Productivity cannot keep up with wage growth: Minister Koh Poh Koon

Real wages rose 1.9% whilst productivity grew only 1.1% in 2011-2017.

In recent years, real wage growth has reached unsustainable levels as it has outstripped productivity growth, senior minister of state Koh Poh Koon said.

In a parliamentary reply, Koh said that in 2011-2017 real wages for resident workers rose by 1.9% per annum, whilst productivity grew by only 1.1% per annum over the same period. Compared to 2001-2017, real wages for resident workers grew by 1.5% per annum on the back of productivity growth of 2.1% per annum.

Koh noted that over the long term, real wage growth should track productivity growth in order to be sustainable. “This is because if real wage growth outstrips productivity growth for an extended period, businesses will be at risk of losing their competitiveness and potentially be forced to scale back or close their operations,” he added.

However, the minister noted that there are differences between real wage growth across sectors. Domestically-oriented sectors like construction and other services Industries saw real wages rise faster than productivity between 2011 and 2017.

“This was in part due to labour market tightness, which had led to upward pressures on wages, and also weak or negative productivity growth in these sectors,” Koh said.

Meanwhile, even though the global economic environment had weighed on the productivity performance of outward-oriented sectors over this period, real wage growth in these sectors was generally still supported by positive productivity growth, the minister said.

In sectors such as manufacturing, wholesale trade, and finance & insurance, real wages rose in tandem with productivity on the back of their relatively strong productivity performance. However, in other sectors such as transportation & storage and accommodation, real wage growth exceeded productivity growth.