Speech By Mr Tharman Shanmugaratnam, Deputy Prime Minister & Minister for Finance, At The e2i Best Sourcing Symposium08 Jan 2014
Mr Lim Swee Say, Secretary-General, NTUC
Mr Vivian Balakrishnan, Minister for the Environment and Water Resources
Mr Tan Chuan-Jin, Acting Minister for Manpower
1. Thank you for inviting me to join you at the e2i Best Sourcing Symposium.
Recognising best sourcing efforts
2. Best sourcing is an important initiative. It is an important part of our framework of strategies to help low-wage workers.
3. It is especially important for workers in cleaning and security services, which are commonly outsourced. These are socially useful jobs. The workers in these jobs play an important role in creating safe and pleasant spaces for everyone else to live in and work in daily.
4. Unfortunately, cheap sourcing is prevalent in cleaning and security. It has led to stagnant wages for cleaners. Although gross pay for workers in security has gone up, their basic pay remains too low.
5. We are remedying this with the Progressive Wage Model (PWM). PWM will enable our cleaners and security guards will get better jobs with better pay.
6. I first want to credit NTUC for taking the lead in conceiving and promoting the Progressive Wage Model. It is now a tripartite approach for the cleaning industry, and similar tripartite discussions are now proceeding well in the security industry.
7. The Government itself, as a buyer of services, has taken the lead in adopting best-sourcing practices.
8. But Government procurement only covers about 11% of resident cleaners and a roughly similar proportion of all security service contracts. Clearly therefore, Government cannot transform industry practices on its own.
9. I am heartened by the good showing of service providers and buyers today. It demonstrates that the on-going efforts of e2i and the tripartite partners to promote responsible outsourcing practices are bearing fruit.
Bringing Progressive Wage Practices into Licensing Conditions to Prevent Cheap-Sourcing
10. However, even with more enlightened businesses coming on board, there is no assurance that responsible outsourcing will become wide-spread in the cleaning and security services industries. We are therefore taking further steps to ensure that responsible outsourcing is the norm in these industries. We will make the PWM a licensing condition, that will therefore be mandatory on all companies providing cleaning and security services. We will do this first in the cleaning industry, where the tripartite partners had already agreed on the details of the PWM. Similar discussions are taking place in the security industry.
11. Let me elaborate on this important step in the context of the cleaning sector, where the shift to mandatory PWM practices will come into effect by later this year.
Legislating the Progressive Wage Model for the cleaning sector
12. There are about 55,000 cleaners in our resident workforce today. They earn a median gross wage of about $850 per month. Not only is that low pay, but most cleaners have also not enjoyed the real wage growth seen among workers nationally, including other lower-income Singaporeans, in the last five years.
13. The reason for this is cheap sourcing, which is prevalent in the cleaning industry. Cheap-sourcing practices have held down wages. They have also led to high attrition and churning of employees, making skills acquisition difficult.
14. What will PWM achieve? The progressive wage recommendations of the Tripartite Cluster of Cleaners, will, first, provide better entry-level wages – $1,000 or 20% higher than today’s median basic wage for cleaners. Second, they offer a pathway to higher pay based on work experience, skills upgrading, responsibilities and productivity improvements.
15. This pathway, or “wage-skill ladder”, is a defining feature of the PWM. For example, a cleaner who has been trained and deployed to use motorised ride-on equipment like sweepers or steam cleaners, enabling higher productivity, commands a higher wage than an entry-level cleaner doing more manual tasks. Under the PWM, this skilled cleaner would receive a basic wage of $1,400 or more, while a supervisor in a team of cleaners would command a basic wage of $1,600 or more.
16. To the cleaner, the PWM wage-skill ladder provides assurance of better wages and career progression if he or she picks up the required skills. There is no greater pride at work than being able to build up skills and experience, do a quality job, taking on responsibility, contribute more and earn more. There are already many examples of how this works. Mr Arif Bin Jumaat is one of them. 40-year old Mr Arif has been undertaking cleaning and housekeeping work since leaving school. When he first joined Ramky Cleantech Services in 2010, he earned a basic salary of about $800 a month. With the support of his employer and funding under the Workfare Training Support scheme, he attended courses to improve his understanding of cleaning processes and workplace safety and health procedures. He also mastered the use of scrubbing machines. With these skills in hand and having performed well on his job, he was promoted to an Assistant Supervisor in 2012. Mr Arif now oversees a small team of cleaners deployed to One Marina Boulevard. He has seen his basic salary grow to around $1,400 today given his increased responsibilities.
17. Besides the workers themselves, other stakeholders also benefit from PWM. The cleaning companies can better retain their manpower and in so doing build up a more skilled workforce. Service buyers and consumers may pay a little more for cleaning services, but can also enjoy enhanced service quality and higher standards. By raising productivity and service quality as we raise wages, we get a win-win outcome for all.
18. The Government has supported the tripartite PWM in the cleaning sector, both as regulator and as buyer of services.
19. The recommended PWM starting wage levels were incorporated as a requirement in the National Environment Agency’s (NEA) voluntary Enhanced Clean Mark Accreditation Scheme from November 2012.
20. Since April 2013, the Government has as a buyer been engaging only Clean Mark-accredited companies that pay progressive wages to cleaners servicing Government contracts. The median wages of cleaners working under MOE school contracts, for example, has grown from about $700 previously to between $1,000 and $1,100 today.
21. The Government will be going further in its regulatory role, to ensure adoption of the PWM across the cleaning industry. Later this month in Parliament, the Minister for the Environment and Water Resources will table the Bill to introduce a mandatory licensing regime in the Environmental Public Health Act that will require all cleaning businesses to have a licence to operate. A key licensing requirement is for companies to pay resident cleaners wages determined by the tripartite partners under the PWM. This is regardless of whether they contract with Government or commercial entities. Cleaning companies will have to comply by September this year.
22. Once the Act is passed, we will take non-compl iance seriously. There will be penalties imposed on companies that fail to comply with the licensing conditions. In particular, for any breach of the progressive wage requirement validated by the Commissioner of Labour, such companies may have their licences suspended or revoked. In addition, service buyers procuring from non-licensed cleaning companies will also face penalties under the law.
23. Apart from cleaning, the security industry is the other major example where cheap-sourcing is common. There are about 70,000 officers in the industry. NTUC is working with its tripartite partners to remedy low basic wages and the long overtime hours that security officers have to put in to get higher gross pay. When the tripartite-agreed PWM is ready, it will be incorporated into the existing licensing framework for security companies that is administered by the Singapore Police Force, and hence be mandatory. As in the cleaning industry, the PWM will incorporate a progression pathway – covering not only entry-level wages in security services, but a series of wage points on a wage-skill ladder.
A targeted approach to uplift lower-skilled and vulnerable workers
24. Making PWM mandatory in cleaning and security services is a significant but targeted initiative to help lower-income and vulnerable workers in these industries. I want to emphasise two points about this move.
25. First, it is a targeted approach, not a national minimum wage. We are using licensing rules to ensure progressive wages in these industries because of the prevalence of cheap-sourcing in the two industries. Cheap-sourcing practices discourage wages, skills and quality from moving up in the way they do in most other industries. This is compounded by the preponderance of older workers with low education in the two industries – workers whose job choices in the labour market are unfortunately limited.
26. Second, the progressive wages in these industries will also be determined through tripartite negotiations. We are not setting wages by political decree. What legislation will do is ensure that the PWM that the tripartite partners work out is actually implemented in these industries. This tripartite approach, and especially the involvement of both unions and employers in setting appropriate wages and a wage-skills ladder, is important. It reduces the risk that workers, especially our older and more vulnerable workers, will lose their jobs as wages go up.
27. Our approach is therefore different from one of legislating a national minimum wage. Many countries have a national minimum wage. I do not intend to get into a full discussion here on minimum wages. But let me just say that there is more than meets the eye in how minimum wages impact the poor.
28. In most European countries, high minimum wages have been accompanied by high unemployment, with the most severe impact falling on people with the lowest skills. Politicians are keen to take the credit for raising minimum wages, without accepting responsibility when those with low skills and experience are unable to find an employer at the minimum wage. Youth unemployment now exceeds 20% in much of Europe including its more successful economies.
29. The US is an even better example, because its minimum wage is much lower than in Europe, and the US labour market is also more flexible. The US Congress is debating whether to raise the minimum wage, as a way to help the poor and reduce growing inequalities. But as a number of reputable economists have pointed out, a higher minimum wage will help some people while hurting others, and the poor will typically not be the ones being helped. This is because the majority of the poor in the US are unemployed, not at work. Higher minimum wages will reduce their opportunities to find an employer, not help them. On the other hand, more than a third of those who actually earn the minimum wage are teenagers, many of whom come from better-off families. The average family income of teenagers who are on the minimum wage is in fact well above the national average for all families. A higher minimum wage therefore does little in practice to improve opportunities for poor families, or to reduce social inequalities.
30. Our approach is different. We want to raise incomes while helping everyone, including those with less skills, to stay on the job ladder.
31. We are restructuring our economy to raise productivity and incomes for all, but providing additional, targeted support for lower-income and low-skilled workers. The tripartite PWM that will be mandated in the cleaning and security industries, where cheap-sourcing discourages wage upliftment, is a new component for these sectors. However, direct Government support will remain at the core of our efforts to uplift our lower income workers. Consider our older lower-income workers again. If we add up the direct and indirect wage supplements that the Government provides in the form of Workfare and the Special Employment Credit, this group receives subsidies equivalent to about 40% of their wages.
32. We are also providing strong and targeted Government help for lower income families, especially by giving their children additional support in education, and enabling even poorer families to own their homes.
33. It is an approach that is achieving results, and there is more to do. Our unemployment rate is amongst the lowest internationally. Lower wage workers at the bottom 20% of the income ladder have seen their incomes grow significantly in real terms in the last five years. The availability of jobs and the rise in incomes has also supported household incomes. Taking into account government transfers to households (net of taxes) such as Workfare and schemes such as the GST Voucher, household incomes in fact grew by 3.1% p.a. in real terms over the last five years.
34. While we have made some progress in helping our low-wage workers, we are doing more and must. We must continue to support them through comprehensive policies that support and reward work, and provide hope and opportunities for their families as well.
35. With our joint efforts – between our unionists, employers, and individual workers themselves, and with the Government’s support, I am sure we will succeed. It is this collective approach, and this constant search for joint solutions, that is a real asset for our workers. It is also how we achieve our goal of becoming a truly inclusive Singapore.
 Under the PWM recommended by the Tripartite Cluster of Cleaners, the entry-level basic wage for indoor cleaning is $1,000. The median basic wage for cleaners in 2012 was $820.
 Wage levels as recommended in the “Recommendations of the Tripartite Cluster for Cleaners on Progressive Wages”.
 In the past five years (2008-2013), wages for the bottom 20 percent of resident workers have improved by 1.9% p.a. in real terms. Real wage growth would be higher when nominal wages are deflated by the CPI excluding Imputed Rentals on Owner-Occupied Housing.
 Refers to household income from work per household member including employer CPF contributions and government transfers (net of taxes) for the bottom 20 per cent of resident employed households for 2007-2012. (Data fo r 2013 is currently not available)