Impact of Price Increases on Real Wage Growth

Mr Edward Chia Bing Hui asked the Minister for Manpower (a) what is the cumulative impact of the series of price increases on wage growth; and (b) in light of these increases, whether there are concerns about the possibility of stagnating wage growth particularly for vulnerable Singapore workers.

Mr Saktiandi Supaat asked the Minister for Manpower (a) whether the real median income growth has kept pace with inflation over the past five years; (b) whether the latest data on real median income growth is within the Ministry’s expected range; and (c) whether there is a need for more stratified and sectoral data points considering the impact of the recent price increases on certain vulnerable groups of Singaporeans.

I would like to assure Mr Saktiandi that the Ministry of Manpower (MOM) closely tracks the number of resident workers across finer gross income bands, with special attention given to the progress of our lower-wage workers. But let me first talk more broadly about the wage outcomes before I come back to the income growth of lower-wage workers.

From 2017 to 2022, income growth has outpaced inflation, with the real median income growing by about 9.4% or 1.8% per annum. This income growth was commensurate with productivity growth, measured by real value-added per worker, of 2% per annum over the same period. However, due to the elevated inflation and weaker economic outlook, based on preliminary estimates, while nominal median income grew by 0.9%, real median income declined by 4.5% on a year-on-year basis in the first half of 2023 compared to the first half of 2022. While the economic outlook remains uncertain, we expect inflation to moderate for the rest of the year.

The Government recognises the impact of inflation on wages and has recently announced a $1.1 billion Cost of Living Support Package in September, which provides additional relief for all Singaporean households, with more support for lower- to middle-income families. In its recent announcement on 31 October, the National Wages Council (NWC) has called on employers to consider giving a one-off special lump sum payment to workers in recognition of the impact of high prices. The NWC Guidelines recommend that employers reward workers fairly based on their contributions and overall business performance, and adopt the Flexible Wage System in order to stay nimble and responsive amidst economic uncertainty.

To Mr Chia’s question, our strategy to sustain real income growth is to continue to raise productivity. This is why we have embarked on the 23 Industry Transformation Maps (ITMs) to transform businesses and upskill workers for jobs of the future across the economy.

The NWC has also reiterated its call to employers to press on with transformation and upskilling to ensure that income growth is sustainable, and the Government will support such efforts. Employers can make use of the 16 Jobs Transformation Maps which provide actionable roadmaps to redesign jobs and upskill workers. Employers can also tap on programmes such as Workforce Singapore’s Career Conversion Programmes, which provide up to 90% salary and course subsidies, to reskill their existing workers to take on enhanced job roles or train mid-career new hires to take on new roles. As indicated in the Forward Singapore report, we will launch new career health initiatives to improve job matching and help Singaporeans better plan for their long-term careers, through access to better data and information about jobs and skills. This will enhance employers’ access to talent and ensure better labour market outcomes.

I would like to assure Members that we pay special attention to our lower-wage workers. Mr Saktiandi and Mr Chia would be pleased to know that lower-wage workers have experienced good real income growth over the last five years. From 2017 to 2022, real income at the 20th percentile has risen 15.4%, or 2.9% per annum, faster than 1.8% per annum at the median. This means that as costs of living rose, the incomes of lower-wage workers rose even more, thereby narrowing the income gap between lower-wage workers and the median worker.

We have recently expanded the Progressive Wage Model (PWM) to cover more lower-wage workers, and this will boost their incomes even further over the next few years – workers covered by PWM can expect cumulative wage increases of up to 80% by 2028. Amid a tight labour market, lower-wage workers who are not directly covered by PWM should also see meaningful wage increases, as employers will have to respond to market forces to attract and retain workers. To reduce the impact on employers, the Government co-funds up to 75% of wage increases given by employers to eligible lower-wage workers from 2022 to 2026, through the Progressive Wage Credit Scheme (PWCS). PWCS will soften the cost impact on employers in the near term, and give employers time to invest in upskilling workers and improving firm-level productivity so that the wage increases are sustainable.

The Government also enhanced the Workfare Income Supplement Scheme in January 2023 to further boost the income of lower-wage workers. We will be further enhancing Workfare as shared by Prime Minister Lee at the National Day Rally 2023 and details will be shared at next year’s Budget.

Thank you, Mr Speaker. I would like to ask the Senior Minister of State three supplementary questions. First, can he highlight sectors or jobs that are most at risk of wage stagnation or even worse, further deterioration in their wages? Second, what are the reasons for the elevated risks in these jobs or sectors? And third, what further support will the Government put in place to support employers in these sectors?

I thank the Member for his questions. Nominal wage growth for resident workers is expected to ease next year as labour demand cools and tightness in the labour market is alleviated. However, as overall wage growth is projected to moderate, it could remain elevated in several sectors.

The Member asked about the sectors. Wage increments are expected to stay firm in travel-related sectors where demand continues to recover, as well as more labour intensive services sectors where manpower shortages could be more persistent. So, we can roughly see the trends.

If we think about it, the decline in real income in the first half of 2023 compared to the first half of 2022 was due to elevated inflation, rather than just wage decline. We have to look at real income in that context.

Overall, what we see is that the decline in real income was broad-based and not so much specific to certain sectors.

And in terms of the nominal income change, you would also see that across various sectors, the changes did not outpace inflation, and therefore, you see the decline in real incomes.

For the strategy to help businesses, we do need to support efforts to raise productivity. It goes beyond just increasing wages because there is impact on business costs. If productivity is not raised, you will find that businesses cannot sustain the wage increases. We have to look at that and balance both the impact of inflation and also look to see how we can improve productivity. At the same time, the Government does provide various measures to support business, for example, through the PWCS to reduce the impact of wage increases of lower-wage workers and other efforts such as productivity schemes. This is where we can work together in the next couple of years to improve wage outcomes, as a whole.

Do support us, do work with the Government in areas such as the Career Conversion Programmes for workers, Support for Job Redesign under Productivity Solutions Grant and the SkillsFuture credits. These are among the schemes that businesses can tap on.

I would like to ask the Senior Minister of State two supplementary questions. First, the Senior Minister of State shared briefly about the median income growth outlook over the next year. Can he share a bit of it in the near term, for example, over the next five years, for example?

Second, given concerns of higher inflation over a longer time, if it does happen, can the Senior Minister of State share a bit more about the strategies for middle-income, lower middle-income and slightly upper middle-income workers? My question mentioned vulnerable groups of Singaporeans. And lower middle- and middle-income Singaporeans will eventually become vulnerable groups if they lose their job or fall sick. So, can the Senior Minister of State share a bit more on that, please?

I thank the Member for his questions. My crystal ball does not go that far. As I shared earlier, if we look at the trend for the rest of the year and if inflation moderates, that means the situation with the declines in real income will potentially moderate.

At the same time, let us not forget that in the last five years, we have seen good improvements with regard to real income. We have seen strong growth. As I shared, we had about 9.4% real income increase in the last five years, before the current decline and pressures of inflation. Therefore, we have to take some of these things into account.

Overall, in terms of how we can help our middle-income and lower middle-income workers improve, it is really through improvements in productivity, helping them benefit from the economic growth that we have, with new jobs, new growth sectors, as well as upskilling and reskilling in some of these new jobs where we can see higher productivity and better wage growth outcomes. The same goes for our lower-wage workers too today, where although they have the PWM, it is really about helping companies transform and redesign jobs so that we can sustain the wage increases. Otherwise, wage increases without corresponding productivity growth will be challenging, not just for the businesses but our economy as well.

There are multiple layers. Economic restructuring has to continue. Firm-level productivity improvements have to continue as well. At the same time, at the worker level, you need skills and productivity improvements as well. I will take it at all three levels for us to sustain the wage growth in coming years.