Wage hikes drag down Singapore’s cost competitiveness

Blame it on the tight labour market.

A study by MTI found that increasing labour costs in both Singapore’s overall economy and manufacturing sector is being driven by rising salaries. Coupled with flagging labour productivity, this impacts the country’s cost competitiveness.

The study noted that from 2004 to 2014, overall unit labour cost (ULC) grew at a compounded annual growth rate of 1.9%, compared to the 0.1% per annum (p.a.) decline in the earlier decade. Notably, ULC’s pace of increase accelerated to 2.7% p.a. from 2010 to 2014, following the Global Financial Crisis.

The manufacturing sector saw a similar trend as it spiked 1.7% p.a. from 2010 to 2014 in contrast to rollbacks of 2.5% p.a. from 1994 to 2004, and 0.4% p.a. from 2004 to 2014 respectively.

It turns out that this growth has been fueled by hikes in worker remuneration even as labour productivity growth remained feeble. Moreover, the current manpower crunch is going to further fuel wage increase.

As such, it remains vital for us to press on with our productivity drive, as it is only by raising productivity that we will be able to mitigate the impact of wage cost increases and remain competitive. Over the longer term, raising productivity is also the key to sustaining wage growth for Singaporeans.

MTI asserts that raising the country’s productivity drive is essential to mitigate the impact of wage cost increases and remain competitive.