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Productivity And Wage Growth In Singapore

Productivity And Wage Growth In Singapore

​Productivity And Wage Growth In Singapore

This article examines the relationship between productivity growth and the real wage growth of resident workers in Singapore. To do so, it adopts a methodology that decomposes the real average wage growth of resident workers into the following main components:

(a) growth in labour productivity (i.e., real value-added per worker);
(b) growth in labour’s terms of trade (i.e., change in output prices relative to consumer prices); and
(c) growth in the labour share of output (i.e., change in the share of output that accrues to labour).
 

At the overall economy level, the real average wage growth of resident workers in Singapore outpaced labour productivity growth over the last decade (i.e., 2005 to 2015), and also in the more recent 5-year period (i.e., 2010 to 2015). For both periods, this essentially reflected an increase in the labour share of output at the overall economy level.1 The higher labour share helped to offset a decline in labour’s terms of trade caused by stronger increases in consumer prices relative to output prices. However, it will be difficult to sustain increases in real wages over the longer term without a corresponding increase in productivity, given the potential impact on our economy’s competitiveness.

At the sectoral level, the real average wage growth of resident workers in some export-oriented sectors was dampened by a decline in labour’s terms of trade, in part due to intense price competition faced by these sectors in global markets. On the other hand, weak productivity growth was found to have weighed on real wage growth in several domestically-oriented sectors. These findings suggest a continued need for export-oriented sectors to innovate and move up the value chain so as to offer products that command a price premium, and for domestically-oriented sectors to raise productivity, in order to raise the real wages of resident workers.

Over the longer term, in order for real wage growth to be sustainable so that the living standards of Singaporeans can continue to improve, it is vital for us to press on with efforts to raise labour productivity.

The views expressed in this paper are solely those of the author and do not necessarily reflect those of the Ministry of Trade and Industry or the Government of Singapore.

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