Income inequality in Singapore has worsened in recent times. The World Economic Report 2018 showed that the income share captured by the top 10% of income earners in Singapore increased from 32.1% in 1980 to 43.8% in 2014. Moreover, Singapore’s Gini coefficient after tax transfers (collection of taxes and redistribution of that wealth to the lower-income in society) stood at 0.356 in 2017, higher than many other developed countries such as Sweden and Japan. This is a worrying sign given that income inequality has the potential to create rifts between the rich and the poor, fracturing society and even giving rise to pro-protectionism and anti-globalisation views which hinder economic progress. To find a solution for this issue, we would hence have to delve into the causes and effects of this problem.
Cheaper alternatives for firms
Advancements in technology and globalisation have stiffened competition for jobs by providing cheaper alternatives to local labour for firms. Automation has increasingly been adopted by many firms and this has led to the displacement of local workers. UOB is one such company that uses humanoid robots to address client requests and complete administrative tasks. A humanoid robot is purportedly 3.5 times faster than a human employee. Many profit-maximising companies choose to use automation to substitute human staff as automation increases work efficiency and enables them to save on labour costs in the long run, allowing firms to become more productive efficient. As a result, workers, especially those in low-skilled industries such as manufacturing, end up losing their jobs or earning lower wages. Globalisation also exacerbates this trend. Globalisation facilitates the influx of low-wage migrants and this leads to greater competition for jobs and wage depression for locals.
On the other hand, firm owners or top business executives earn high incomes derived from high profit earnings due to lower average costs. While many companies have been earning higher profits, this has not translated into higher wages for workers. In the 2018 Hays Asia Salary Guide, almost half of Singapore employers are considering salary increments of only 3 to 6%, which hiring firm Hays says is “conservative” considering that Singapore’s economic growth has risen this year.
Hence, this inevitably leads to an income disparity between beneficiaries of automation and globalisation, and those disadvantaged by those factors.
Income inequality leads to a lower consumer demand for goods and services, which ultimately results in stunted economic growth. Lower income reduces the purchasing power of consumers and reduces their demand for normal goods. Demand for necessity goods like food staples will fall less than proportionately and luxury goods such as restaurant meals or high-end retail products will also fall more than proportionately when income falls. As a result, there will be lower consumer expenditure and hence slower economic growth. This spells bad news especially for the retail scene in Singapore which has seen sluggish growth in recent years.
System of meritocracy
Meritocracy has always been a crucial principle infused in our education policies and employment practices. While it motivates people to work hard in order to reap economic benefits, it has also worsened income inequality. In the present day, the playing field is no longer equal. Wealthier parents are able to afford tuition, giving their children the competitive edge over their less-advantaged peers. Children of more affluent family backgrounds are hence more likely to qualify for more advanced educational pathways such as the Integrated Programme (IP) and International Baccalaureate (IB) programme, as well as enrol into more prestigious schools such as Raffles Institution. These children are then able to join Ivy League universities and earn more prestigious degrees, assuming that they follow the conventional education pathway. Once they enter the working world, where wages are decided primarily based on academic qualifications, they get to earn higher starting salaries than other graduates. In 2016, the starting pay of polytechnic graduates was $2200 but that of University graduates was 52.7% more at $3360. Income inequality also exists within University graduates. While law graduates from SMU earned an average of $4778, their NUS counterparts earned an average of $4958. It is hence evident that meritocratic practices results in an unfair advantage amongst the rich in society, and perpetuates income inequality in the workplace.
Income inequality between the rich and the poor leads to a class divide which results in a social disconnect. A recent 2017 Institute of Policy Studies survey showed that class divide in Singapore has become more prevalent. Educational elites and non-elites tend to form isolated social circles with peers of similar socioeconomic status. These social circles have the potential to continue on into adulthood as well, especially since educational elites tend to fall under the same income bracket as their peers. This lack of interaction between the privileged and less-privileged inhibits mutual understanding between the two groups and may potentially foster feelings of resentment amongst the less-privileged towards the more-privileged, leading to social tensions. If the elite become policy-makers, policies could possibly be skewed towards protecting the interests of the rich and increasing the financial burden of the poor. This may lead to political polarisation and fuel populist politics. While Singapore has yet to experience this – which is happening in America and parts of Europe – it is a possibility that Singapore must take all steps to avoid to maintain the peace and harmony in the country.
Another effect of income inequality is limited social mobility. More privileged children are able to retain the socioeconomic status they were born into due to their being in the favour of our meritocratic system. They are also more able to reserve high-income jobs and assets for themselves or those in their social circles who are of similar socioeconomic status. This results in greater elitism and fewer opportunities for the less-advantaged to take on those jobs, which they could be more qualified for as compared to the more-advantaged. Lower-income individuals also meet with more challenges in trying to borrow money to start an enterprise and earn more income. Coupled with the difficulties in and the social stigma attached to requesting for financial aid from the government, lower-income earners will find it even harder to reduce their financial burden and advance up the social ladder, leading to perpetuated income inequality.
The government prioritizes the issue of income inequality and have implemented various measures to help the disadvantaged. These include Skillsfuture which aims to upskill and retrain workers so that they remain relevant in this age of technological disruption, the Workfare Income Supplement scheme which helps to increase low-income workers’ CPF or cash savings and the Edusave Bursary Award which is prize money given to students from low-income households to acknowledge their outstanding academic achievements. However, media reports have mentioned that requesting financial aid from the government is becoming more difficult. It is also often attached with a social stigma that those who seek aid have failed to be self-reliant and are therefore failures in society. If low-income workers are unable to receive necessary aid due to self-imposed restraint and external impediments, then income inequality would unfortunately persist. Moreover, in this era where receiving tuition has become a norm, it would be a huge disadvantage for students from lower-income families who do not receive tuition because they cannot afford it. This is especially so if those students need more guidance in their academics and have few adults to turn to if their parents are working to support the family. Hence, the government or voluntary welfare organisations (VWO) should consider providing subsidized or free tuition to poorer students.
Income inequality exists in every society and is never easy to reduce, let alone eliminate. However, it is important to stay updated with existing trends which affect the severity of this issue and review our policies to assess their effectiveness in solving this problem. No matter how tedious resolving this issue may seem, we must always strive towards this goal because as Nelson Mandela once expressed, “as long as poverty, injustice and gross inequality persist in our world, none of us can truly rest”.
Cheryl Doo (18-E5)