The Credit of Wage Credits

The Wage Credit Scheme (WCS) is yet another wonderful, “uniquely Singaporean” economic invention that seems to serve so many purposes that we might as well say it is for the betterment of mankind.

It’s $3.6b in cold hard cash that ST has said will “help businesses raise workers’ wages”, that Josephine Teo claims is to “help businesses restructure”, that the IRAS website itself says is to “support productivity gain sharing between employers and employees”.

Looks like there’s already plenty of confusion about what the WCS, in which the Government funds 40 per cent of pay rises for those earning $4,000 a month or less, will achieve. I’m going to take a pessimistic point of view because, as someone who used to run a small business, I can imagine how the business people will view this windfall. We may need to pour some lukewarm water over it so that no one runs away with the idea that this will fix all of our woes – personal, business or national.

It won’t be a driver for raising workers’ wages. Think about it this way: if a bank offered you a 20-year loan package with 40 per cent off the interest payments for the first three years, would that really make you want to take a larger loan? No. It may tempt you to choose that bank over others, but it makes no difference to how big a loan you were going to take. Businesses will give exactly the wage increases they wanted to give before the WCS was announced. So, those of you earning below $4,000 a month, you might want to keep your expectations modest.

It doesn’t really help businesses restructure/become more productive, unless you think that randomly rewarding productivity by not rewarding productivity is a great idea. It’s not linked to productivity and reports have already surfaced in the media that analysts realise this. It’s like thinking that subsidising the cost of petrol will encourage drivers not to over-rev their engines and waste fuel. It will be more like, hey, thanks for helping me out with my petrol bill. Now I won’t tank up in Johor.

It won’t encourage additional productivity gain sharing between employers and employees. Employers who habitually short-change their employees on productivity gains will not be encouraged to pay them fairly. There’s nothing to be gained from giving larger-than-intended wage increments, since the subsidies will end in three years. There’s nothing to be lost, since employers are still bearing 60 per cent of the wage increase one way or another. A cheapo boss will always be a cheapo boss, until he receives an epiphanous vision from God showing him the error of his ways.

What is it? It is a cash rebate to companies with a single caveat – give wage increases to your lower-wage staff. Companies will have to pay for the wage increases out of pocket and only get their money back after a year, comparable in some ways to the Job Credit Scheme of 2009, which gave a rebate of 12% of the first $2,500 of every Singaporean worker’s wage in an attempt to save jobs and help companies survive the downturn. In comparison, the WCS is a weird kind of rebate (nobody seems to know what it’s supposed to do) that companies can use for whatever they please – innovation, bigger staff bonuses or a gaudy marble statue of the company founder for the reception area.

There’s no monitoring of use by the State and if businesses do fold after the credits are withdrawn after three years because they didn’t make an attempt to level up productivity to fit the wage bill, then they should simply have folded much earlier. Like now.

It’ll be a small shot in the arm to most businesses, especially labour-intensive ones, by providing a little extra cash to play with come 2014 (when the first batch of rebates gets credited), but except for extremely enlightened CEOs who will take the money and use it to ramp up productivity, it won’t do much to address our corporate productivity problems either.

Better to hope that the enhanced PIC will be more effective than its previous, under-used incarnation.

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