Wage growth inevitable, but cannot outstrip productivity: Singapore DPM

September 29, 2022

SINGAPORE – A tight labour market means that wage increases are inevitable as employers compete to fill vacancies, but Singapore must continue to ensure that salaries rise in tandem with productivity.

Failing to do so could lead to “a destabilising wage-price spiral, where higher wages feed directly into higher prices”, said Deputy Prime Minister Lawrence Wong.

Speaking at a dinner on Wednesday to mark the 50th anniversary of the National Wages Council (NWC), Mr Wong noted that Singapore faces a range of challenges such as rising inflation, retreating globalisation and worrying signs of potential economic slowdown across major economies such as the US, Europe and China.

In this milieu, Singapore will lose its global competitiveness if its wages rise too quickly, he said.

“This will hurt both employers and employees, and it will be the most vulnerable workers who will ultimately bear the brunt if companies cannot sustain themselves,” he said.

That is why, more than ever, the NWC has an important role to play in bringing its partners together to champion fair, inclusive and sustainable growth for all, said Mr Wong, who is also Finance Minister.

He noted that the NWC – a tripartite body comprising employer, employee and government representatives – was set up in 1972 under similar conditions.

Then, Singapore’s rapid growth and labour shortage posed a real risk that wages would spin out of control, undoing the progress that it had made in attracting foreign investors.

The NWC’s annual recommendations have ensured that wages move in tandem with productivity and economic performance, Mr Wong said.

“In good times, NWC brings employers and unions together to ensure the fruits of growth are shared by all, by rewarding workers with wage increases and higher variable payments,” he said.

“In times of crisis or recession, NWC reacts swiftly to come up with recommendations and measures to save jobs.”

This collaborative and consensus-building approach – as opposed to “snarling at each other across negotiating tables or picket lines” – has been the secret to Singapore’s success, and the results speak for themselves, said Mr Wong.

For instance, the past 10 years saw mean gross monthly income from work grow by about 2 per cent per year after accounting for inflation.

“Crucially, this wage increase has been broadly matched by productivity growth over the same period,” he said. “We should not sniff at this, nor should we take this for granted.”

Almost all developed countries have experienced stagnant wages, stagnant productivity, or both over the same period, Mr Wong noted.

But keeping wage increases sustainable could mean that salaries do not keep pace with higher costs of living in the short term, said Mr Wong. That is where the Government has stepped in to close the gap and cushion the impact of higher prices, he added.

In June, the Government rolled out a $1.5 billion support package to provide targeted relief for lower-income and vulnerable groups, including GST Vouchers, one-off relief for taxi and private-hire car drivers, and increased co-funding of wages.

At the dinner marking the NWC’s golden jubilee, which was held at Parkroyal Collection Pickering hotel, Mr Wong lauded the council for its contributions through the Covid-19 pandemic.

While it usually meets once a year to develop its annual guidelines, the NWC broke convention and met twice in both 2020 and 2021, recognising that pandemic-control measures were impacting the economy and labour market.

This provided timely, even-handed guidelines for employers to stabilise the situation and minimise the impact on workers as much as possible, said Mr Wong.

The tripartite partners must now redouble their efforts to encourage skills upgrading and productivity improvements across all sectors of the economy, he said, as that is the only way to ensure sustainable wage growth and improve Singaporeans’ welfare.

To this end, the 23 industry transformation road maps will help prepare firms and workers for the future, while SkillsFuture helps workers acquire new skills.

But each business must consider how these strategies apply to them, and chart their own concrete action plans to stay relevant, Mr Wong added.

Singapore also needs to keep at the work of reducing income inequality and ensuring that wage gaps across society do not move too far apart, he said.

Part of the strategy is increasing the Workfare Income Supplement, expanding progressive wages to more sectors, and raising the salary that firms need to pay all their resident workers when they hire foreign workers.

He noted that NWC explicitly recommended in 2021 that salaries rise faster for lower-wage workers, to gain ground with median-income earners.

“These recommendations send a strong tripartite signal that we can all do more to pursue inclusive growth,” he said.

While the fundamental desire behind these efforts is to uplift workers and improve lives, it is more so to build a stronger and more cohesive Singapore, said Mr Wong.

Stagnant wages and a widening income gap cause people to lose hope and grow resentful of a system that they feel benefits only the few, and makes it more difficult to place their trust in the greater good ahead of individual needs, he added.

“Trust will very quickly break down, and social cohesion will rupture,” he said. “Let us all do our part to prevent such a scenario from happening here.”

A Singapore where workers can have fulfilling and dignified lives requires not just employers to pay adequately, but also consumers and taxpayers to be prepared to share the costs, so that the less-advantaged in society can earn more and be valued for their work, said Mr Wong.

In a separate speech, NWC chairman Peter Seah paid tribute to his two predecessors: founding chairman Lim Chong Yah, who served from 1972 to 2001, and Professor Lim Pin, who served from 2001 to 2015.

Mr Seah, who is also DBS chairman, noted that the NWC was where employer and worker groups came to align themselves with longer-term national goals even as they advocated and negotiated for their respective constituents.

That tripartite partners could come together, negotiate and issue guidelines so swiftly at the height of the pandemic was due to the trust they had painstakingly built over the past five decades, he added.

He cited the unanimous support among members that all key NWC decisions require.

“This key principle of unanimity means that it can sometimes be more challenging to arrive at decisions, but it prompts tripartite partners to find mutually acceptable win-win solutions.”