Ouline

How can the Singapore government solve the problem of income inequality in Singapore?

Background information

The last few decades have seen the rapid expansion in the trading of goods and services. Free trade areas were formed and trading between countries has increased dramatically. Taking Singapore as an example, globalization has transformed her 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 come costs. The expansion in global trading has led to the worsening of income inequality in Singapore. This was also covered by Goldin in his TED talk. According to him, rapid globalization has resulted in a number of problems and one of them is income inequality. This is further supported by the Singapore’s Gini index rating (a measure of income inequality) which has risen to a value of 0.478 in 2013, up from 0.454 a decade ago.

The link between globalization and income inequality

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. 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. The Singapore government has acknowledged the problem and has since implemented several measures to tackle the issue of income inequality.

Solutions- actual measures

Solution 1: Reducing foreign workers quotas and hiking levies.
Solution 2: Training of low skilled workers
Solution 3: Taxing and redistribution of income
Solution 4: Pay rise for middle/lower income group

Firstly, the Singapore government has implemented changes by reducing foreign workers quotas and hiking levies. By doing so, it will reduce the supply of low skilled worker in Singapore, allowing for the rise in real income for this group of workers. Furthermore, the government has partnership with multinational corporation (MNCs) to train lower skilled Singaporean workers to take up higher post. Government scheme like the workfare training support also provides a platform for unskilled worker to learn new skills. By doing so, it 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 increase. The government also provides subsidies and help to the poor through schemes like the GST Voucher scheme and Workfare Income Supplement. This 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 been encouraging companies to increase the salaries of middle to lower income employees. During 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 subsidy 40% of the wage increment up to $4000. This will help to increase income at the lower end and therefore narrowing income inequality.

Solution-possible measure

Solution 1: Minimum wage law

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. I believe that this law is truly beneficial in itself. For instance, it will 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.  

Conclusion

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 are practising 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 and thereby closing the income gap with the upper class.

References:

Jeanette Tan (Feb 1, 2013). How govt could tackle Singapore’s income gap problem: panel
Retrieved Feb 28, 2014, from http://sg.news.yahoo.com/how-govt-could-tackle-singapore%E2%80%99s-income-gap-problem--panel-095938746.html

Robin Chan (Nov 6, 2012). Tackling income inequality
Retrieved Feb 28, 2014, from http://www.singapolitics.sg/fast-facts/tackling-income-inequality

Roy Ngerng (Feb 21, 2013). Singapore Has The Highest Income Inequality Compared to the OECD Countries
Retrieved Feb 28, 2014 from http://thehearttruths.com/2013/02/21/singapore-has-the-highest-income-inequality-compared-to-the-oecd-countries/