Wages up 6% last year: MOM report

But inflation ate into income, and workers' productivity hardly rose

By Rachel Chang, The Straits Times, 16 Mar 2012

WAGES grew by 6 per cent last year, but struggled to keep pace with inflation.

After accounting for higher prices, real wages crept up by 0.7 per cent, less than the 2.7 per cent rise in 2010, said the Ministry of Manpower's (MOM) latest labour market report, released yesterday.

Economists interviewed yesterday said a boost in productivity is the only way for real wages to rise meaningfully.

But the MOM report shows productivity of the local workforce hardly grew last year.

It means companies are still relying on hiring more workers to meet demand, rather than boosting the productivity of their existing staff, the economists said.

While they expect productivity to improve as the Government tightens the inflow of foreigners, they do not see the same outcome for real income.

Inflation will continue to erode wages this year as the Consumer Price Index is likely to continue its upward tick, they said.

In fact, they noted that inflation may even outpace earnings if the slowing economy causes wage growth to dip below the expected price increase of 3 per cent to 4 per cent.

'We may then be facing a zero real wage growth situation,' said DBS economist Irvin Seah.

The Monetary Authority of Singapore expects headline inflation to come in at between 2.5 per cent and 3.5 per cent this year. Some private-sector economists predict it will be closer to 4 per cent.

But while the wage growth last year was tepid, the picture is more optimistic when a five-year snapshot is taken.

From 2006 to last year, Singaporean workers' real median incomes rose by 13 per cent, or 2.5 per cent every year, said the report. For those in the bottom 20 per cent, real median incomes rose by 11 per cent, or 2.2 per cent every year.

In 2010, Finance Minister Tharman Shanmugaratnam, who is now also Deputy Prime Minister, pledged to raise real median incomes by a third in a decade. This would mean real wage growth of 2.7 per cent every year.

The question is whether this can be achieved, with productivity gains.

Productivity of the local workforce grew by 1 per cent last year, according to the MOM report.

This is a sharp fall from the 11 per cent achieved in 2010, and below the Government's target of 2 per cent to 3 per cent annually.

The drop was due to continued job creation despite slower economic growth, said the report.

More jobs were created in the last quarter of last year than in the same period in 2010, boosted by hiring for the festive season.

But this contributed to declining productivity in the last quarter. It fell by 0.4 per cent, after rising by 2 per cent in the previous three months.

But economists like Nanyang Technological University labour economist Chew Soon Beng are not overly concerned.

Dr Chew said last year's figures may not give the full picture, as these are derived in comparison with the labour market's performance in 2010 - an outlying year which saw the economy rebound sharply from recession.

'2010 was not a steady state, so there shouldn't be too much concern yet,' he said. 'Hopefully, the Budget will force productivity growth in 2012.'

He was referring especially to the latest round of measures to tighten the growth of the foreign worker population.

These will curb the number of foreign workers that companies can hire for every local employee.

Lee Kuan Yew School of Public Policy economist Hui Weng Tat concurred that the move to curb foreigners was the 'right policy response', as higher foreign worker levies have hardly stayed the hand of bosses when it comes to hiring foreigners.

This is reflected in the strong job creation in the last quarter of last year and the year overall, the bulk of which was filled by foreigners, he noted.

Last year, 122,600 jobs were created in total, about 70 per cent of which went to foreigners. This was because most locals were already employed, said the report, as the unemployment rate hit a 14-year low.

The curbs on foreign workers will be a major factor for the high inflation expected this year, said Mr Seah, because companies will raise their prices in reaction to, or pre-emption of, higher wage costs.