Essay Writing (Draft 3)

Solving the problem of income inequality by the Singapore government

Done by: Toh Jun Hao Alvin (A0113636L)

The last few decades have seen the rapid expansion in the trading of goods and services. Free trade areas have formed and trading between countries has increased dramatically. In fact, the total ratio of foreign trade to GDP has risen from 25 percent in 1960 to 52 percent in 1999 (Asia-Pacific Review, 2002). One good example of a country which has reaped the benefits of globalization is Singapore. She has been transformed from an undeveloped country in the past into a leader in global commerce today. No doubt globalization has brought many benefits to the world but with benefits also come costs. The expansion in global trading has led to the worsening of income inequality in Singapore. According to Goldin (2009) in his TED talk, globalization has resulted in a number of problems and one of them is income inequality. This is further supported by Singapore’s Gini index rating, a measure of income inequality, which has risen to a value of 0.478 in 2012, up from 0.454 a decade ago (Sun, 2013).

By embracing trading, companies in Singapore are able to displace domestic production and employment to cheaper labor markets like China and India. This has pushed down the demand for unskilled labor in Singapore. This coupled with the inflow of foreign labor has further forced down the average lower end wages. In fact, real median income of employed Singaporean in the bottom 20 percent has found to have fallen by 8 percent from 1998 to 2010 (Benner, 2013). On the other hand, rapid technological improvements due to globalization have led to an increase in the demand for skilled workers resulting in high end wages to rise. These two end results have led to the widening of income inequality in Singapore. While the Singapore government has acknowledged the problem and has since implemented several measures to tackle the issue of income inequality, more needs to be done.

Firstly, the Ministry of Manpower has implemented changes by reducing foreign workers quotas and hiking levies (Toh, 2013). By doing so, it has reduced the supply of low skilled worker in Singapore, allowing for the rise in real income for this group of workers. Furthermore, the government has partnered with multinational corporations (MNCs) to train lower skilled Singaporean workers to take up higher post (Tan, 2013). Government schemes like the workfare training support also provide a platform for unskilled workers to learn new skills. Doing so will raise the productivity of the workers and thus increase the demand for them.

In addition, Singapore uses a progressive tax system which taxes more on the rich as their income increases. The government also provides subsidies and other help to the poor through schemes like the GST Voucher Scheme and Workfare Income Supplement (Chan, 2013). These helps to redistribute income from the upper income group to the lower end, thus narrowing the gap between the top and the bottom earners.

Lastly, the Singapore government has made an effort to encourage companies to increase the salaries of middle to lower income employees. During the finalized Budget 2013, the government came up with the Wage Credit Scheme (WCS) in order to encourage companies to increase the wages of employees. They promised to co-fund 40% of the wage increment up to $4000 (Yahya, 2013). This would help to increase income at the lower end, therefore narrowing income inequality.

On top of these actual measures, I feel that the government could actually implement a minimum wage law. Currently, Singapore is the only country among the developed Asian economies that does not have a minimum wage law (Ngerng, 2013). I believe that this law would be truly beneficial in itself. For instance, it would help to close the income inequality gap in Singapore and also prevent exploitation by employers who tend to pay employees far below the market price.  

To sum up, income inequality in Singapore has been worsened by globalization. The fall in demand for unskilled workers locally due to the shifting of production base has led to the drop in their real income. This has caused the widening of income gap as the poor get poorer and the rich get richer. As such, the Singapore government has come up with a number of measures in a bid to try to alleviate the problem. Nevertheless, more could be done to help tackle the problem. Overall, I feel that the problem of income inequality will continue to persist as the world gets more inter-connected. There is no way to achieve perfect equality unless we practise communism. The only thing we can do is to try to reduce the gap and the best method to this is to encourage low skilled workers to upgrade themselves. By doing so, it will move the lower income group higher up the chain, thereby closing the income gap with the upper class.

References:

Asia-Pacific Review(2002, May). Globalization and the Growth in Free Trade Agreements. Retrieved from http://www.wright.edu/~tdung/Globalization_and_FTA.pdf

Benner, T. (2013, November 9). Singapore Poverty in the spotlight. Retrieved from http://www.aljazeera.com/indepth/features/2013/11/singapore-poverty-spotlight-20131178362669442.html

Chan, R. (2012, November 6). Tackling income inequality. The Straits Times online.
Retrieved from http://www.singapolitics.sg/fast-facts/tackling-income-inequality

Ngerng, R. (2013, February 21). Singapore Has the Highest Income Inequality Compared to the OECD Countries.
Retrieved from http://thehearttruths.com/2013/02/21/singapore-has-the-highest-income-inequality-compared-to-the-oecd-countries/

Sun, X (2013, August 6). Towards a City-state of Happiness. Today Online. Retrieved from http://www.todayonline.com/voices/towards-city-state-happiness

Tan, J. (2013, February 1). How Govt Could Tackle Singapore’s Income Gap Problem: Panel. Yahoo Online.

Retrieved from http://sg.news.yahoo.com/how-govt-could-tackle-singapore%E2%80%99s-income-gap-problem--panel-095938746.html

Toh, Y.C. (2013, February 25). Budget 2013: Foreign worker levies to go up, quotas for services and marine sectors cut. The Straits Times online. Retrieved from http://www.straitstimes.com/breaking-news/singapore/story/budget-2013-foreign-worker-levies-go-quotas-services-and-marine-sector

Yahya, Y. (2013, February 25). Budget 2013: $3.6 billion wage credit scheme, more productivity incentives for smaller businesses. The Straits Times online. Retrieved from http://www.straitstimes.com/breaking-news/singapore/story/budget-2013-36-billion-wage-credit-scheme-more-productivity-incentives