Real wages in Singapore up just 0.4% in 2022 despite pay going up by decade high of 6.5%

SINGAPORE – Employers in Singapore hiked total wages by the most in a decade in 2022 because of the tight labour market, but high inflation slashed real pay rises to less than in the previous year.

Nominal wages, which do not account for inflation, jumped 6.5 per cent in 2022, up from 3.9 per cent in 2021, according to Ministry of Manpower (MOM) data released on Monday.

However, high inflation meant that real total wages grew by just 0.4 per cent, lower than the 1.6 per cent clocked in 2021 and the lowest since 2012. In 2022, headline inflation hit 6.1 per cent, significantly higher than 2021’s 2.3 per cent.

Moreover, real basic wages, excluding employer Central Provident Fund contributions, declined for the first time since 2012, falling by 1 per cent.

MOM said total nominal wage and real wage growth are expected to moderate in 2023 as firms are likely to approach salary increments with caution against the backdrop of the global economic slowdown and a more uncertain business environment.

For 2022, nearly 82 per cent of employees received wage rises compared with just under 70 per cent in 2021.

This came as almost three in four employers gave wage increases in 2022, up from six in 10 in the previous year and about seven in 10 in 2019. It followed from growth in the proportion of employers – more than eight in 10 – turning a profit for the second year running.

Establishments that cut employees’ wages remained the minority at 5.2 per cent, with the remaining 22.6 per cent leaving wages unchanged.

Those that raised wages gave larger increases in 2022 on average – 7.9 per cent compared with 6.3 per cent in 2021.

The degree of wage cuts was also smaller than in the previous year among those that did so, with pay reductions averaging 4.5 per cent compared with 2021’s 5.2 per cent.

MOM noted that all industries experienced higher wage growth in 2022 compared with 2021.

“However, the magnitude of increase varied across industries.

“Accommodation and retail trade registered above-average wage increases (9.7 per cent and 6.7 per cent, respectively) as firms in these industries raised wages to attract and retain workers amidst the strong recovery in tourism demand,” said the ministry.

It added that the outward-oriented sectors of financial services, information and communications, and professional services continued to register strong wage increases of between 7.6 per cent and 9 per cent in 2022, alongside sustained manpower demand in these industries.

Firms in manufacturing and wholesale trade also raised the wages of their employees by nearly 6 per cent despite being hit hard by global supply chain disruptions and weakness in trade-related activities.

Among employee types, junior executives and managers saw the highest increase in their basic wages at 5.7 per cent, compared with around 5 per cent for both rank-and-file workers and senior management.

Only slightly more than half of loss-making firms in Singapore raised wages, compared with between seven and eight in 10 among profitable firms, depending on whether their profit exceeded their 2021 performance.

The key factor behind the strong nominal wage growth in 2022 was a tight labour market with a low overall unemployment rate and a high ratio of job vacancies to unemployed people, said Mr Chua Han Teng, economist at DBS Group.

After moderating in 2022, Mr Chua said, real wage growth is likely to stay muted in 2023.

This is because Singapore’s growth will be hit by an uncertain global economic environment, leading to smaller nominal wage increases amid a softer labour market, he said.

“Economic activity in trade-related clusters such as manufacturing and wholesale trade would likely underperform versus the services segment linked to hospitality and tourism, and wage dynamics would possibly mirror such trends.”

Although the pace of inflation is likely to slow down in 2023, it is still likely to average well above the pre-pandemic average of 1.7 per cent seen from 2010 to 2019, which will dampen real wage growth, Mr Chua noted.

Asked if employers should continue raising wages at the same pace as in 2022, Mr Sim Gim Guan, executive director of the Singapore National Employers Federation, said wage increases have to be supported by productivity growth to be sustainable over the long term.

“Employers should therefore focus on raising productivity so that they can afford to grant wage increases without affecting competitiveness.”

Mr Sim also noted that government support schemes such as the Cost-of-Living Special Payment and Community Development Council vouchers will help workers defray higher prices.

The cost of salary increases for lower-wage workers would also be mitigated by the Progressive Wage Credit Scheme, through which the Government funds up to 75 per cent of wage increases that employers provide to lower-wage workers for five years, ending in 2026, he added.

He also said that small and medium-sized enterprises can remain competitive employers while keeping their wage bill sustainable by tapping grants and support schemes to transform their businesses, redesign their jobs and upskill their workers.