GEORGE ROSARIO, 62, would like to retire but he can't. So the former Singapore policeman drives a cab for 10-12 hours a day to help his son meet mortgage payments on the apartment they share with George's wife and his grown-up daughter.[Text corrected.] "I wish my dad could retire," says Benny, 32, a junior manager in a shipping firm who feels considerable guilt that his father must still work. "But the cost of living here isn't cheap."

Still, George is much better off than Chee, a woman in her 60s who wipes tables and collects dirty dishes at a downtown food court. She lives with her divorced daughter, who works in a beauty salon, and her son, paralyzed by a stroke, in a state-subsidized apartment. Chee is glumly philosophical: "I'm not educated, so I have no choice."

The number of low-income households is on the rise in Singapore, the globe's ninth-richest country by per-capita income. In May, a Statistics Department report disclosed the fact that households earning less than S$3000 (US$1,715) a month rose to 42 percent of the total last year from 40 percent in 1998. The wages of lower income groups plunged by as much as 34 percent in the same period, while salaries at the top rose.

"We are observing the beginning of a trend of increasing income disparity in Singapore and the gap may remain," Paul Cheung, the government's chief statistician, said when the numbers were announced.

IMPACT OF CRISIS AND REFORMS The figures show that the impact of the Asian Crisis, combined with government economic reforms--the liberalization of telecoms, banking and immigration, for example--have created a dual economy in the city-state. Income inequalities are rising and for the first time the island is facing structural unemployment, because the supply of unskilled staff exceeds demand. The growing divide is unlikely to reverse the liberalization trend, but the government may be forced to temper its pace to avoid a social backlash.

Growing inequality has unsettled many in Singapore. True, no one lives in absolute poverty, which the World Bank defines as living on less than one U.S. dollar a day. But in the past, divisions based on income weren't as marked as they are now. The prevailing philosophy was largely that everyone struggled to do better and would eventually be rewarded in proportion to their hard work. But the crisis and increased competition in business have hit the unskilled and uneducated hardest. "The worry is that it could get worse," says Chua Beng Huat, a sociologist at the National University of Singapore. "As the country moves into the New Economy, a whole chunk of labour could get pushed out."

Meanwhile, concern is growing that the rapid upward social mobility that many have enjoyed over the last three decades is unsustainable and that an eventual slowdown will widen the divide.

Add to this the fact that during the crisis Singapore wooed foreign business and professional talent, creating an influx that has helped change the island's demographics. When unskilled workers and domestic helpers are taken into account, almost one in four people in the city is a foreigner. A July report by Singapore-based SG Economic Research said bluntly: "There is growing resentment among indigenous Singaporeans over the influx of foreigners attracted by liberal immigration policies."

The income gap poses potential problems for the government. In his second volume of memoirs, Senior Minister Lee Kuan Yew reveals the secret of the political success of the ruling People's Action Party, or PAP. "To straddle the middle ground and win elections," writes Lee, "we have to be in charge of the political agenda."

Lee and other leaders reinforce that agenda in speech after speech. Globalization is in and a welfare state is out. Self-help through adult education and retraining is emphatically in--S$5 billion has been earmarked for a Lifetime Learning Fund. Meanwhile, state-funded skills-development programmes focus on retraining workers, while S$200 million has been set aside to co-fund industry training plans.

Despite those measures, the opposition is likely to exploit inequality issues in the next election, which must be held by January 2002. Although the PAP isn't in any danger over the growing income gap, it doesn't believe in taking chances. Political analysts say this is why it pre-empted opposition criticism by putting the statistics up for discussion in May, prompting much local media attention.

"It's a quality-of-life thing," says Tim Condon, the chief economist at ING Barings in Hong Kong, who wrote a recent paper on that city's similarly rising inequalities. "If too many people say they're not benefiting from rapid growth, they get alienated. That's not good for society at large."

The republic's economy grew at an 8.8 percent pace in the first half of this year, but it was driven by multinationals and government-linked companies rather than the small businesses in which many Singaporeans work. "That's why many cannot believe the figures," says Manu Bhaskaran, a director of SG Economic Research.

Singapore's embrace of the New Economy and globalization has emphasized the trend. Wages at the lower end are driven down because the crisis and the influx of unskilled foreign help has left more workers chasing jobs. Meanwhile, wages at the top end are driven up to attract the world's best and brightest.

The result is a "sobering" picture, the government-linked Institute of Policy Studies said in comments on the May report. Household incomes of the bottom 10 percent of the population dropped last year to a monthly average of S$133 from $258 in 1998 while households in the top 20 percent earned 18 times more than those in the bottom 20 percent, up from 15 times more two years ago.

The hardest hit are the over-40s. According to Chua, the National University sociologist, more than half of workers in their mid-40s and above have less than a secondary-school education. The percentage of people aged 40 and above who were jobless rose to 44 percent in June this year from 32 percent in June 1997, just before the crisis struck.

BETTER THAN HONG KONG For all the concern, however, Singapore remains better off than Hong Kong, its closest comparison. Using the so-called Gini coefficient, where zero represents perfect income equality and one is complete inequality, Singapore slipped to 0.47 last year from 0.41 in the early 1990s, while Hong Kong slid to 0.52 from 0.39 in the same period. Moreover, access to basics such as food, housing, medical care, education, public transport and parks in Singapore is relatively equal, a fact that "ameliorates the government's growth strategy somewhat," says Mukul Asher, a National University economist.

So why the fuss? "The divide was never here. We never had a rural-urban gap like, say, Malaysia," says Simon Tay, a nominated MP. "It disturbs our sense of ourselves because we bought very much into the concept of getting ahead."

Political analysts say the growing gap sits uneasily with PAP ideology. The party is a populist movement that swept to power in 1959 backed by intellectuals and the downtrodden alike. "It becomes increasingly difficult to argue that you're working for the larger good," says a Singapore-based analyst. "But what do you do? Welfare is a non sequitur. This is an inevitable byproduct of capitalism and globalization."

It could get worse before it gets better. But salaries are expected to rise again next year as the recovery becomes more broad-based. And don't discount the still-strong urge to move up in the world.

"I keep losing staff because everyone wants to improve himself," says Friedrich Wu, chief economist at DBS Bank. "The high-school fellow wants to go to a polytechnic, the polytechnic chap wants a degree, and the graduate wants a post-graduate degree. It never ends."