Wage growth to remain sluggish despite tight labour market

Weak productivity is to blame.

The Monetary Authority of Singapore warned that wage growth will remain sluggish this year despite the persistently tight labour market.

In its semi-annual Macroeconomic Review, the central bank noted that wage growth moderated to 1.6% in the second half of 2014, considerably lower than the 3% in the first half of last year and the 10-year historical average of 3.7%.

The MAS also noted that wage growth will remain muted in 2015 on back of weak productivity gains and moderate economic activity.

“Short-term wage dynamics in the economy appears to have been buffeted by opposing macroeconomic forces. While the constraints on labour supply ought to have led to a stronger wage response to increased hiring, moderate economic activity and a weak productivity performance in the near term could have dampened wage expectations,” stated the MAS.

“Hence, although wage growth is expected to pick up in 2015 amid the tight labour market, it is unlikely to exceed the historical average of 3.7%. Wages could, however, rise more sharply in 2016, especially if economic conditions improve and the unemployment rate falls further,” the MAS added.