Did the poor really progress?
If inflation is factored in and govt aid factored out, they weren’t better off
By Sue-Ann Chia, Senior Political Correspondent
A RECENT report by a ministerial committee found that low-wage workers have made ‘significant progress’ in pay and prospects in recent years. Many analysts felt that broad summation deserved scrutiny.
Firstly, the indicators of progress the report highlighted may not have told the full story.
And secondly, the report provided a snapshot for a relatively short period – from 2006 to 2008, which happened to be good growth years. Hence, it did not capture how conditions have changed in the recession.
It is not surprising that the poor achieved some progress in the boom years, as everyone – low or high-income earners – gained from economic growth.
On top of that, the Government spent over $1.1 billion improving the lives of the poor in those years. As a result of all this, the wage gap actually narrowed last year, the first time it has done so in the past decade.
All the same, are low-wage workers, defined as the bottom 20 per cent of wage earners, really better off?
The picture is not as clear as the headline figures would suggest if we look more closely at some key indicators.
One is income growth. The bottom 20 per cent earn $1,200 a month or less.
This wage figure grew by $110 between 2006 and 2008, rising from $1,200 to $1,310, an average increase of 4.6 per cent annually. But that figure does not include inflation. A more accurate indicator would be real wage increase – pay increment minus inflation.
This is critical as the lowest-income people were hit harder by inflation than the general population, owing to the rising cost of food and utilities, items on which the poor spend a greater proportion of their pay. Thus the lowest fifth of households experienced an inflation rate of 7.4 per cent in 2008, according to the Department of Statistics, compared to 6.5 per cent for households in general.
This means low-wage workers were, in fact, worse off last year, with real wages shrinking by 2.8 per cent – 4.6 per cent growth in wages minus 7.4 per cent inflation rate.
If we consider the average real wage increase over the two-year period from 2006 to 2008, the picture is slightly better: real wages did not shrink but stayed rather stagnant.
That is something to be grateful for but it is hardly reason to celebrate.
Another indicator which merits closer scrutiny is the rise in average monthly household income for households living in three-room HDB flats or smaller.
It grew by $310 from 2006 to 2008, rising from $1,910 to $2,220, an average annual increase of 3.5 per cent. In this instance, the report provided the real income rise after taking into account inflation.
But we need to ask who exactly is bumping up household income among residents of three-room or smaller HDB flats. It could be young affluent couples living in three-room flats, or even middle-income families who have downgraded to smaller flats. Without more detailed data, it will be difficult to conclude that low-wage workers were the real income boosters.
The final indicator is the income gap, as reflected in the Gini coefficient, which measures the income distribution in a country. It dipped slightly from 0.489 in 2007 to 0.481 last year. If government aid is included, it dropped further – from 0.479 to 0.462 – implying a narrowing gap.
Leaving aside government aid, one reason why the Gini coefficient improved was the growing prosperity of the middle-income families, who account for a large swathe of households.
The per capita annual income of this middle band rose the most last year, followed by that in the bottom 20th percentile. The top 10th percentile showed the least increase.
With the economy now in a sharp contraction, will the income gap widen again? With government aid acting as a buffer again, the gap may not grow too wide. But we don’t know for sure since we don’t know as yet how the recession has affected low-income workers.
Last week’s report did make it clear that it was an update for the years from 2006 to 2008. It was unfortunate that its release came in the midst of an economic crisis. Due to the time lag, the report’s findings of progress appeared incongruent in these times when few are prospering.
Still, there was value in the update. Above all, it showed that the efforts the Government made to help low-wage workers in the boom years did pay off in improved wages.
The ministerial committee that issued the report was formed in 2005, in the midst of growing concerns over the income gap. The Government set itself the task of narrowing or at least slowing the pace of widening of the income gap. Government leaders expressed the worry that a growing rich-poor divide could lead to social tensions. What followed was an array of government schemes to boost the income of low-wage workers.
Workfare, an income supplement scheme, was introduced and soon turned into a permanent social safety net. Other reliefs ranged from housing grants to training and education subsidies.
All these schemes – as outlined in the report – have helped make life a little easier for low-wage workers, by giving them more cash in hand or opportunities to upgrade their skills for better jobs.
Thus the report has been useful in underlining one important truth: Any progress low-wage workers made from 2006-08 was due mainly to government help.
If that was true in the good years, it has to be equally true, if not more so, in the bad years.
It also may not be a bad idea to issue a report as soon as possible on how low-wage workers have been affected by the global economic crisis.
sueann@sph.com.sg
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