When wages fail to grow along with economy

Source: The Sunday Times, Jun 18, 2013
Stagnating incomes need to be tackled in earnest

By Han Fook Kwang, Managing Editor,

If wage increases here can be likened to a speeding car, Singaporeans were driving Ferraris all the way from independence to the late 1990s.

For almost 40 years, incomes went up every year, and in large dollops.

Then, for reasons that are not yet clear, the brakes were applied and the racing car slowed down considerably.

In every decade from the 1970s to 2000, the median monthly income of Singapore workers more than doubled every 10 years.

(For those interested in the details, these are the median income numbers: 1975: $286, 1980: $398, 1990: $1,000, 2001: $2,100, 2010: $2,710)

That’s an annual increase of at least 7per cent a year and, in some decades, 9 per cent.

But from 2000 to 2010, median salaries moved much more slowly, increasing by only 2.5 per cent a year. If inflation was taken into account, the increase amounted to only 1.3 per cent a year.

What happened?

It wasn’t because the economy stopped growing.

On the contrary, the gross domestic product per capita, which is the usual way of measuring the economy, grew by more than 5 per cent a year from 2001 to 2010, a highly respectable increase. This was the same growth as in the decade before, from 1991 to 2000.

So, while Singapore’s economic growth has been consistently good over the last 20 years, the story on the income front is very different, and has changed dramatically over the last 10.

It is no wonder Acting Manpower Minister Tan Chuan-Jin was reported in the media saying that he wasn’t happy with how incomes had not moved in recent years.

In fact, the number he revealed was a shocking one: The starting salaries of fresh graduates from the local universities had remained unchanged for the last five years, and were lower than those in 2007, taking inflation into account.

More sobering news was to follow.

According to a report by the ministry released last week, wages grew by less than the inflation rate last year, meaning in real terms, they were below 2011 levels.

There was also the revelation by the National Trades Union Congress that many companies in the non-unionised sector did not implement the National Wages Council’s guideline last year of a $50 increment for low-wage workers.

This newspaper found only four of the 12 firms it checked had complied.

This growing disconnect between salaries and economic growth is worrying because Singaporeans have long been led to believe that living standards can only improve if there is growth.

But what if growth didn’t result in growing incomes for the large majority? Note that all the numbers quoted above are for median wages which affect at least half of all workers here.

It’s a completely separate problem from that of low-wage workers at the bottom 20 per cent whose plight has been widely discussed and for whom there are special schemes such as Workfare.

But when median incomes stagnate, it means at least half of the working population is affected.

To be fair, this problem isn’t unique to Singapore, and has hit many other developed economies even more severely.

Real median wages, for example, in the United States haven’t moved in more than a decade.

In Taiwan and South Korea, the slowdown has been much worse than in Singapore.

Clearly, more needs to be done to understand why this has happened and to explain the issues to the public.

What accounted for the dramatic slowdown in median wage increases despite a growing economy?

Is this an inevitable outcome of a maturing economy, one which Singaporeans will have to get used to?

If productivity is the answer, as has been repeatedly stressed by the Government, does Singapore need to rethink its approach to the issue?

Precious few gains have been made so far in productivity over the last few years despite so much money being spent on so many schemes and incentives.

Does Singapore need a new growth model which will better ensure rising incomes for the majority?

These are important questions that need to be publicly discussed and addressed.

In the meantime, there are several implications when wage levels stagnate.

First, the fight against inflation will become even more critical.

The worst situation to be in is one with stagnating incomes and increasing price levels, a double whammy which hit Singaporeans the last few years when inflation rose to very high levels.

Second, this new reality will have implications for the country’s foreign worker policy.

Mr Tan hinted at this when he spoke about tightening the criteria for Employment Pass holders who comprise mainly skilled foreigners who might compete with local graduates.

Whatever the changes, Singapore needs a more sophisticated and targeted immigration policy to take into account its growing pool of university graduates who have high expectations of what constitutes a good life.

Expect the backlash against foreign workers to intensify if this problem isn’t addressed adequately.

The final implication of stagnating incomes is political, and perhaps the most worrying for the ruling party.

The secret of the People’s Action Party’s longevity has been its ability to deliver ever higher living standards to the people.

However unpopular its policies might have been, it was able to garner support as long as, at every election after five years, it was able to show how much life had improved for the majority of the people.

And it more than delivered in the years when wages went up by 7 per cent to 9 per cent a year, which is an increase of at least 40 per cent after every election cycle of five years.

But when real wages stagnate, how will it be able to repeat this performance?

Indeed this may explain its poorer than usual showing at the 2011 General Election and the two subsequent by-elections.

Not enough people felt that their lives had got better, and the income data shows this.

The one bright spark in Singapore has been the ability to create jobs, with unemployment almost non-existent. Stagnating income growth is infinitely better than jobless growth, which has been the scourge of many countries in the West.

Despite all the talk about the new political landscape and the desire for a greater diversity of views, what most people want are good jobs and incomes.

Nothing has changed in this regard.

What has altered is the new economic reality that Singapore faces with stagnating median incomes.

Any government that wants to retain popular support will have to tackle this problem in earnest.

It’s still the economy, stupid.