Singapore: Wage pressures and productivity efforts
Gauging wage challenges and productivity trends.
Group Research - Econs, Chua Han Teng12 Sep 2023
  • Singapore’s businesses continue to face challenges from elevated wage cost pressures
  • Sustainable long-term real wage gains have to be matched with productivity growth
  • Singapore remains wage competitive vs advanced economies given higher productivity gains
  • Yet, productivity disparity remains high between outward and domestically oriented sectors
  • Digitalisation, skills upgrading, and internationalisation are key policies to raise productivity
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Below is a summary; for full report and detailed charts, please download the PDF


Singapore’s businesses continue to face cost challenges, at a time of slower economic growth. Wages are a top business cost challenge. Nominal wage growth has been elevated, amid a tight labour market, that has been spurred by the post-pandemic recovery and competition for talent.

We estimate that nominal wages (measured by average monthly earnings of resident workers) have pushed ~3% above the level implied by its pre-pandemic trend by 4Q22, after a strong recovery from 2021. Nominal wage levels have risen further in 2023, albeit at a slower YoY rate. Even if nominal wage growth is likely to moderate further due to the uncertain economic environment and cautious business hiring, as we expect, businesses would still feel the pinch of the cost pressures.

For consumers/workers, while they may have received much higher nominal wage growth in 2022, this also came at a time of rapid consumer price increases. After accounting for high CPI inflation, their real increments were not as high, with real wage growth slipping in 2022 vs 2021. Yet, to continue raising Singapore’s wages and living standards sustainably, wage increases will have to be matched with productivity gains over the long-term. Singapore will only be able to maintain its global competitiveness in a more troubled world, if real wage and productivity gains commensurate with each other.     

Competitive vs other advanced economies

Singapore remains competitive vs other G7 and Asian advanced economies, despite higher real wage increases over the past few years (2017 to 2022). 2017 to 2022 was a tumultuous period globally, and Singapore’s economy was not spared. The global economy was significantly challenged by emerging US-China tensions, and the unprecedented COVID-19 pandemic.

Even so, our estimates show that Singapore’s real productivity growth (measured by real value-added per worker) outperformed various advanced economies, supporting Singapore’s better real wage increments (see chart in PDF). The National Wages Council (NWC) (a tripartite body comprising employer, employee, and government representatives) has also been important in ensuring Singapore’s wage increases are in line with economic developments, including productivity, through its recommendations.

Looking at the pandemic period, Singapore’s productivity achievements were supported by proactive government policies and willingness by businesses to embrace them. Policies in the budget announcements were eventually calibrated towards enhancing enterprise capabilities and upskilling workers, beyond crisis management to deal with the pandemic’s immediate fallout.

Huge sector disparities

Beneath Singapore’s headline productivity numbers, we see huge sector disparities. This is an old issue. Productivity growth of outward oriented sectors has performed better than domestically oriented sectors, justifying their higher real wage gains (e.g. Finance & Insurance, and Information & Communications [ICT]). The constant fierce global competition faced by outward oriented companies has kept them on their toes to continuously innovate and boost efficiency.

For domestically oriented sectors, some of them (such as Construction and Food & Beverage services) were severely hurt during the pandemic. As they make up for lost ground from the pandemic, productivity improvements and eventually expansion would be needed for future sustainable wage growth.

Accelerating internationalisation efforts

In our view, efforts by Singapore’s businesses to internationalise will not only bring revenue growth opportunities. The resulting competition and partnerships from overseas expansion have the potential to lift their productivity, via exposure to new innovative ideas. Given Singapore’s very open economy, businesses are already exposed to the global environment, and therefore, should set their sights beyond the domestic market.


To read the full report, click here to Download the PDF.

 
 

Chua Han Teng, CFA

Economist
[email protected]


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