Would the wage credit scheme work?

In case you haven’t heard, the Singapore government has introduced a wage subsidize scheme during the recent budget announcement.

It is called the Wage Credit Scheme (WCS) and under the scheme, the government will co-fund 40 per cent of wage increases for Singaporean workers earning up to a gross monthly wage of S$4,000.

The scheme will be effective between 2013 and 2015. It is expected to cost the government S$3.6 billion over three years.

Not exactly the Minimum Wage some people are hoping for but this is pretty close in a sense.

It is still a pretty significant move by the government to encourage pay increase of low-wage workers. Companies can up the salaries of their workers in higher amounts and shorter frequencies while getting up to 40% reimbursement from the government on an annual basis.

As a HR practitioner and a small business owner, I was full of excitement when I hear this one. But when the noise died down and you start putting the pieces together, some aspect of it seems to be kicking the can down the road.

Yes, it will help to narrow the Gini coefficient. So statistically we would look prettier that’s for sure. But that ultimately still doesn’t justify the huge wage increase that companies might be giving or compelled to give due to internal or external pressures if there were little productivity gains. 

And should that happen, the financing of the wage increase has to come from somewhere. So we probably could be seeing an economy wide inflation contributed to an extent by this scheme.

With probable generous increments of lower wage workers, the ones making $4,000 and above might probably be expecting the same % too. Can companies afford so much wage cost?

I would be concerned that companies start using this scheme as the only way to retain talents because they would be in big trouble after 2015.

I can already foresee the creative ways some companies may apply into their compensation & benefits structure so as to maximize the scheme. This includes hiring at a lower than average salary and incorporating a higher amount of increment upon confirmation.

If this isn’t a policy mis-stepped, it probably is a catalyst to weed out unproductive businesses and drive some consolidations along the way.

But then I may be over-reacting. With the reimbursement coming in annually, I doubt the adoption rate will be high for a start. Perhaps like the Productivity & Innovation Credit, we will see it turning into a quarterly thing in 2014.