Improving Wages of Singaporeans

Ms Foo Mee Har asked the Deputy Prime Minister and Minister for Manpower what can be done to ensure that workers share in the profits resulting from productivity improvements enjoyed by their employers, particularly in respect of the lifting of income levels of workers earning less than $1,500 per month.

Ms Denise Phua Lay Peng asked the Deputy Prime Minister and Minister for Manpower (a) whether his Ministry will consider implementing the "shock therapy" proposed by Professor Lim Chong Yah to revamp the wages of low-income Singaporeans; and (b) if so, what is the impact on the economy, productivity and on businesses especially the SMEs.

Ms Sylvia Lim asked the Deputy Prime Minister and Minister for Manpower (a) whether the Government is tailoring specific solutions for wage growth in industry sectors where wage increases lag productivity gains and, if so, how will this be undertaken; and (b) whether the Government is going to encourage wage growth to a living wage for Singaporeans in persistently low-wage occupations and, if so, how will this be achieved.

Mr Yee Jenn Jong asked the Deputy Prime Minister and Minister for Manpower in view of the recent inflation figures (a) whether the Government will adjust its target of a 30% rise in median wages in real terms over the next 10 years from 2010; (b) what will be the forecast for inflation rate over the 10-year period and the resulting target median wage in nominal terms; and (c) whether the Government will set a target for the amount of wage increase in real terms that will be achieved for the lowest 20% of income earners over a similar 10-year period.

The Minister of State for Manpower (BG [NS] Tan Chuan-Jin):

(for the Deputy Prime Minister and Minister for Manpower): Mr Speaker, Sir, if I may take the next four questions together?

Mr Speaker: Yes, please.

BG [NS] Tan Chuan-Jin: In my constituency, I meet a number of my residents regularly. A number of them fall under the low-income category. Some have wide-ranging and varied needs. Some are clearly struggling to make ends meet. Others manage. We step in to help in a wide range of ways. We tap on national schemes and, more importantly, we also find local solutions.

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As a Member of Parliament on the ground, I can see the impact, as many of you would, of the Government's effort in trying to uplift our low-wage workers and their families. Being in the Ministry, I am able to also see the efforts put in behind the scenes, particularly over the last five years. The creation of jobs and good jobs is probably the best thing, and the most important thing that the Government can do for the low-income families. It allows everyone to stand on their own two feet. They can take pride in providing for themselves and for their families. In this regard, we have introduced many initiatives to help businesses create better jobs with better wages, to subsidise workers' training so that we can upgrade them, provide them with better opportunities, and to supplement their wages with Workfare. Many of us have seen a number of our residents benefiting from these schemes and opportunities.

However, helping lower income workers and their families is not confined to jobs alone. We have enhanced our housing grants and subsidies to help lower income families own their own homes and this has enabled many of our residents to either own their own flats or to be able to rent at below-market rate rentals.

We have also expanded education subsidies and programmes to give their children a leg up in education. We have improved access to affordable healthcare, including long-term care for the aged. In this year's Budget, we further introduced many major and significant initiatives to take us forward in building an inclusive Singapore. On the ground, all of us here can see how these various efforts can, in very real ways, impact on the lives of those who fall under the lower income bracket.

As we can see, helping low-wage workers to achieve better incomes must be a key part of our strategy, but it is not the only way we are helping them and it is important to make this clear upfront. It is about having a comprehensive and active strategy to help low-income families improve their overall quality of life and share in Singapore's continued progress. It is about adopting a comprehensive and active strategy and not just simply focusing on jobs alone.

The focus of many of our Members' questions is on raising wages for our low-wage workers. As explained, this is only one part of a broader equation. The issue of wages has been widely discussed over the past few weeks, including some very spirited debate on whether Prof Lim Chong Yah's "shock therapy" proposal is the best way to sustainably raise their incomes. This was a very useful trigger to generate thoughts and many have weighed in, both from within Parliament and from society at large, with their views on the matter. It is very heartening to see the level of passion involved. Clearly, many of us feel very deeply about this issue.

While there are varying views about the solution, all of us agree that more can and should be done to raise the wages of low-income Singaporeans. The key question therefore is how do we then achieve this in a sustainable fashion, so that our lower income workers keep good jobs and can remain better off for the long term.

Let me briefly talk about what actually happened to wages at the lower end of the income ladder in the past few years. We have said this several times now but it is worth repeating and important to review this again. I have circulated a handout which captures some of the key data [Please refer to Annex on Pg 227]. Wages picked up significantly over the past five years for most lower wage workers. Adjusting for inflation, the real incomes of Singaporean workers at the 20th percentile grew by 11.5%, or 2.2% per annum, from 2006 to 2011. This contrasts against the decline of real incomes in the first half of the last decade, 2001-2006, where we experienced two significant recessions and lower wage workers were hit particularly hard. In those years, the income levels actually decreased. However, taking the decade as a whole, real incomes were roughly flat.

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Next, let us look at the income growth from the household perspective. Here, the picture is more positive. If we look at Singaporean households at the 20th percentile, household income per member grew by 13.6% in real terms in the last five years. Last year, those in the bottom 20%, in fact, saw the highest percentage growth in income per member. The average of the first decile, in other words the average of the bottom 10%, saw income growth of 6.8% after adjusting for inflation. And the second decile saw real income growth of 5.2%. This is higher than what households in the upper deciles experienced.

As a result of the stronger growth in the last five years, our low-income households also saw growth in their real incomes over the decade as a whole. At the 20th percentile, incomes per household member grew by 11.7% in real terms from 2001 to 2011. Let me just repeat, at the 20th percentile, incomes per household member grew by 11.7% in real terms from 2001 to 2011.

This improvement at the household level reflects not just the rise in individual wages, especially in the last five years, but it reflects the fact that more members of the household have found employment in the economy as it has created more jobs with the good economic growth in those years. It is also worth recognising that this significant growth in incomes in the last five years occurred despite the rise in the proportion of foreign workers in the workforce.

I should highlight that this is a picture that stands in stark contrast against what we see in many other countries. In fact, you just have to turn to the papers today to read about the riots and challenges that are facing many countries in Europe today. The global financial crisis, coming on top of the powerful structural forces of globalisation and technological change that we all face, has led to Europe and the US being mired in high unemployment, low job creation and dismal or negative real income growth for both lower income families and especially those in the middle as well.

The reality therefore is that we have not done too badly in the last five years. And this is especially so when we consider the very significant and comprehensive support that we are providing to lower income families such as through Workfare, housing subsidies and better support for children and the elderly from low-income households. So, the figures cited do not include these transfers and assistance.

However, there is another part of labour market realities that concerns us. While the broad group of lower income workers has seen better real incomes, some Singaporeans in specific low-wage occupations have not experienced this improvement in incomes. For example, office cleaners, who are amongst the lowest paid in the workforce, have seen weak improvement in nominal wages over the last decade, and therefore we have seen a decline of about 2.7% in their real wages over the last decade.

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Ms Denise Phua asked whether we would consider implementing "shock therapy" to revamp wages of low-income Singaporeans.

I share Denise's and many Singaporeans' dismay when we look at the state of some of these sectors. In October last year, during the Parliamentary debates on the President's Speech, I had said that I was not happy with the wages of our cleaners. Let me be quite clear about where we stand. While the broader group of low-wage workers have seen improvement in the last five years, the current levels of pay of our cleaners and some of our other lowest wage occupations is unsatisfactory. We have to find the best ways to improve the incomes of all lower wage workers, in particular for those groups which have seen very little or no improvement.

What are the strategies to increasing and raising wages? Well, to do this sustainably, we must continue to do three things right. First, we have seen that the incomes of low-wage workers are actually very badly affected when economy falls into recession or when the economy does not do well. So, we have to ensure that we recover quickly whenever the economy takes a dip and to make sure that we are able to sustain good, decent economic growth over time. That is the only way in that we can ensure that we can keep unemployment low, keep our labour market tight and therefore create pressures to help grow incomes and wages.

Second, we must invest in and continuously improve the productivity, innovation and skills of our companies and workers. Without significant productivity improvements in the next decade, we will not be able to improve incomes significantly and in particularly on a sustained basis, for Singaporeans.

And, third, we must pay attention to ensuring that our lower wage workers, especially in those sectors mentioned earlier, benefit from the growth that we enjoy. And I will talk about this in more detail later. In essence, all three strategies must go hand-in-hand if we are to succeed in achieving inclusive growth.

Ms Foo Mee Har and others, including union leaders, and many members of the public have asked if higher productivity will indeed lead to higher wages. This is an important and valid question.

Over the long term, real wages of our workers have risen broadly in line with productivity improvements. Since 2000, our productivity grew at about 1.7% per annum, while real total wages grew at a comparable rate of about 1.6% per annum. While real wage growth may not match productivity growth in each and every year, the two tend to be consistent over the long term.

However, our approach is not merely to leave things to the market, or to chance. We are dedicating extra effort and resources to ensure that our lower income groups benefit from the economic restructuring and future growth. Indeed, our lower and middle income Singaporeans must be the main beneficiaries as we restructure our economy over the next decade.

Now, let me go into the specific on how our specific strategies can help lower wage workers. First, we are helping lower wage workers to stay in their jobs by helping them upgrade their skills, helping employers to pay them higher wages. We do this through the Workfare Income Supplement Scheme (WIS), Workfare Training Support (WTS) and the Special Employment Credit (SEC). In 2011 alone, for example, WTS helped 50,000 lower wage workers undergo training, and enhance their skills and their employability.

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Importantly, we now provide a Special Employment Credit to employers of older workers. This is significant as a large proportion of our lower wage workers are in fact older workers. Since SEC increases along with wages, it helps employers raise wages and reward their workers in turn.

Our second strategy is focused on specific occupations and industries. A key way to do this is through the Inclusive Growth Programme (IGP) which is led by NTUC. This addresses Ms Sylvia Lim's question about whether we have specific solutions tailored for industries where wages have lagged. Indeed, this is the approach taken. The IGP will be focusing especially on sectors where wages have lagged, such as the cleaning, the F&B and the retail sectors. In return for the IGP's support, companies are required to share productivity gains with their lower wage workers. We have recently increased Government funding to expand this IGP programme to benefit a total of 100,000 lower wage workers by 2015.

A further aspect of our targeted approach is to tackle this issue of cheap sourcing. The cleaning and security sectors are good examples where we face this problem. We will be taking steps to support best sourcing for cleaning and security services, and also to tighten industry regulations and accreditation frameworks to raise standards and enable workers in these sectors to enjoy better employment terms. This will include a requirement for cleaners employed in accredited companies to receive appropriate wages commensurate with the higher training, standards and productivity required of accredited companies. The details are being finalised and we will announce this shortly.

To summarise, we are addressing the problem of low wages through a multi-pronged approach. First, broad-based approaches to improve productivity, skills and incomes; and second, targeted approaches that address issues specific to certain sectors. Not just economy-wide incentives, but industry by industry, company by company, working on a tripartite basis to put in place very practical and concrete plans to restructure companies' operations, upgrade jobs and tie in wage gains with productivity improvements. Both are intensive efforts, and are already in motion. There are practical and sustainable ways in which we can uplift incomes for low-wage workers.

Is the productivity target of 2%-3% per annum achievable? We have set ourselves a target of achieving this growth per annum over the decade. If we achieve something nearer the upper end of the range, let us say, at about 2.7%, we will be able to increase productivity by 30% over this decade. That, too, is how we hope to raise median wages by 30% in real terms over the decade.

It is a stretch target. Most developed countries enjoy productivity growth of about 1%-2%. But these are matured economies, and at the steady state, they enjoy 1%-2% of productivity growth a year. However, the good news is, in a sense, most of our industries are operating well below the levels of productivity seen in many of these developed countries. Our productivity growth was also relatively slow in the last decade. So, unlike a matured economy, we have the space to move up. This is something that we must and we should do.

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Mr Yee Jenn Jong asked about the inflation forecast for the next 10 years, and whether it means that the 30% rise in real median wages will not be achievable. The Monetary Authority of Singapore, like other central banks, does not have a 10-year inflation forecast as over a long period, the combined impact of structural and cyclical changes in economy on inflation is very uncertain. Global price trends are also very difficult to predict far in advance. Nevertheless, we do not expect our current high levels of inflation to persist in the years to come. As the Minister for Trade and Industry just mentioned, the Government will also be doing what it can to manage and to bring inflation down.

Ms Denise Phua asked about the impact of a "shock therapy" on productivity and our businesses, especially the SMEs. Let me share what we learnt from our last experience of sudden and large increases in wages in the 1980s. The NWC's wage correction policy from 1979-1981 came after a period when wages had in fact been held down. However, wages ended up rising much faster than productivity, and hence Singapore's unit labour cost (ULC) rose by almost 40% from 1980-1985. This was a sharp increase compared to that of our competitors during the same period, which were mainly the other Asian NIEs. Not all of this was due to the initial three-year wage restructuring, as wages continued to rise quickly after 1981. However, when wages are pushed up artificially and pushed up much faster than productivity is able to improve, there is a continuing dynamic of wages and prices feeding into each other, together with expectations and demands. And it forces wages to continue to go up and moving up, and this moving up of wages is difficult to avoid – and that was what essentially happened.

In the first half of the 1980s, the loss of competitiveness because of this increase in wages did not have a significant impact on our exports because external demand was booming. But the moment external demand began to decline and the demand eased, the effects of a loss of competitiveness was very severe. Tens of thousands of local jobs were lost. And it is not just tens of thousands of local jobs, tens of thousands of workers, but tens of thousands of families were affected as well. The impact is not trivial.

To regain competitiveness and to create jobs as a response to the situation in 1985, in 1986 the NWC recommended a wage standstill for three years. We also had to cut employer's CPF contribution rates very sharply from 25% to 10%.

Equally important was the NWC's emphasis on the need to focus on productivity improvements as the basis for sustainable wage increases. Over the last two-and-a-half decades, this focus has served us well. Wages overall have increased and grown substantially, along with productivity.

What it comes down to essentially is this: we have to avoid extremes of one form or another. One end of the spectrum of policy options is to mandate large rises in wages and hope that productivity gains will follow. In fact, this would be seemingly the easy option. At the other end, we could take a completely market approach, we could simply wait for market forces do the work of raising wages in a tight labour market with minimal Government intervention or tripartite efforts.

The approach we are taking is essentially a balanced one which involves deliberate intervention to support restructuring, to raise skills and to ensure that our lower wage workers get a fair share of productivity gains. It is an active strategy and we are not leaving things to the market – but neither should we engage, we feel, in experiments which would put our workers and businesses at risk.

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In particular, we have to bear in mind that our SMEs are the major employers of our low-wage workers, and will be at real risk if we force their wages up suddenly. Many of them have indeed expressed their grave concerns over such a move. This is also why we have been increasing our foreign worker levies gradually, in small steps each year, so that the companies, the businesses, the SMEs, are able to manage and adjust. We are also actively supporting our SMEs to restructure and improve productivity and, in turn, this would have an impact on the workers themselves.

To conclude, let me return to where we started – which is about our people. We have provided reasonably well for the majority of Singaporeans and have avoided the situations that plague many other developed countries today. But we know that there are certain segments of our low-wage Singaporeans that have not enjoyed that same improvement. We are addressing this resolutely and will leave no stone unturned to help them move up the income ladder. We are also taking a holistic approach that goes beyond the labour market. We help them own their own homes by providing heavy subsidies. We have taken various measures to improve their retirement adequacy, through WIS payouts and CPF top-ups. We are doing more for their children and providing more medical and long-term care subsidies to lower income families to ensure that they will always have access to good healthcare. Many of these have been taken further in the recent Budgets.

We will continue to work with our tripartite partners and press on with our efforts to improve productivity and restructure our economy. While the Government will do its part, we will also work with business-owners, and unions and workers to ensure that we make real progress, so that all Singaporeans, especially our lower wage workers, can look forward to better jobs and higher incomes.

Ms Denise Phua Lay Peng (Moulmein-Kallang): Sir, I want to thank the Minister of State for the good response. I, too, do not agree with Professor Lim Chong Yah's idea of the "shock therapy", without concern whatsoever of the cost impact on especially the smaller enterprises. I also believe that the Workfare that the Minister of State has spoken about is superior to Minimum Wage. The cost of Workfare is borne by the Government with the intent of sharing the fruits of economy. But I do believe that every worker should be paid a fair day's wage. I still meet cleaners €”

Mr Speaker: Ms Phua, can you ask the question, please?

Ms Denise Phua Lay Peng: I still meet cleaners who are being paid an amount of $700 a month for a full day's physically demanding work. And I think that needs to be corrected. So, I would like to ask the Minister of State if the Ministry would consider adopting the corporate practice of job evaluation to study the nature, the profile and the size of jobs like cleaners' jobs, so that a right pay level can be determined. That benchmark can then be woven into the Workfare formula and into the industry's pay practices. That is my first question. My second question is: I am very heartened to also note that BCA has taken specific measures to help construction firms, the smaller ones, to increase their productivity. I would like to ask the Minister of State if the same is being done, specifically for other industries, like the F&B and the cleaning industries, especially for the smaller players.

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BG [NS] Tan Chuan-Jin: I would like to thank Ms Denise Phua for her statement and her questions. I would completely agree with her that the wage level at which some of our lower wage workers are operating at is quite unacceptable. I meet them myself, a number of my residents who are cleaners, some in other sectors as well. I agree that every individual worker should be paid a fair day's wage. So, this is precisely why for sectors especially cleaning, a sector in which many of our low-wage and older workers are found because of their skill levels, educational levels, and so on.

We are taking a very specific approach to improve their conditions. So, as highlighted in my speech earlier, we are working on the schemes to make sure that the accreditation takes place and this will be tied to the wage levels at which they are paid. This is something that we intend to do and we also intend to build on it, in terms of not just cheap sourcing, but best sourcing, how different companies are able to do that. The Government will take a lead in that as well.

In terms of Workfare, it is something that we will review in detail next year. We believe that Workfare remains an effective way to incentivise work but at the same time look after our low-wage workers by supplementing their level of income. We have received much feedback over time. Some of the suggestions like those that Ms Denise Phua had raised are things that we can take on board, but we will carry out a comprehensive review of Workfare next year.

With regard to the incentives provided, for example as announced by BCA, we are constantly working with various industries to see how to help them. There is a wide range of funds available to help companies restructure to improve the productivity. The IGP, as I have highlighted earlier, is one specific programme where we work with specific sectors and with companies to improve the situation. We have seen the impact of that, not only in terms of how they have changed the way they do business, but how that has flowed down to improving the wages of their workers as well. So, that is something that we will continue to do.

Ms Sylvia Lim (Aljunied): Sir, three supplementary questions for the Minister of State. First, the Minister of State mentioned in his answer that in general, at a macro level, we see productivity gains, sort of roughly moving in line with wage increases. Does he accept – which I seem to gather from his speech – that at the sectoral level, actually, the links are weaker in that sense. And in particular, there was a report put out by MTI in 2011, a feature article which mentioned certain sectors where there had been productivity gains, for example in electronics, but the wage gains were not apparently moving in tandem. So, does he accept that actually at the sectoral level, we do have some issues there, where productivity gains have not brought back wage improvements for the people in the sectors?

Earlier, he mentioned that the Government was looking at some mechanism by which employers who enjoy productivity gains will be forced to share the gains with the workers. So, I wonder if he could elaborate on what kind of formula or mechanism the Government is looking at to ensure that this is done, and done in a fair manner with the workers.

Secondly, the Minister of State did not touch on the part of my question on living wage. I would like to ask the Minister of State whether the Government has this concept of living wage in its calculations and this links to WIS, for example. And thirdly, the Minister of State mentioned the security industry, and I note that in the May Day speech by the Deputy Prime Minister and Minister for Manpower, he did mention that the Government will take a lead in the way it appoints security companies, for example, by appointing only well-graded security companies. From what I know from the grading system in place under the MOM criteria, annual wage increments, for example, are only an optional submission item in the grading. So, I would like to ask whether the Government is actually going to review that.

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BG [NS] Tan Chuan-Jin: I would like to thank Ms Sylvia Lim for her questions. Firstly, the question of productivity moving in sync with wages. At the macro level, indeed, we have found that the level of productivity increases over the last decade has moved roughly in sync with wages. But Ms Sylvia Lim is also correct to say that there are variations within sectors, and this is something that we need to look out for. There will be certain sectors where productivity has increased, and perhaps wages have not moved directly at the same rate. This is something that companies have to factor in. By and large, we find that when companies do well, and productivity increases, they are able to increase their wages and then to transfer them to their employees. That, as a broad rule, is what happened. But whether it is able to move exactly at the same time rate or not, a lot depends on the specific circumstances of those companies. So, this is something that we encourage.

We work closely, on a tripartite basis, with businesses, workers and the unions. For example, in the NWC recommendations, we take a look and we suggest a broad range at which wages should move. Companies would take reference from that, given their specific circumstances. This is something that we work closely with the industries on, and we work with employers. Not every wage level will move directly in sync but, by and large, there is a correlation with that. And I think it is difficult to expect every single company to move exactly the same because conditions vary. But, by and large, we find that most companies when their productivity increases, would see some of this transfer of productivity gains in the wages. This is something that we will constantly encourage companies to do so and, of course, the unions will also do the same by pressuring the employers to do the same.

Secondly, on the question of living wage. By living wage, we are really referring to how much a Singaporean needs to earn in order for him and his family to subsist or to meet their basic needs. But this is not a very straightforward concept and it is quite complex, because one figure alone does not capture every single family or every individual worker. Depending on the individual circumstances, he and his family could have very different needs, and we meet many of these low-income families in our constituencies today. But a lot of their conditions and circumstances vary. Large families would generally have greater needs than smaller families. The number of employed persons in the household also matters. So, someone earning, say, $1,500 or $2,000, and supporting five members of the family as opposed to two members would have very different challenges, because the expenses can be shared out if more people work.

A lot also depends on the household, that is, how many people are working. For this reason, we believe it is more meaningful to consider household incomes rather than an individual's income when considering if they have enough to meet their basic needs. And what is considered the basic lifestyle is also very subjective, with different people having different standards and expectations. Many Singaporeans would use their own yardstick to measure at which how someone earning $1,000 or $1,200 ought to live their life, and they feel that that amount of money may not be sufficient. But that is because sometimes we use our own yardsticks to measure what we think ought to be minimum. But it varies, and we have also met many of our residents who may be earning low income for their families but it is not easy; it is challenging, but they manage, and there is a lot of pride that they take as well in being able to provide for their own families.

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So, a simple thing, like whether air-conditioning is essential in a house or not, has a lot of impact in terms of not just installing the air-conditioner but also electricity bills, and so on. All these things vary. Given the different considerations, it is actually very difficult to pinpoint exactly what that so-called living wage ought to be.

Some commentators have also recently been using the figure of $1,700 as the amount a household needs to meet basic subsistence needs. This figure has been referred to a few times in the last year. But we have taken a look at it and to find out where this $1,700 came from. Essentially, the figure was derived by taking the average expenditure of the bottom 20% of resident households, as published by the Department of Statistics (DOS). For a sense of the expenditure required to provide for basic needs, let us consider the amounts that are provided under the Public Assistance (PA) Scheme to recipients who are unable to work. MCYS makes a detailed assessment of how much Public Assistance recipients need in cash to help with basic living expenses. Based on that assessment, the PA Scheme provides a household with four adults, with a cash allowance of about $1,050, and a household with two adults and two children with $1,350. In addition to the cash allowance, Public Assistance recipients receive free medical care as well as free education for their children.

Similarly, many households at the bottom 20% also receive assistance from the Government, for example, Medisave top-ups, MOH's Community Health Assist Scheme, MOE's Financial Assistance Schemes, Kindergarten Fee Assistance Scheme, Centre-based Fee Assistance for Childcare, Student Care Fee Assistance Scheme, GST Vouchers which was just introduced, and so on. These schemes all help to pay for healthcare and education and go to reduce the cost of living in general.

Let us take a look at how earnings compare. In 2011, the average monthly income of resident employed households in the bottom 20% was $2,358, including CPF contributions. After deducting CPF contributions, the take-home pay would generally be sufficient to meet the basic expenditure levels I just described. But what is clear is this: we recognise that finances are tight for households in the bottom 20%, and we know that because we meet some of the residents at the constituency, and we understand the challenges that they face. But we should not also equate living on tight budget with being unable to earn enough to subsist. Many low-income families are proud that they are able to provide for their families. We should not demean their effort and achievement by suggesting that what they are providing is not enough.

So, our focus in Government really is to help the breadwinners of these families translate their hard work into high incomes, so that they can enjoy higher standards of living. On what the Government is doing to bring this about, I have elaborated earlier. In essence, the approach that we take is to go for a more targeted approach, look at the circumstances of every individual person, and particularly his family, and then to tailor a range of solution sets upon which he can draw on.

With regard to the Member's third question – could she remind me what was the third question again?

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Ms Sylvia Lim: Grading of security companies and the fact that under the grading system, currently as I know it, it is optional for employers to indicate whether there is any annual wage increment in their employment terms.

BG [NS] Tan Chuan-Jin: Indeed, I think for the security sector, and for the cleaning sector in particular, these are two sectors that we are in the process of scrutinising and looking at the schemes, particularly the accreditation scheme. So what the accreditation scheme will do is to take into account all the different factors – as pointed out by Ms Denise Phua earlier, and the concern that Ms Lim has for some of the members in this sector – and to make sure that wage increases will be fair, wage levels will be fair, and wage increases will be fair.

The details are being worked out, and this is something that we will be announcing shortly. But the intent is to take an active role in intervening in these sectors, to make sure that they are accredited, there is upskilling, and to make sure that their wages will be commensurate for their effort put in. So, as far as these two sectors are concerned, we are quite determined to make sure that the wages increase and to make sure that the wages are not just increased on a one-off basis but on a sustainable basis.

With regard specifically to the point that Ms Sylvia Lim has pointed out, that is something that we will take into consideration amongst the various ideas that we put forward by the industry and the public, and this is something that we will announce in detail in subsequent months.

Mr Speaker: Ms Foo Mee Har, last question.

Ms Foo Mee Har (West Coast): Mr Speaker, Sir, I thank the Minister of State for his comprehensive answers. I have two supplementary questions. First, much has been said about the need to improve the wages of low-income workers through productivity initiatives. However, initiatives to improve productivity are typically driven by company management, and therefore dependent on the will of the management to make meaningful changes. To provide the needed impetus to drive productivity growth as well as to ensure company financial gains from productivity are transferred to workers, I would like to ask the Minister of State if he would consider obliging companies to set aside a certain percentage of their profits towards building up a productivity improvement fund to be used by company management solely for training, skills upgrading or performance incentives, especially for the lower-income employees.

My second supplementary question. Employees are in the best place to uncover opportunities for process and system improvements. I would like to ask the Minister of State how his Ministry sets about encouraging companies to involve the employees in productivity drives and if this would involve financial incentives for employees' suggestions, leading to profitable improvements in productivity. How can workers feel invested in surfacing and realising opportunities for productivity improvements for their employers?

BG [NS] Tan Chuan-Jin: I would like to thank Ms Foo Mee Har for her questions. The issue of productivity, as highlighted earlier in response to Ms Sylvia Lim's questions, is that productivity largely forms the basis for sustainable wage increases. When companies make profits by being more productive, it can afford to share the gains and reward its workers with higher wages in return for their higher productivity. Because without higher productivity and higher earnings, companies are not able to share those gains, and whatever little gains they have, with the workers.

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It is difficult to implement and derive a measure of productivity for every single worker. Many companies which are doing well already do provide higher pay for their productive workers, simply because in order to retain and to reward workers, which is why as I highlighted earlier, when the economy does well, we are able to keep unemployment low and the labour market tight, and there is competition and high demand for workers, this actually creates a pressure for companies to make sure that they remunerate their workers fairly and competitively. That will also allow wages to move up in time as well.

Ultimately, employers do have to pay fair wages to workers that are commensurate with their contributions if they want to retain and attract workers in a tight labour market. For sectors in which the translation of productivity gains through wage increases while market forces are not strong, for example, in those sectors we mentioned earlier, in the cleaning sector and the security sector, that is where Government intervention will kick in, and this is something from a sector-specific perspective we will play an increasing role. The IGP is another example where we will step in to work with specific companies to also improve the way they do business so that as their businesses do well, this will invariably also be tied to the way wages move up for the workers in those companies as well.

So, the long and short of it is we do need to keep our labour market tight, to provide companies with an impetus to improve labour productivity, to ensure that relationship between productivity and wages is maintained. Workers do need to play an important part in the overall productivity drive. Whether companies should set aside funds to do that or not is something that individual companies have to decide. But what we are doing at the national level is to set aside a very substantial amount of money, in terms of funds, to help and incentivise companies to undertake these productivity gains, both in terms of restructuring, changing the way they do business or just to bring IT into the way they operate in order to improve productivity. So, that is how the Government intends to step in through a whole range of measures, to make it as user-friendly as possible.

We are very open to feedback from the sectors to improve some of these measures, to make it more user-friendly and more targeted. The main idea is to help companies improve their productivity. The companies, in turn, when they see the benefit – and many companies do that as well, whether in terms of setting aside a fund specifically for the workers or not – do undertake their own productivity moves. IGP, for example, is one programme where we work intimately with companies, and we see many of these companies respond by involving workers to improve the work processes, thereby improving productivity and not only improving the bottom line for the companies but, in turn, seeing the knock-on effect on wages.

Whether workers are being involved, like I said earlier, this is something that we do encourage companies to do. Right now, the main focus on productivity is in large part with the companies. The major shift in doing business needs to come at the company level, particularly as we restructure the economy in the next decade. Essentially, what it means is that we need to move up the productivity chain. We are tightening in terms of foreign labour, particularly companies need to re-adjust the way they do business and focus more on productivity growth. So, for a lot of productivity efforts, the major shifts will be done at the company level but this does not preclude workers playing an active role in that. And that is something that we encourage both through the IGP or other schemes. But this is something we do hope companies will embrace, and we will work constantly with the companies to make sure that productivity is a big part of most companies so that they can adjust to a tight labour market and to put them on a better footing so that as the economy grows and transforms, our companies will be in a very good shape and good position to compete on the global market. And when they do well, in turn, the knock-on effect on our workers will be there, and we hope to also see the knock-on effect at the lower end of the workforce as well.

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