Productivity and Wage Growth in Singapore

In this paper, we examine the link between productivity and wages by decomposing real average wage growth into three components, viz. (a) productivity growth; (b) relative output price changes; and (c) growth in labour share of output.

At the macro level, we find a relatively strong relationship between productivity growth and the real average wage growth of resident workers in Singapore. In recent years, however, weak output price growth has dampened the translation of productivity gains to real wage growth for residents. This suggests a need to help firms restructure and move up the value chain, so that they can produce high value-added goods and services that can be sold at higher prices in global markets.

At the sectoral level, the productivity-wage relationship is weaker. Our analysis suggests that apart from helping externally-oriented sectors restructure and move into higher value-added product segments, emphasis should also be placed on raising the productivity of domestically-oriented sectors to enable sustainable wage growth in these sectors.

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

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