How raising wages could help raise productivity

While it is regrettable that the NWC didn’t have enough sense to raise the wage increment threshold from $1,000 to $1,200 after two years, I’m actually more surprised by another statement made in the NWC statement.

The NWC’s recommendation was that “real wage increases should be in line with productivity growth over the long term”. Sounds sensible (because it is), but wait a second and think about that formula.

Yes formula.

The formula for labour productivity is essentially the value of the output of the worker divided by the value of the input of the worker. The G likes to reduce all this to dollars, and not just dollars, monetised dollars, basically what a company sells. So based on the recommended G formula from the “Way to Go” website (Singapore’s modern productivity drive post-Teamy the Bee), it doesn’t matter if a worker produces, say, 1,000,000 units of Item A. If the company doesn’t sell any of it, then labour productivity is considered low.

Poor worker. Slaved his ass off and can’t get a raise because his company basically sucked.

SPRING has a more generic calculation, but that’s for internal audits – we’re interested in the overarching G definition of “productivity”, which the NWC is using, and that is money.

I don’t believe that every company leeches profits in order to torture workers. Some do, but others don’t. Even so, when companies/NWC say that they can’t increase real wages because productivity hasn’t increased, what they’re saying is (assuming the worker isn’t a lazy douchebag):

a) we can’t convince our customers or clients to pay more, so I can’t pay my workers more (which is what is happening with the security industry after decades of cheap-sourcing).

b) I can’t get my damn act together and sell the goods and services that you produce for the company profitably, so I can’t give you a raise.

c) Singapore’s companies are so lousy at putting the factors of production together efficiently, so I guess all you workers will have to suffer for it. Sorry.

It seems to me that one way to raise productivity is to raise wages! If unions can play hardball and push wages up, then the cost of goods and services, especially in the local context, will be forced to rise (international trade is another different problem, which is why Singapore tries to stay away from international competition in low value-added goods and services).

For example, raising cleaners’ wages, as NTUC has managed to do (by basically negotiating properly and getting the G to play along), will mean that the buck is now passed to cleaning companies. Those cleaning companies worth their salt will survive by passing on the cost to customers (maybe even add a little more fat into the billing if their product/service is sufficiently differentiated). VOILA! Productivity! (also because we assume that although labour productivity may stagnate, capital productivity will actually rise).

The downside is that the workers with the higher wages do pay for SOME (not all) of the cost that is passed down to the customers, because sometimes they are the customer (HDB S&CC charges for example). The rest of it is paid for by other companies (boo hoo, higher cost of doing business), the G, or by the rest of us who didn’t get a raise (boo hoo, inflation). But three cheers all around (for SG) if we can sell some value-added, innovative, unique, differentiated product globally and make other economies pay for it (SG needs entrepreneurs)! Okay, I’m getting into the international economics thing I didn’t want to get into now… back to local.

Sure, some companies will die along the way, but as long as the economy/market doesn’t actually shrink during that time, the displaced workers will find new employment at this higher wage level elsewhere (at a more productive company that has managed to convince clients to pay more).

Now I’m waiting for the economists to come and try to point out all the exceptions to my suggestion and why it won’t work (in theory).

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