Industrial Relations System of Singapore and Its Economic Impact - Example

The Author’s name] [The Professor’s name] [The Course Title] [Date] Industrial Relations System of Singapore and Its Economic Impact This paper would discuss and evaluate the Industrial Relations System of Singapore and how it has impacted economically towards producing positive results in strengthening Singaporean economy. It would also cover how Singapore tackled the critical situation rose during Asian Financial Crisis and overcame it successfully and triumphantly due to good governance and workable industrial relation system in which both employer and employee feel relaxed and work enthusiastically for the betterment of their country. Introduction Singapore's industrial relations system is now well known for its remarkable degree of stability and co-operative labor-management relations. The government has played an active part in promoting economic development through changes in the industrial policy. There are prominent transformations of Singapore's industrial relations since its appearance as a Colonial Administration in 1960. Fundamental changes in the relationship and the external environment between the union and government have brought about some key issues to the industrial relations system. Being a highly industrialized country, Singapore needs to deal with problems associated with globalization such as wages, working hours and retrenchment issues. Dependency on the foreign workers and ageing workforce can be better managed to tackle the significant labor shortage Singapore is experiencing. However, it is argued whether these employee rights will be appropriately attended to. Due to the cooperation of the government and the union, it is debatable whether industrial relations policies are created to benefit the employees, or rather for economic growth. It is contended that although labor-management relations are peaceful, the cohesiveness of Singaporean organizations is rather low. Colonial Administration to Regulated Pluralism (1960-1968) Lee Kuan Yew wished to industrialize Singapore, passing the Industrial Relations Ordinance 1960 to regulate dispute settlement and collective bargaining through conciliation and judicial arbitration. In 1961 the Singapore Trade Union Congress was split into the left-wing Singapore Association of Trade Unions (SATU) and the non-communist National Trades Union Congress (NTUC). The NTUC quickly became the leading trade union organization, largely because of government support. In attempts to build harmonious labor-management relations, the Trades Disputes Act 1941 and the Criminal Law Act 1955 limited the capacity of unions to take industrial action in essential services and made politically motivated strikes illegal. In 1967, the unofficial strike initiated by the Public Daily Rated Cleansing Workers' Union (PDRCWU) was a 'turning point in Singapore's industrial history' and prepared the workers for the changes the Government was planning to make to the labor laws. After the incident, the Government banned all strikes in certain indispensable services and required separate unions for each statutory board. Regulated Pluralism to Corporatism (1968-1979) The number of industrial disputes and strikes declined, but so did the trade union membership. In a perspective of full employment and significant upward pressure on wages, the National Wage Council (NWC) was formed in early 1972 to advise on the creation of a wage system that would guarantee orderly wage increases. This tripartite forum was made up of representations from trade unions, the government and the employers' federations. This structure reduced negotiations between employers and unions and provided employers with stability in labor costs (Mahuzhnan, 17-34). The second transformation also included a significant strike - at Metal Box in 1977 - which was the last strike carried out in Singapore that was carried out without the consent of the Government. This was also seen as another changing point in the history of Singapore's industrial relations. Corporatism to Corporate Paternalism (1979-1997) In 1979, through the NWC, the Government was capable to raise wages at a rate higher than labor productivity to put pressure on employers to upgrade labor productivity by computerization, mechanization and intensive skills training for workers. This policy was initially unsuccessful as wages continued to outpace productivity. The Singapore employers failed to put in the appropriate training and effort. Singapore experienced a severe recession in 1985-6 and it was pointed out by an Economic Committee that the one factor that had contributed to the severity of the downturn in Singapore was the rigidity of the wage system. Accordingly, the NWC gave recommendations on a more flexible system that linked wages more closely with economic conditions (Pang, 1993). The system contained a basic wage, appended by variable bonus payments that were either linked to productivity or some profit sharing arrangement. Unlike the wage reform in 1972, it was advised that wages should not exceed productivity growth to ensure that Singapore maintained its competitive edge in relation to other newly industrializing countries. “Between 1973 and 1979, actual wage increases followed the council recommended wage increases closely. In 1979 the "wage correction policy," in which there were three years of high-wage recommendations, was designed to force an increase of the productivity of higher value-added operations, to reduce the reliance on cheap unskilled foreign labor, and to raise labor productivity. From 1980 to 1984, however, actual wage increases exceeded the recommendations by an average of 2.4 percentage points per year, as the increasingly heavy demands for labor apparently outstripped its supply. Additionally, collective agreements for unionized workers lasted for two or three years with built-in wage increases. Although starting pay was relatively low, large gaps in wages were institutionalized through longevity of employment and annual raises.” (Country Studies, http://www.country-studies.com/singapore/labor.html) Corporate Paternalism to Manpower Planning The amendments that made up the fourth phase of Singapore's industrial relations did not begin until after the 1997 Asian economic crisis. The immediate response to the 1997 Asian financial crisis was similar to that triggered by the 1985-1986 financial crisis. A series of cost-cutting measures were implemented to sustain the competitiveness of local invested corporations. On the other-hand, the Government realized the need to adopt a long term strategy in response to the internationalization of markets, increased workforce diversity and technological innovations. In 1998, the Government transformed Singapore's Ministry of Labor into the Ministry of Manpower (MOM). MOM's was established to develop a globally competitive workforce and foster "a highly favorable workplace to achieve sustainable economic growth for the well being of Singaporeans". (ESS Accessed on November 29, 2007 from http://www.ess.org.sg/Resources/GeneralInformation.htm) The role of Human Resource is a key element of Singapore's Ministry of Manpower's blueprint. Manpower 21 identified six strategies on how to pursue the plan. The six strategies are: (1) The integration of manpower planning. (2) The development of lifelong learning for lifelong employability. (3) The augmentation of the talent pool. (4) The transformation of the work environment. (5) The development of a vibrant manpower industry. (6) The redefinition of partnerships. The lead partners with MOM include the NTUC and the SNEF (Singapore National Employer's Federation) who work together to form and implement the strategies. The NTUC is to deal with community development, employment and training, productivity push, skills upgrading and workplace health. Corporate Relocation and Retrenchment As the competition for FDI becomes more intense, the government is encourages low-skilled and low-technology labor intensive operations to other countries such as Indonesia, Malaysia and China. In 1993, a special Committee to Promote Enterprise Overseas was set up to help enterprises venture overseas. (Chwee-Huat, 48-61). In addition, MNCs often chose Singapore as the first stop when they decide to relocate their operations, before moving to another country where the costs are lower (Mehmet & Tavokoli, 133-56). With good infrastructure support, political stability, and a well-trained hardworking labor force in Singapore, the chance of a successful overseas relocation is high. Hence, once the operational arrangements and logistics are established and tested, the operation is then relocated to a nearby country were labor and operational costs are cheaper. Workers have no trouble in finding alternative employment; their profile suggests that those who are most likely to be affected are older workers with low education and few skills. As more companies upgrade their operations, the demand for low-skilled jobs will be substantially reduced. Trade unions have been effective in securing fairly favorable retrenchment compensation for the laid-off workers. Economic Restructuring and Older Workers Singapore has the issue of elderly workforce. In the year 2000, about 43 per cent were over 40 years old. It is predicted that by the year 2030, more than half the workforce will be in this age group. (Chwee-Huat48-61). The retirement age may probably be extended to 67 in the near future. In a tight labor market, employers are generally willing to retain employees as long as they are physically fit. Nevertheless, they are facing some problems that are inherent in an ageing workforce. With several of the older workers born before freedom when education was a luxury for the public, Singapore still confronts the dilemma that a sizeable proportion of its older workers are poorly educated. The Advisory Council on the Aged appreciated employees to work for as long as they can. It recommended that if older workers can be educated to deal with with new technology and work methods, they will stay longer in the workforce. However, training of older workers has proved to be a difficult task. First, without basic education, it is difficult for them to acquire new skills. (Erickson, 3-21)This is especially so when the nation is shifting towards more sophisticated technologies. Second, many older workers cannot see the threat of industrial restructuring. They decline to go for basic education and skills training because of such concerns as reduced overtime earnings, quality of family life and unsuitable hours and/or location (Kalirajan, 486-503). Asian Financial Crisis and Successful role of IR The Asian Financial Crisis (AFC) started from Thailand, whereby the property and share market started declining and rumors of banks and finance companies caught in financial difficulties led to massive currency attacks stemming from loss of investor confidence. The crisis spread to many neighboring countries such as Indonesia and Philippines who were believed to have similar unstable economic situations. Although Singapore did not demonstrate similar economic situations such as current account deficits, Singapore's geographical proximity with its neighboring countries and economic dependence resulted in Singapore being hit by the crisis too. Nonetheless, the impact of the crisis on Singapore was much less severe, and this report seeks to address the underlying reasons. As Singapore is a small and open economy, it adopted a managed float system whereby the Singapore Dollar (Sing Dollar) is allowed to fluctuate within a target band. The target band is based on trade-weighted basket of currencies of Singapore's major trading partners. To prevent investors from speculating and reducing uncertainty especially during AFC, this target band is undisclosed. During the AFC, many Asian countries refused to depreciate their currency and used their foreign reserves to maintain the value of their countries. However, within a short period of time, their reserves were depleted completely and their currencies depreciated significantly thereafter. (Tan, 326) On the other hand, Singapore had learnt its lesson from the 1985-86 recession and displayed its willingness to take timely and effective policy measures, as shown from the government's decision to "let market force decide" the exchange rate of Sing Dollar instead of defending it, resulting in a lower impact of AFC on Singapore relative to other crisis-affected countries. Singapore possessed strong economic fundamentals, which lessened the impact of AFC on our economy. In addition, Singapore had good governance on our financial market, which increased investor confidence and reduced speculations on the economy. On the other hand, other countries, especially Thailand engaged in continuous liberalization of the financial markets with weak supervision, resulting in loss of confidence and intense speculative pressures. Flexibility of wages and its Impact on Industrial Relations Singapore adopted a rather flexible wage system, which reduced the impact of AFC and facilitated its recovery. Reducing wages was the key cost-cutting measure exercised by the government, since labor costs comprise of a substantial amount of production and operating costs. Lower costs would translate into lower prices in order to remain competitive. Also, unemployment was curbed by reducing wages since employers had less incentive to retrench workers as a result of lower labor costs. In the government sector, the government focused on cutting the monthly variable component (MVC), which proved to be effective, while workers' morale was not immensely affected as they were aware of volatility in the MVC and they still received their basic pay even though the MVC was reduced. Lowered MVC allowed Singapore to cut wages to restore its competitiveness without serious repercussions on workers' morale and productivity. (Rahim, 17-45) As most firms in the private sector did not include the MVC in their employee pay scheme at that time, wages were cut in a similar fashion by the annual wage supplement (AWS) and the annual variable bonus (AVB). Although AWS and AWB take a longer time to reduce cost of labor since they are revised yearly instead of monthly, they played a role in reducing the cost of labor. In order to lower the labor cost and restore Singapore's competitiveness, the government lowered CPF contribution rate, which helped to stimulate aggregate demand on top of maintaining low unemployment rate. Specific attention could be paid to lowered employers' contribution from 20% to 16% after some time. (Lee, 57-70) This effectively maintained the unemployment rate below 3.5% after the AFC. This was in contrast with other crisis-affected countries which experienced higher unemployment rates. (Yip, 119-23) Good governance of financial markets including corporate governance is also essential for countries to reduce the impact of any crisis faced. As observed during the AFC, many countries without good corporate governance were vulnerable to currency attacks as news of financially distressed firms and probable bank runs led to massive capital outflows as confidence of their currencies were shaken. Thus, stable government and good corporate governance would instill confidence in people and investors and effectively reduce the impact of such crises. Nevertheless, there is a need for countries to respond readily to the crisis as soon as possible by formulating and exercising adequate measures. (Yip, 119-23) “The effect of wage increases, compounded by a further raise in the mandatory Central Provident Fund component of wages, was to price Singapore out of the market. High wages were a major contributor to Singapore's 1985 recession. Consequently, in 1986 and 1987 the government instituted a wage restraint policy: wages were frozen and the employer's contribution to the fund substantially reduced. The policy's relative success could be attributed to close government-labor ties and to the tripartite forum of the National Wages Council.” (Country Studies, http://www.country-studies.com/singapore/labor.html) Can the Singaporean Industrial Relation System Sustain? The current Singapore IR system is not ideally positioned to serve the future interests of the nation as globalization and improvement in educational standards in Singapore progresses. The current position of the IR system does not support the development of flexibility and productiveness to perform complex work. However, the system is not as rigid as it seems. Singapore's IR/HRM policies have been quickly changed and modified to meet future needs and to adapt to Singapore's economic development policies (Mukhopadhaya, 161). The trade union working closely with the government can be taken in two ways. The first sees it as something positive. By working closely with the government, the trade union is able to influence the government on important industrial reforms. The second view sees it as the government who dictates to the trade union. It is evident that the second view is more comprehensive as it has been the government who has led the four industrial relations transformations over the years. (Legget, 242-57) This outlook worries some as the industrial system might encourages economic growth at the common citizens' expense. Most Singapore employers are left with the option of either automating their operations or moving their labor-intensive activities elsewhere (Mutalib, 313-42). It is believed that foreign cheap labor discourages employers from upgrading the skills of their existing workforce and from automating their operations (Mukhopadhaya, 161). However, looking at the situation more closely, the goals of employees, employers and the government are very similar. The people in Singapore are mainly dominated by a corporatist view in an elitist society. The employees seek to get ahead in terms of work and the employers look for opportunities to stay competitive in a labor intensive environment. The government adopting an economic development focused vision might not be a bad thing in this case. Because human resource is the major capital in Singapore, to sustain economically, the government cannot avoid issues regarding employees. The changes made by the government have all involved strategies concerning the improvement and modifications to the industrial relations policies. In addition, given the nature of Singaporeans, they are more likely to accept changes from the government. However, in a more democratic society where a Marxist approach to industrial relations is adapted, the Singaporean industrial system would fail. Conclusion At the national level, unions have significant voice in decision-making. At the local level, the enterprise union structure, together with the restrictions on the ability of trade unions to bargain and strike, management-labor relations are cordial. In practice, issues regarding employers having the flexibility to redeploy older workers need to be looked at. The industrial IR system has sustained due to the corporatist view on both the employees and the employers. As the Government moves to a national man powering strategy, human resource and the improvement of work life would be a focus in the up coming years. Works Cited Chwee-Huat, T. (1996). Employee relations in Singapore -- current issues and problems. Employee Relations, 18(3), 48-61. Country Studies: Article retrieved on 29th November, 2007 from Country Studies, http://www.country-studies.com/singapore/labor.html) Economic Society Singapore ESS Article Accessed from http://www.ess.org.sg/Resources/GeneralInformation.htm Erickson, C. L. (1998). Industrial relations system transformation. Industrial and Labor Relations Review, 52(1), 3-21. Kalirajan, K. P. (1998). Ageing labor force in a labor shortage economy: The case of Singapore. International Journal of Social Economics, 25, 486-503. Lee K. M. William (2005) The Poor in Singapore: Issues and Options, Journal of Contemporary Asia 11 (1): 57-70. Legget, C. (2002). Industrial relations and enterprise unionism in Singapore. Labor and Industry, 1(2), 242-257. Mahuzhnan, A. & Yuen, L. T. (2002) Singapore: Re-engineering Success, edited by Mahuzhnan, A & Yuen, L. T. Singapore: Times Academic Press; Tan, G. 2001. The Newly Industrializing Countries of Asia, Singapore: Times Academic Press, pp. 17-34. Mehmet, O., & Tavokoli, A. 2005: Does FDI cause a race to the bottom? Journal of the Asia Pacific Economy, 8(2), 133-156. Mukhopadhaya, P. (2002) Crisis, Social Sector and Income Distribution in Some Southeast Asian Countries, European Institute of Japanese Studies Working Papers Series, 161. Mutalib, H. (2000) Illiberal democracy and the future of opposition in Singapore. Third World Quarterly 21 (2): 313-342 Rahim, L. Z. (2000) Economic crisis and the prospects for democratization in Southeast Asia, Journal of Contemporary Asia 30 (1): 17-45. Tan, C. H. (2002) Employment Relations in Singapore, Singapore: Prentice Hall, p. 326. Yip, Paul S L (Y), 2005: The Exchange Rate Systems in Hong Kong and Singapore: Prentice Hall (Pearson, Singapore), 119-23. Read More