Report on Wage Practices 2014: Built in rises for low-wage workers showing results

Almost 60 per cent of employers with low-wage staff gave or intend to give rises last year: Report
TODAY, 5 Jun 2015

Three years after the National Wages Council (NWC) urged built-in wage increases for low-salaried workers, results are beginning to show, based on the wage practices report released by the Ministry of Manpower (MOM) today (June 4).

Low-wage workers — those who earned a basic monthly salary of up to S$1,000 — who received these built-in wage increases saw an average basic wage increase of 14.2 per cent last year, outpacing the 8.4 per cent received by all rank-and-file staff in these establishments.

Overall, such low-wage workers now make up a smaller proportion of the workforce — 6.8 per cent last year, down from 9.8 per cent in 2012.

In real terms, some 50,000 to 60,000 workers have crossed the S$1,000 mark in basic monthly salary over the same period, showed figures from the labour movement.

Based on the MOM report, almost 60 per cent of employers said that they gave or intend to give wage increases to their workers last year, similar to the proportion in 2012 but lower than the 77 per cent in 2013.

Establishments in the administrative and support services sector led in giving the minimum built-in wage increase of at least S$60. “This was likely driven by the cleaning sector which saw the implementation of the mandatory progressive wage model over the year”, the MOM said in the report.

Of remaining employers which did not grant wage increases, about half said that they were already paying salaries in line with market levels. About 13 per cent cited poor business performance while 8 per cent said doing so would impact their business costs.

The NWC, which stopped recommending a quantum for wage increases in its annual wage guidelines for decades, began doing so again in May 2012, recommending a minimum S$50 wage hike for low-wage workers earning up to S$1,000. 

A month earlier, top economist and former NWC chief Lim Chong Yah had called for “shock therapy” to drive wages for the low-salaried. He proposed those earning below S$1,500 a month have their pay increased by 50 per cent over the next three years, while freezing wages for those making at least S$15,000. This proposal was met with swift rebuttals from cabinet ministers that it was too risky.

Economists and observers interviewed today felt that a gradual approach has allowed for more sustainable salary growth for low-wage workers.

Economist Selina Ling, the head of treasury research at OCBC Bank, said the decrease in proportion of low wage workers is “significant”.

A “shock therapy” approach can be unpredictable — in the 1980s, Singapore pushed up wages and a recession followed in 1985. “It will be like a boomerang that hits you back in the face”, said Ms Ling. Also, small and medium enterprises (SMEs) might not be able to bear such a heavy burden.

Mizuho Bank senior economist Vishnu Varathan supported pegging wage increases to productivity gains so that low-wage workers can benefit over the longer term. This is because productivity gains leading to profits raises the prospects of wage increase for the worker instead of imposing a one-off wage increment, he pointed out.

Mr Varathan said a narrower income inequality gap is likely to be seen in five to ten years’ time, and suggested employers redesign low-wage jobs to incorporate technology and increase job satisfaction in the meantime.

Singapore Business Federation Chief Operating Officer Victor Tay pointed out that manpower costs are the biggest expenditure for businesses today. “While motivated staff will provide better productivity, it has become loss-making for many companies to increase wages when productivity is not catching up,” he said.

He suggested employers tap more into the variable wage component in the wage structure or let staff have greater profit share through variable bonuses. In the sales industry for example, this will motivate the workers to aim for better sales, while allowing companies to be more flexible in managing costs during downturns, he added.

Association of SMEs president Kurt Wee said some companies still struggle to increase wages for the low-salaried as they are still unable to improve their productivity levels.

“What we could do is to unleash a greater number of job-process or work-flow reengineering specialists in each of these many industries (to) help those that have not yet undergone a sufficient level of upgrading catch up with the rest,” he said, adding that even so, the smallest of companies might not be able to keep up.

Productivity trailing wage growth for past decade
By Aw Cheng Wei, The Straits Times, 5 Jun 2015

THE latest Ministry of Manpower (MOM) figures show that productivity growth has lagged behind real wage growth for the past decade, and experts warn that this trend will erode Singapore's competitiveness if it goes on.

Labour productivity grew by an average of 0.7 per cent each year, while real total wages rose 1.9 per cent on average per year from 2004 to last year, according to the MOM report on wage practices released yesterday.

"The gap between Singapore and other countries in the region will narrow and we will lose relevance gradually," said DBS economist Irvin Seah.

"It is not sustainable for wages to stay ahead. At the end of the day, employers are looking for fair value and compensation must correspond with productivity," he added.

While agreeing that the lag in productivity growth is worrying if it continues, OCBC economist Selena Ling said one explanation for the lag is that domestic wages in Singapore are "playing catch up".

"Domestic wages were being generally depressed by an influx of foreign workers in the past... especially for low-income workers," she said.

The proportion of full-time resident employees earning a monthly basic salary of up to $1,000 has declined from 9.8 per cent in 2012 to 6.8 per cent last year, she added.

Labour economist Walter Theseira of Nanyang Technological University said the lag was not a cause for worry for now. Wage growth is an indication that firms can still afford to pay employees more, he said. "When productivity is stagnant and wages fall, there will then be a cause for alarm."

Last Friday, National Wages Council chairman Peter Seah said at a press conference that real wage increases should be in line with productivity growth over the long run.

"Other countries (in the region) are stepping up their game and we have to respond," Mr Irvin Seah said.

The MOM report also showed the number of firms incurring losses last year went up by 2 per cent from 2013.

Real wages grow as inflation falls
By Ng Jing Yng, TODAY, 5 Jun 2015

Salaries in the private sector rose by 4.9 per cent last year, a slightly slower pace than in the preceding year, which saw wages grow by 5.3 per cent.

However, inflation eased to 1 per cent from 2.4 per cent in 2013. As a result, real total wages increased at a faster pace of 3.9 per cent last year, compared with 2.9 per cent in 2013, said the Ministry of Manpower (MOM) in its latest report on wage practices.

In the report, the MOM wrote: “As the labour market remained tight, wages continued to grow in 2014. Although the pace of increase moderated, real wages grew more quickly over the year after accounting for lower inflation.” The salaries include employer Central Provident Fund contributions.

According to the report, the proportion of employers adopting some form of flexible and performance-based wage system was at the highest in a decade last year.

Eighty-nine per cent of private sector employees were under some form of flexible wage system last year, particularly in the transportation and storage sectors as well as those in community, social and personal services.

The construction sector, with its heavy reliance on foreign workers, had the smallest proportion of employees having some form of wage flexibility at 81 per cent, but this was an improvement from the preceding year (77 per cent).

As of December, two in three private-sector employees were working in establishments that adopted the wage recommendation of having a narrow maximum-minimum salary ratio to minimise differences in salary between the highest-paid and lowest-paid in the firm. The recommendation was one of several made in 2004 by the Tripartite Taskforce on Wage Restructuring, which was formed in 2003 to look into such issues.

Other wage recommendations adopted included linking variable bonus to KPI and including the monthly variable component (MVC) in the wage structure.

The MOM noted that smaller firms were more open in narrowing the maximum-minimum salary ratio, while larger companies led in adopting the MVC and linking variable bonus to KPI.

The MOM also flagged that labour productivity growth has lagged real wage increases over the longer term. Labour productivity declined by 0.8 per cent over the year, after a flat 0.3 per cent growth the year before.