Wage system must be reformed, says Singaporean official

Singapore must reform its wage system if the city-state is to be able to fend off the fierce challenge from emerging economies with lower labor costs, the government said yesterday.

The wage reforms will not be easy for the economy, hit severely by the SARS outbreak and still struggling to recover fully from the 2001 recession, but the changes are necessary, said Deputy Prime Minister Lee Hsien Loong.

"Wage restructuring is painful medicine, but it will make our economy healthier and fitter," said Lee, who is also the finance minister.

"Wage restructuring does not mean an across the board wage cut ... it means linking workers' pay more closely with their performance, and making it depend less on his seniority in the job," Lee said.

Lee said Singaporeans have to adjust to the new landscape where emerging economies such as China and India are "competing for investments, and their workers are competing for jobs against workers elsewhere."

"We must understand this reality, so that we can adapt ourselves to the new world, and respond vigorously to the challenges," he said in a speech to mark Singapore's 38th birthday.

Information, Communications and Arts Minister Lee Boon Yang also called yesterday for a change in the wage system.

"In the past, when economic growth was high and there were few competitors in our business areas, we could command a higher wage premium," he said.

"But now that competitors, such as China and India, have emerged, we must be prepared to make some adjustments so as to retain investments and jobs in Singapore," he said.

Singapore has long enjoyed a reputation as Southeast Asia's richest country.

But it has suffered a long series of setbacks including the global burst in the dot-com bubble in the late 1990s, the 2001 local recession and this year's Iraq war and SARS outbreak.

SARS in particular hit the city-state seriously, pulling GDP into negative territory with a record 11.4 contraction in the second quarter to March over the previous three months.

On Monday, the government lowered this year's growth targets to between zero and 1 percent from 0.5 to 2.5 percent.