Introduction
Inclusive growth refers to economic expansion that benefits all segments of society, reducing income inequality while maintaining sustainable long-term progress. One commonly proposed policy is subsidising education and workers' retraining, which enhances human capital, improves productivity and raises income-earning potential for low-skilled workers. However, alternatives such as fiscal redistribution and minimum wage legislation also aim to address income disparities. While education and retraining offer long-term benefits, they face implementation challenges and delayed results, so it is necessary to evaluate their effectiveness against other redistributive policies.
How subsidising education and retraining promotes inclusive growth
Subsidising education and retraining allows low-income and low-skilled workers to acquire higher qualifications and new skills, increasing their employability and wage-earning potential. As worker skills and productivity improve, the long-run aggregate supply curve shifts rightward; firms experience lower production costs, improving competitiveness and contributing to higher economic growth. Higher skill levels also allow low-income workers to access better-paying jobs, reducing the wage gap between high-skilled and low-skilled workers, raising disposable income for lower-income groups and improving living standards and social mobility. In Singapore, the Infocomm Media Development Authority provides a 70% subsidy under the Tech Immersion and Placement Programme, allowing workers from non-tech backgrounds, such as taxi drivers, to transition into high-paying roles like full-stack developers.
However, there are limitations. Mindset and adaptability barriers mean older workers may resist retraining, preferring familiar roles. The government may struggle to identify relevant training programmes, leading to wastage of public funds on ineffective courses. There is a long time lag, since unlike immediate income support, education and retraining take years to yield economic benefits, making them less effective for short-term relief. There are also opportunity costs, as employers may be reluctant to release workers and employees may hesitate to pursue education if it means temporary income loss. Despite these limitations, education and retraining remain an effective long-term strategy for sustainable and inclusive growth.
Alternative policies to achieve inclusive growth
Fiscal redistribution through progressive taxation and transfer payments can reduce income inequality more immediately than education subsidies. Under progressive taxation, higher-income groups contribute a larger share of taxes, allowing redistribution to low-income households. In Singapore, income tax rates were raised from 22% to 23% for earnings between $500,000 and $1 million, and from 22% to 24% for incomes above $1 million. Through transfer payments, low-income earners receive cash assistance, Medisave top-ups and utility rebates, increasing their spending power. Since low-income individuals have a higher marginal propensity to consume, redistribution raises consumption, increasing aggregate demand and producing a multiplied rise in real national income and higher growth. However, high tax rates may risk capital flight and brain drain as high-income earners relocate, potentially reducing skilled labour and investment. Redistribution also has limited long-term impact, narrowing disparities in the short term without improving productivity or future employability, making it less sustainable than education subsidies.
Minimum wage legislation establishes a legal wage floor, ensuring low-income workers earn a fair wage, reducing inequality and improving living standards. Higher wages raise purchasing power and quality of life, and if workers become more motivated and productive, businesses may experience higher efficiency. However, if the minimum wage is set above the equilibrium wage, firms may hire fewer workers, raising unemployment among low-skilled workers. Higher wages may also raise production costs, prompting firms to raise prices and contributing to inflation. The effectiveness of minimum wages also depends on productivity improvements, which are not guaranteed, making it a contentious policy.
Evaluative conclusion
While subsidising education and retraining is one of the most effective long-term strategies for inclusive growth, it is not the only viable policy. It allows low-income workers to improve skills, secure higher wages and contribute to long-term growth, but its time lag, financial costs and adaptability challenges make it less effective for immediate redistribution. Fiscal redistribution can reduce inequality in the short term, while minimum wage legislation can enhance earnings, though both carry trade-offs such as capital flight, inflationary pressures and job losses. Given these trade-offs, the most appropriate approach is a combination: education subsidies for long-term skill development, progressive taxation and transfer payments for short-term income support, and carefully set minimum wages to enhance earnings without distorting labour markets. By adopting a balanced policy mix, governments can achieve sustainable, inclusive growth that reduces inequality while maintaining stability.