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Singapore: too much inequality may undermine prosperity

Singapore’s vaunted style of pragmatic, efficient government – credited with fueling the city-state’s meteoric rise to prosperity over the last four decades – may have lost some verve, according to a new study by some of Singapore’s leading economists.

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Lee Hsien Loong at the WEF in Davos 2012

Singapore’s vaunted style of pragmatic, efficient government – credited with fueling the city-state’s meteoric rise to prosperity over the last four decades – may have lost some verve, according to a new study by some of Singapore’s leading economists.

As decades of rapid and largely equitable growth in this Asian Tiger give way to a widening gap between rich and poor and slowing social mobility in a country often boastful of its meritocratic traditions, the government needs to adopt a more activist stance that better supports citizens, said the paper, penned by six economists for the city-state’s Institute of Policy Studies.

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Inequality and the Need for a News Social Compact

Income inequality in Singapore has risen significantly in the last decade. Whether measured by the Gini coefficient, or by the ratio of incomes between the top and bottom deciles, the evidence points to an incontrovertible fact: Singapore has become more unequal in the last ten years or so.

Lee Hsien Loong at the WEF in Davos 2012

Singapore president Lee Hsien Loong at the WEF in Davos 2012. Photo by http://www.flickr.com/photos/worldeconomicforum

In addition there are certain characteristics of inequality patterns in Singapore that make it especialIy worrying. First. the increase in income inequality has been accompanied by wage stagnation, and even real wage declines, for certain segments of the workforce. Between 2001 and 2008 for instance, the bottom three deciles of resident working persons experienced real income declines, while the next two deciles experienced hardly any growth at all (Economics Society of Singapore 2009).

Among citizens in full-time employment, the median monthly income from work increased by 11% — or 1.2% per annum in real terms — between 2001 and 2010, with almost all the income growth occurring in the latter half of the decade. Workers in the 20th percentile experienced no increase in real incomes over the same period (Ministry of Manpower 2011).

Prime Minister Lee Hsien Loong spoke of the problem in his speech during the 2011 Presidential Address Debate, saying:

“the most successful Singaporeans will continue to do very well. The average Singaporeans will be able to make improvements in their lives and are much better off than people in most other countries. But at the lower end, incomes have risen far too slowly, especially in real terms.”

Download the complete paper here

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