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The second labour market policy will be income policies,
which actually includes a variety of policies,
such as wage guides, flexible wages and wage freeze.
What are these policies basically aiming to achieve?
Wage increases in line with productivity growth,
so that there will be less wage-push inflation.
This mystery growth in output per unit of labour
is faster than increases in wages, thus from the firm’s
perspective, cost of production will fall.
In Singapore there was a two year wage freeze for civil servants,
as well as a five percent reduction in employer CPF contributions.
This is during the 1985 recession, so that companies will
not fire workers as they can better afford the workers’ wages.
However, clear communication must be present between
the employers and the workers, so that everyone understands
the rationale for the policy.
Also, employers must be willing to reinstate or increase wages
when the economy recovers so that the workers will be
more receptive of such policies