Why real wages in Singapore grew by 5% last year

Robert Frazier November 21, 2016 Comments Off on Why real wages in Singapore grew by 5% last year
Why real wages in Singapore grew by 5% last year

When you adjust wages after inflation, what you get are real wages.  Reeling from inflation in 2015, Singapore emerged unscathed to post an impressive 5% in real wages. There was also a marked drop in the nominal wage by 0.9% as well a 0.5% drop in the consumer prices. One would be tempted to ask how Singapore was able to pull off such results in an economic downturn. The following are some of the main reasons which led to the growth.

Central   Provident Fund (CPF) increased

In Singapore, there is such a thing as CPF whereby employers are obliged to make contributions to a fund. The amount increased marginally last year, helping to post the positive results as we have seen. One thing about the increase in these contributions is that they stabilized the total wages.Image result for Why real wages in Singapore grew by 5% last year

Drop in profitability

The Real wages in Singapore up by 5% last year, but would have been higher than previous year. This could be as a result of the fact that the economy weakened in 2015 compared to 2014. The weakening of the economy meant that firms posted lower profits and consequently, the salary increment to employees was not effected. In fact, there was a pay cut at 11%. Less than half of firms increased salaries to the low-wage workers compared to the previous year.

National Wage Council

Despite a recommendation for a minimum of S$60 increment by NWC, 72% of the firms did not heed this directive. This is in total contrast to the 31% increment in 2014. Poor business and high cost of operation were cited as reasons for failure to hike the pay.

Performance –based wages

A report done on the wage issue showed that more than ever before, firms were willing to adopt a flexible system for wages in the private sector. The new measures put in place include the following:

Narrowed maximum-minimum ratio

In a departure from the seniority based wage system, the narrowing maximum-minimum ratio was a model that was more amenable by many firms. This was according to the Ministry of Manpower in Singapore. The model, according to a report done, proposed a 1.5 times and below in the narrowing of the ratio.

Variable bonus and key performance indicators

The second widely adopted measure was that of variable bonus. The latter was linked to the key performance indicators. In other words, the benefits rewarded to employees are standardized. This paves way for an effective way to peg pay on performance. The KPI is a tool that is proving important in appraising a compensation system Vis-a –Vis a variable proposition.

If Singapore adopts some of these recommendations, there will a be a far reaching effect in the wages and especially in regard to the real and nominal wages. Reforming the wage structure seems to be the most plausible course of action that the companies will adopt to survive harsh economic times. Only time will tell how adoption of these will impact on the real wages from this year.

About the Author:

Morris Edwards is a content writer at Companyregistrationinsingapore.com.sg – he writes different topics like “The Most Innovative Economy In Asia: Singapore“, “Singapore Seeks Stronger Economic Ties with US” and all topics related to Singapore Economy and Business in Singapore.

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