Singapore Has The Biggest Pay Gap Among Developed Countries

On Monday, 15 July 2013, The Wall Street Journal carried an article, “Asia Has World’s Biggest Pay Gap“, which said that, “In Asia, middle managers such as department heads make more than 14 times as much as operational employees such as clerical workers–the biggest such pay disparity in the world… The difference in pay in Asia is far greater, for example, than in North America (3.5 times) and Europe (2.9 times), and somewhat bigger than in the Middle East (11.9 times) and Central and South America (10.2), other regions comprised mostly of emerging markets.”

I took a look at Singapore’s inequity rate, and it showed that middle managers earn 6.7 times as much as workers (Chart 1). Singapore’s inequity rate is actually the highest among the cities of the developed countries, after Slovakia (Bratislava) and the Czech Republic (Prague), which had inequity rates of 7.4 and 7.1 respectively. Both these countries are newly-developed countries, depending on which measure you use.

If we were to look at the inequity rates of the other cities in the developed countries, London has an inequity rate of 4.2, Sydney is at 4, Paris 3.9, New York 3.6, Montreal 3.3, Berlin 3.1 and Oslo 2.6.

Chart 1: Hay Group Inequity Rate

Singapore’s inequity rate actually stands between that of the developed countries and the developing countries. If you look at the inequity map, you would see that the cities in the richer developed countries are more equal whereas the cities in the developing countries are more unequal. If this is the case, shouldn’t Singapore’s inequity rate be much lower since Singapore has one of the highest GDP per capita in the world?

This is not the only report that shows the huge income disparity in Singapore. The ECA Global Perspectives National Salary Comparison 2012 had also showed that executives (Chart 2) are much better paid than the junior managers (Chart 3).

Executives are ranked 7th in their relative wealth while junior managers are ranked 21st, 14 places below. If you look at the other countries which have more equitable income distributions, junior managers are better paid (Chart 3).

Chart 2: ECA Global Perspectives National Salary Comparison 2012

Chart 3: ECA Global Perspectives National Salary Comparison 2012

What is wrong here then? If Singapore’s GDP per capita can be taken at face value, then what are the factors that have allowed the other cities in the developed countries to have higher equity, whereas in Singapore – one of the richest in the world – the people are more unequal, when by right, there should be more equity?

According to a United Nations Conference on Trade and Development Discussion Paper, “Trade, Income Distribution and Poverty in Developing Countries: A Survey“, “When looking at the relationship between output growth and poverty for developing countries, the evidence suggests that the faster countries growth, ceteris paribus, the faster poverty rates will fall. In the case of the least developed countries, higher growth also leads to lower poverty.”

It thus makes sense that as a country develops and moves from being a developing country to a more developed country, that income inequality should also drop as well. But why hasn’t this happened in Singapore?

According to the Organisation for Economic Co-operation and Development’s report, “Economic Policy Reforms: Going for Growth 2012“, under the chapter, “Reducing income inequality while boosting economic growth: Can it be done?“, it states that the “growth-enhancing policies … that are likely to reduce labour income inequality” are as follows:

A rise in the share of workers with upper secondary education
Promoting equity in education (and) raising social mobility by making educational outcomes less dependent on personal and social circumstances … (and) a more equitable distribution of educational opportunities. (Examples of reforms include postponing early tracking, strengthening links between school and home to help disadvantaged children learn, and providing early childhood care and basic schooling for all.)
Active labour market policies … by better matching jobs with skills and enhancing job search support and monitoring.
Reducing the gap between employment protection on temporary and permanent work (with) more even job protection
Better integration of immigrants in the labour market
Improving labour market outcomes of women (by introducing) policies to improve the availability of formal care for children and the elderly.
More effective legal rules (e.g. legal action against those who engage in discriminatory practices)
Taxing in a way that allows equitable growth

Looking at this list, what has Singapore done? Singapore has done points 1 and 3. Point 2 was somewhat debated on over the past one year but there are still inconclusive outcomes – our education system continues to be unequally-accessed. For the rest, I can safely say that none of them are being done. There are no anti-discrimination laws in Singapore. Policy-wise, Singaporeans and immigrants are treated differently. The wages of the foreign workers continue to be pegged to the ‘E’ Pass and ‘S’ Pass, which thus depresses the wages of Singaporeans. Women continue to receive lower wages and single mothers are not able to receive the Baby Bonus.

So, the root problem as to why high inequality continue to persist in Singapore? The answer lies in the question itself. Our government practices a policy of discrimination which perpetuates inequality. There are no laws to protect against discrimination of any form and policies are developed to segregate the different types of workers, and in so doing, inadvertently results in Singaporeans being unfairly treated as well, such as through the depression of our wages. Schools continue to exist on class-differentiation. Because the government does not believe in equality but in skewed equitable meritocracy, inequality continues to rear its head.

The reason why Singapore continues to have high inequity is because of policies chased by the government which does not protect the workers and pushes certain upper-income classes ahead of others.

But up until the late-1990s, things were actually looking up for Singapore. There was growing equity in Singapore. Everything changed from 2000.

In The Straits Times on 6 April 2013, in Saturday’s Insight, “Closing the Rich-Poor Gap”, it was reported that the gap between the top and bottom earners grew from 2000 (Chart 4).

Chart 4: The Straits Times Closing the Rich-Poor Gap

The ratio of what the skilled workers earned, as compared to the unskilled workers also started growing in 2000 (Chart 5).

Chart 5: The Straits Times Closing the Rich-Poor Gap

In fact, according to The Straits Times article on 17 January 2012, “Foreign talent policy had effect on income gap“, since 2000, the real income growth rates for the poorest 10% in Singapore had actually dropped while that for the richest 10% had grown the fastest (Chart 6).