for 2006 (by ascending quintle) were $430, $850, $1,310, $2,010 and $3,940 respectively]
[These are figures that, to the best of my knowledge, have never been published. Perhaps not coincidentally, on the same day, the Department of Statistics issued an occasional paper on income statistics titled "Key Household Income Trends, 2006" that made headline news today.]
Second WPQ
Mr Siew Kum Hong: To ask the Minister for Manpower what are the mean and median monthly amounts of CPF funds used for mortgage payments.
Dr Ng Eng Hen:
1. The mean and median monthly amounts of CPF funds used for mortgage payments[1] were $662 and $500 respectively, as at end December 2006.
[table omitted -- the table basically reproduced the above information, and added that there was a total of 690,067 members, presumably being members who were using CPF funds to make mortgage payments]
[1] Public Housing Scheme (PHS), Residential Properties Scheme (RPS) and Non-Residential Properties Scheme (NRPS)
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