Wage Growth Moving in Tandem with Productivity Gains

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.

Over the past two decades, real wages have grown broadly in tandem with productivity at the overall economy level. Specifically, from 2001 to 2017, real wages for resident workers grew by 1.5% per annum on the back of productivity growth of 2.1% per annum.

In recent years, however, real wage growth has outstripped productivity growth. From 2011 to 2017, real wages for resident workers rose by 1.9% per annum, while productivity grew by only 1.1% per annum over the same period. However, there were differences across sectors.

In particular, 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. Meanwhile, even though the sluggish 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. Indeed, 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.

Against this backdrop, it is crucial that we press on with our productivity drive in order to maintain our competitiveness globally, while enabling continued improvement of Singaporeans' wages and living standards. In this regard, we are taking a targeted, sector-specific approach to raising productivity through the Industry Transformation Maps (ITMs). For example, under the Hotel ITM, the Singapore Tourism Board and Singapore Hotel Association have launched the Hotel Innovation Challenge to crowd-source innovative technologies that can improve hotels’ productivity and enhance the guest experience, such as facial recognition check-in.

The Government has also provided assistance to firms through schemes designed to help them enhance their capability and productivity. These schemes have seen some early signs of success. For example, firms that tapped on the Capability Development Grant (CDG) managed by Enterprise Singapore for capability improvement projects between 2005 and 2012 experienced a 9.3% increase in revenue, on average, over time. Productivity improvement projects had the largest impact, raising firms' revenue by 12.4%, compared to 7.8% for technology innovation projects and an average of 6.7% for the remaining project areas. Similarly, firms that tapped on the SMEs Go Digital programme, formerly known as iSPRINT, for IT solutions to automate their business functions between 2010 and 2013 experienced a 3.1% increase in their revenue on average over time.

Maintaining a close partnership with industry and unions is also important in order for businesses and their workers to benefit from productivity improvements. For example, NTUC has partnered various companies on measures that raise their productivity and competitiveness. The resultant productivity gains are then shared with the workers in these companies, such as through allowances or payments. As a specific example, the Inclusive Growth Programme (IGP) administered by e2i co-funds companies to embark on productivity improvement projects. The companies are, in turn, required to share the productivity gains with their workers through a rise in wages.

The Government is committed to continue to work with businesses and the unions to help businesses improve their productivity and ensure that the productivity gains are shared with workers through higher wages.

Speaker, I would like to thank the Senior Minister of State for the answer. I am glad to know that the real wage growth is 1.9% and productivity growth is 1.1%. There is a distinct gap there.

I would just like to ask a couple of supplementary questions. First, in terms of MTI, can the Senior Minister of State share a bit more about the productivity or wage growth outlook over the next few years? Yesterday, I had asked about the concerns if interest rates were to go up over the next year or so and what it would mean for wage growth outlook from MTI's perspective.

The second question is about concerns on the ground about wage stagnation. As the Senior Minister of State mentioned, the outlook for wage growth is that it would not be broad-based growth. How do you allay some of the wage stagnation concerns for specific sectors? As what the Senior Minister of State had mentioned, some sectors are affected more than others.

Mr Speaker, I thank the Member for his questions. I think the key is that wage growth will not be uniform across all sectors. Fundamental to driving sustainable wage growth would be to improve productivity. It is one of the important tenets of the ITMs. We want to help our companies to better increase productivity by leveraging on technology such that the companies can make better profit margins while controlling their costs from various pressures. An example of how we can help some of these wage gains translate to benefits from the workers' wages would be in programmes like the IGPs.

But importantly, you also need to put in place a lot of framework to help our workers re-skill and upskill so that they can be productive.

Several initiatives have already been in play. First, there is a skills framework. Individual workers can leverage on this skills framework to continue to upskill themselves, working with the employers.

The other scheme which the Government has put forth is the WorkPro Job Redesign grant. The grant provides up to 3,000 incentives to help companies create physically easier, safer and smarter jobs, especially for the older workers aged above 50. Because this is the group where there is probably genuine concern about wage stagnation and also job prospects. By using such schemes and grants, we can encourage companies to help level up the workers. And, in turn, companies can benefit from having more experienced workers, especially higher productivity ones.

Finally, there is also the scheme called the Progressive Wage Model, especially in certain sectors which are traditionally low-wage. This model is a productivity-based wage progressive pathway that helps to increase the wages of workers through upgrading skills and improving productivity. So far, this has been implemented in three sectors: the cleaning, security and landscape sectors.

We do see that there is a need to do more for other sectors. Minister of State for Manpower Sam Tan mentioned during his COS speech this year that MOM is ready to support tripartite partners to develop and adopt the Progressive Wage Model voluntarily for other sectors. NTUC has announced recently that the Labour Movement has begun conducting surveys with F&B workers as part of early efforts to see if this can be included in the Progressive Wage Model as well.

So, there are multiple approaches but, fundamentally, they all hinge on raising the productivity of our workers.

Mr Speaker, I just want to follow up quickly for my question about MTI's real wage growth outlook by sector. Which sectors does the Senior Minister of State think will be affected most in the next three to five years?

We do see that certain sectors would have a lot more chances for manpower growth in terms of number of jobs created. The wages in these growth sectors will probably be a lot more competitive as well. One of the sectors that we believe to be a very good attractive sector that can take in a lot of people with good jobs and good pay would be in the area of wholesale trade, which is very diverse. It includes sectors that deal with commodity trading, but also trading in many other areas. For example, in the logistics sector, which is also a key sector in this group.

The other growth sector would be in the manufacturing space. For example, precision engineering and the semi-conductor industry are still continuing to do well. So, these are the areas in which I think workers would continue to see specific gains.