How local firms will be hit by Singapore's new labour laws

With the announcement of Singapore Budget 2013, and the Wage Credit Scheme (WCS) as its centerpiece, no doubt Singaporeans are going to feel the ripples differently depending on where you stand. In this article, I will be sharing my thoughts as a small Food & Beverage (F&B) entrepreneur, as well as a Singapore citizen.

Foreign Labour Restrictions

As part of Budget 2013, the Foreign Dependency Ratio is being lowered further across industries, with companies being required to comply by 1 July 2013 or risk not being able to renew or apply their foreign work passes. Foreign worker levies will also be raised. The government’s role is to provide higher paying jobs for Singaporeans and no doubt this is an initiative towards this. National unemployment is at a low 2%, which shows the fruit of government foreign labour policies through the years. The next front that the government is fighting is increasing overall productivity, and this should be the major focus.

As a business owner, if an employee produces higher than average productivity, naturally they would command higher than average pay. In my opinion, at the blue collared occupations, most Singaporean staffs are nowhere near the service standards of our neighboring countries like Malaysia, Philippines and Myanmar. With the current ongoing policies, locals are being hired based not on capabilities, but to make up quota.

This is especially true in the F&B industry, with labour being the backbone of our trade. Put in a less flattering euphemism, Singaporeans are like vehicle COEs; you don’t need it but you have to pay for one before buying a car. And I can assure you many local firms are employing Singaporeans only for access to foreign labour, including myself. Even then, it is still not enough. Numerous reports of local eateries shutting down, not due to poor concept, but lack of labour appear frequently in the media. RE&S, which own outlets like Ichiban Boshi and Men-ichi Ramen, along with Tung-lok group have had to close several restaurants due to being restrained by foreign quotas.

Small local businesses are hit the hardest and are the first to fold. The government has created a system to easily start businesses with its hand, but also so easy to have your hopes and dreams crushed by the other unsustainable hand. A country filled with a thousand Macdonalds’, KFCs and Burger Kings seems to be a plausible outcome at this rate.

Wage Credit Scheme (WCS)

The WCS was introduced to increase wages specifically in the lower paying tiers, at a cap of $4000 monthly salary. The government subsidizes 40% of an employee’s pay increment for 3 years with the goal of giving employers these couple of years to increase productivity enough to transit to a higher cost.

In principle, the WCS is applaudible for the benefit of Singapore citizen’s welfare. Personally, this scheme might not prompt me as an employer to increase wages due to the preceding high basic pay already enforced via hiring restrictions. In the end, sensible employers would give a raise based on merit and value produced, not because it is cheaper to do so. When I do increase pay however, the amount could be higher than without the WCS. However, business owners are very aware of the sustainability of such schemes. After the subsidy ends, will employers absorb the increased cost or start to “fire and hire”, is a big question government has to be absolutely wary of, particularly if productivity does not increase proportionately to the wage increase.

The direction should be to increase local productivity first and foremost, then wages can catch up in tandem with fiscal efforts as well as company’s ability to support higher cost. Presently, local wages are artificially propped up without first improving worker productivity as well as attitudes. Singaporean youths are starting to demand lesser hours, more benefits and abstain from certain industries. From personal experience, I have had staff not turning up for work without as much as an SMS. This type of behavior is very prevalent among local workers, with numerous other establishments experiencing the same irresponsibility. Yet business owners are forced to hire them because we have no choice. This method of rewarding complacency and penalizing opportunity creating employers seem really counter-intuitive to me.

Next Generation Attitude

What our policies have done over the last decade is concentrate heavily on tertiary education. Menial labour is frowned upon as a career. I’m sure many of you have heard this from your parents, or have even used this line on your child, that if you don’t study hard enough you will grow up to be a road sweeper. Consequently, no local wants to be a highway cleanliness attendant or dish washer, no matter how much the pay package is because of the social stigma. Evidently, you don’t see youths rushing to apply at Sakae as a washer even when it was reported in the news that their dishwasher takes home $3000 a month. The hours are long and the work is tedious, which pretty much sums up the food industry. On average we work something like 60-70 hours a week, and how many young Singaporeans nowadays are willing to work such periods in the kitchen, even with corresponding high pay? F&B base salaries have increased about 30-50% from 2 years ago yet we still face an absurd labour crunch. Even Ang Kiam Meng, chief executive of Jumbo group, is reported to be serving tables personally due to this crunch. An economic survey on F&B services by the Department of Statistics released earlier in Feb 2013 revealed that Singapore restaurants employed 43,500 workers in 2011, and restaurants still required 10-40% more staff to fill this sector.

Even with any improvements to personal productivity, there is still a minimal operative prerequisite for the food industry. Food service is only scalable with labour.

I had the good fortune to have a quick interview with Chef Willin Low, owner of Wild Rocket, Wild Oats and Relish, to share some of his comments below:

“With the lower quota, we are probably going to have to shut some outlets because Singaporeans are just not applying. I am all for raising productivity; however one policy does not fit all. Productivity can be raised in many mass target, fast food type of business, however for a full service restaurant, no matter how you improve the efficiency/productivity level, you still need the requisite staff to greet, serve (and) chat with the guests. The food is cooked a la minute individually. One of my smallest restaurants has 2 chefs. Once the quota is cut, I will lose 1 chef. There is no way I can run a restaurant with 1 chef. I will be forced to shut (down) and relocate overseas.”

Going Forward

If we continue to restrict foreign labour yet leave local workers unchecked, entrepreneurs are going to do what makes the most economical sense which is to relocate overseas, clearly a common move for a lot of local food businesses.

Singapore is losing its edge as the ‘Food Capital of the World’, something we once held proudly for years. Our reputation suffers because the deficiency of manpower makes us unable to maintain our high service standards.

A blanket one size fits all labour policy to impede foreign influx will win you votes in the next General Election, but the future impacts on our economy is detrimental. The current policy definitely needs a more narrow scope, not just with a broad definition of “Service”, “Manufacturing” or “Construction” which is the current approach. There are multitudes of various sub-segments with differing labour needs that has to be micro-managed.

Foreign labour is definitely still required in Singapore, especially in the service and retail sector, simply because the next-gen of Singaporeans are unwilling to do it. A free market will ensure the best competitiveness and productivity. This is clearly the unpopular decision among Singaporeans, but it is time we grew up and bit the bullet; only the most efficient workers will survive. More value can be created by employers if we spend less time and effort on manpower troubles, and more on creating revenue opportunities.

My humble opinion is to not restrict labour supply, or at least loosen it. Instead concentrate on increasing abundance in employment opportunities. Mindsets need to be re-educated right now lest we head towards a culture of slack, inefficiency and a resultant nation of debt and unemployment albeit higher wages. Sounds like a familiar debt crisis situation, hmm?