Higher S Pass salary alone won't help local workers: economists
Low productivity gains stand in way of higher salaries; firms may also opt to automate
Singapore
RAISING the minimum salary for S Pass holders is unlikely to benefit local workers, unless more action is taken, economists have told The Business Times.
Still, watchers welcomed the proposal as a necessary step to wean Singapore employers off lower-cost foreign labour, in the shift towards a higher-skilled economy.
That's as central bank managing director Ravi Menon on Wednesday proposed pegging the S Pass qualifying salary to the median monthly income of S$4,500.
The minimum salary for mid-skilled S Pass holders already rose to S$2,500 last October, while the qualifying salary for foreign workers on higher-tier Employment Passes (EPs) increased to S$4,500 in September. (see amendment note)
"Raising the S Pass minimum salary to the median income, with EP minimum salary raised in tandem, would force firms to reduce reliance on mid-skilled foreign workers, potentially reclaiming some jobs for locals," said Terence Ho, associate professor at the National University of Singapore (NUS) Lee Kuan Yew School of Public Policy.
Even so, the impact on firms would be "significant", he said, noting that the number of S Pass holders is over 170,000 (about 174,000) as at end-2020, nearly on par with that for EPs (177,100 according to data from Manpower Ministry).
To attract more locals into these S Pass roles, salaries and job conditions would have to improve in sectors such as manufacturing, added Mr Ho, who used to be manpower planning and policy director at the Ministry of Manpower.
Yet economists cited potential concerns about locals' skills and productivity as barriers to higher resident wages, even when S Pass holders exit the workforce.
Sumit Agarwal, professor of economics, finance and real estate at NUS, said mid-skilled foreign workers - such as managers - "can be substituted by locals and automation".
"Firms will choose either to adopt technology if they think Singaporeans are asking for a higher salary; or, if Singaporeans take a lower salary, they will say, 'Fine'."
Unlike the post-pandemic market in economies like the United States, where workers in labour-intensive sectors have been able to push for higher wages, Prof Agarwal believes that Singapore employers "may move towards technology and never go back", as staff here may not have upskilled enough yet to justify commanding higher pay.
Maybank Kim Eng senior economist Chua Hak Bin added that productivity gains in many services sectors, including healthcare, retail and education, tend to be low, with "little evidence" that the labour value-add can be improved by upping qualifying salaries.
"Raising S Pass qualifying salaries will increase wage costs for companies, which may not translate into proportionate productivity improvements," said Dr Chua.
Instead, the higher wage costs, while beneficial for some local workers, would be passed on to consumers, leading to higher prices and ultimately, inflation, he said.
A spokesperson from the Restaurant Association of Singapore said a near-doubling of the qualifying salary would raise food prices by 35 to 40 per cent for consumers, all else being equal.
Already, salaries in the food & beverage industry have risen 20 to 30 per cent in the past year due to "severe manpower shortage", he added.
This is why for firms to stay viable in the long term, salary increases must be made in tandem with the upgrading of skills and the ability of employees to take on higher-value roles, said Lam Yi Young, chief executive of the Singapore Business Federation.
"Raising the minimum qualifying salary for S Pass by itself is a blunt policy instrument, and if done in isolation, especially sharp increases, can adversely impact the viability of businesses and our competitiveness," said Mr Lam.
Rose Tong, executive director of the Singapore Retailers Association, echoed this concern despite the organisation's support of a "strong Singaporean core".
"Such a move will just exacerbate the very tight labour market for retail, food and beverage, logistics, and hospitality; result in a competition for workers; and artificially drive up salaries for local employees, which may not be commensurate with their experience and skill sets," she told BT. She flagged the risks of job losses from business closures, or higher goods costs that could make firms less competitive.
In fact, the proposed policy might shunt Singaporeans into a mid-tier slice of the workforce - leaving the real competition with foreigners at the top of the pyramid.
Tighter S Pass controls could lead to "wage compression for Singaporeans in relative terms", labour economist Walter Theseira, associate professor of economics at the Singapore University of Social Science, told BT. This would occur when Singaporeans are over-represented at the lower end of high-skilled jobs, "because policy will restrict employers to only hiring pass holders at the upper tier".
Since the median gross wage for associate professionals and technicians was close to S$4,000 in 2019, higher S Pass pay would align the pass with "the mid- to upper tier of mid-skill workers" in specialised roles, such as experienced craftsmen or lower-end professional, manager, executives and technicians (PMETs), said Prof Theseira.
But he added that there is a question mark over whether there are attractive prospects for mid-skilled locals to pursue skills and career development in these sectors.
As such, he called for such manpower policy tweaks to be "a way of encouraging the market to upgrade the returns and career paths available for mid-skill locals".
Meanwhile, noting that the share of PMETs among employed residents is close to 60 per cent, DBS senior economist Irvin Seah said this figure is set to rise further as locals gain better skills and become more highly educated.
"In terms of foreign manpower policy, the focus should be tightening the higher-skilled foreign manpower to ensure better quality foreign manpower going forward, rather than to tighten the lower-skilled ones," said Mr Seah.
He added that competition is intensifying between local workers and their foreign counterparts because of the increasing "substitution effect" between the two.
All the same, CIMB economist Song Seng Wun was more sanguine about the impact of a tighter labour market on resident workers.
"Singapore isn't the cheapest place to live and work or set up a business. But there is enough for businesses to still be able to make money, to be able to reward workers fairly. So that should be the case whether you are a degree holder or a diploma holder.
"It should be fair across the whole workforce - I think that is the point of this policy."
Amendment note: An earlier version of this article incorrectly stated that the minimum salaries for S Passes and Employment Passes were set to rise in 2021. The changes in fact happened in 2020.
