For those who have placed the blame for slow wage growth squarely on cheap imported labour, this year’s headline figures in manpower would have been sobering. Despite sharp pullbacks in manpower inflows in the past few years — to the extent that the percentage of vacancies being filled by Singaporeans rather than foreigners this year hit its highest level since 2011 — average pay cheques, after adjusting for inflation, grew by only 0.4 per cent amid tight labour market conditions.
And if Singapore’s struggles with boosting productivity persist, the picture on the wage growth front next year is unlikely to be any rosier, said economists, especially given the poor global economic outlook. The impending cessation of the Wage Credit Scheme (WCS), which subsidises firms for pay raises, will add another chokehold, they added.
“Companies don’t want their margin to be squeezed. They want to save more, hold on to a profit margin, to prepare for the next year when there’s no more WCS,” said UOB economist Francis Tan. “Once you increase the wages, it will be hard to move them down again. And if … the workers are still not as productive as you want them to be, it can be quite dangerous for the existence of the company.”
Labour productivity contracted 0.8 per cent year-on-year in the third quarter, worse than the 0.3 per cent fall in the first half, figures from the Ministry of Manpower showed. The first half of last year registered a 1.3 per cent decline, but this improved to 0.8 per cent growth in the second half.
The repercussions of flagging productivity, as the International Monetary Fund (IMF) has warned, could extend to the whole of the Republic’s economy. With the tightening of the tap on foreign workers pushing up wages more quickly than productivity, not only will firms pass on the higher costs to consumers, but Singapore’s potential growth and competitiveness could also suffer a blow, the IMF said.
DBS economist Irvin Seah noted: “Businesses are unable to pursue more orders because of this labour crunch. This will also prevent them from increasing their top-line, unless the productivity of the existing manpower is able to improve.”
Besides sluggish productivity growth, OCBC’s Ms Selena Ling said companies face pressure from higher rental costs. Singapore is expected to top the rental forecast for Asia-Pacific cities, with a 25 per cent increase in office rents from this year to 2019, based on a report from property consultancy Knight Frank in September.
In adjusting to these costs, business will take into account the differing flexibility of the various types of business costs. Between rental and wage costs, wages provide a “little bit more room for negotiation”, said Ms Ling.
Agreeing, Mr Tan said many companies have been moving towards higher variable components in wages to help buffer against economic cycles.
Workers who benefit from WCS — those earning below S$4,000 — are not considered as vulnerable as low-wage workers. But given the modest growth prospects next year, some economists speculate that the Government could extend the scheme.
“At this moment, it looks like the United States is showing signs of much more broad-based sustained recovery, while the rest of the world is in different stages of recovery and slowdown,” noted CIMB Research economist Song Seng Wun.
Mr Seah, however, noted that the WCS, which represents a form of government transfer, was never meant to last and that the more sustainable approach to boost workers’ pay is to equip them with the right skills.
“Although I think our fiscal policies are gradually becoming more socialistic in nature, I think the Government has continued to emphasise the need for self-sufficiency and the notion of meritocracy,” he said. “I think such principles should continue to remain the hallmark of our economic policies.”
Indeed, firms have had no choice but to pay more in the stretched labour market, which workers have been quick to capitalise on.
“And it’s not just the blue-collar workers, but the senior and middle management too,” said RecruitPlus Consulting’s managing director, Mr Adrian Tan.
Mr Erman Tan, president of the Singapore Human Resources Institute, added that firms will face pressure to keep wage growth at least on a par with inflation. Core inflation, which indicates the rise in everyday out-of-pocket costs, has been estimated at 2 to 3 per cent next year, higher than the 2 to 2.5 per cent expected this year.
“Inflation is still putting pressure on staff. Firms have to make sure staff have the peace of mind to work, so you can change work procedures, change mindsets and invest in automation, leading to improvement in productivity,” he said.
There has at least been one bright spark this year in the push for wages to grow because of productivity improvement. In September, the cleaning industry became the first to adopt a skill-wage ladder as a criterion to secure licensing, representing a breakthrough in lifting the pay of a group of workers who have seen their income stagnate. The Progressive Wage Model was also announced for security guards and will be implemented in 2016.