Here’s why firms can’t escape sky-high staff costs despite slowing employment growth

The labour market is still incredibly tight.

Local businesses will find no respite from rising staff costs despite a slowdown in resident employment growth, according to a report by Credit Suisse.

Credit Suisse expects the unemployment rate to trend up gradually over the next two years to reach 2.3% by end 2016, reflecting weaker demand conditions.

“However, the slower pace of employment growth may not lead to an easing of wage pressures, as pockets of labour market tightness are expected to continue,” Credit Suisse cautioned. 

For instance, job vacancy rates are uneven across various sectors, with elevated levels of vacancy rates for the accommodation and food services, as well as retail trade sectors.

“MAS expects resident wage growth to be close to its ten-year historical average of 3.6% in 2016, stable from 2015 but above 2.3% in 2014. Hence, we do not expect any easing in staff costs, which have gone up as a percentage of revenue from 16.3% on average in 2010 to 18.3% in 2014, and further to 19.6% in 1H15,” Credit Suisse said.