REAL wage growth was up 1.6 per cent in 2021, slightly higher than the previous year at 1.4 per cent but still lower than the 3.3 per cent recorded in 2019, according to the Ministry of Manpower (MOM) on Monday (May 30).

Despite rising prices, wage growth in 2021 still exceeded inflation, meaning that wages grew in real terms but at a considerably slower pace, said MOM in its latest report on wage practices.

As inflation is expected to stay elevated, MOM expects that it will continue to dampen real wage growth next year. Singapore’s core inflation jumped to 3.3 per cent in April, the highest level since early 2012.

Supply chain disruptions and the uncertainty arising from Russia’s war in Ukraine could also affect business confidence and slow the rate of growth.

Nevertheless, MOM expects wage growth to continue next year as the labour market is expected to remain tight, even as the easing of border restrictions may ease some of the tightness as non-resident workers return to Singapore.

Against this backdrop, Maybank senior economist Chua Hak Bin noted that workers are more likely to factor inflation into their wage demands and quit if wage adjustments do not keep pace.

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This, along with Singapore’s moves to introduce a qualifying minimum salary and expand the progressive wage model to the retail sector later this year, will likely have a “ratchet effect” on overall wages and in turn add to the wage-price spiral, said Chua. The wage-price spiral will only add to the intensifying inflationary pressures from rising food and energy prices.

“There is a high risk that wage growth this year could be well above what is justified by gross domestic product growth and labour productivity, driven more by rising inflation and foreign labour and wage policies,” he added.

Selena Ling, chief economist at OCBC, believes that while some wage-price pressures will persist, it “should not be runaway at this juncture”.

“The risk of a wage-price spiral is not our baseline scenario, although the risk is rising. This is because most of the border controls have been lifted, albeit there is likely to be a time lag for foreign workers to come back,” said Ling, who is also the bank’s head of treasury and research.

Nevertheless, she noted that nominal wages are “clearly playing catch-up to the elevated inflation picture”, with some growth industries - like financial services - seeing faster wage pressures due to the demand for niche skills.

“This trajectory is likely to persist, but the lagging industries like accommodation, transportation and storage, and food and beverage are also ramping up activities, so wages may also play catch-up over 2H22 and into 2023 as well,” said Ling.

Total wage growth, including employer Central Provident Fund (CPF) contributions, among resident employees who have been with the same employer for at least 1 year was 3.9 per cent in 2021, double the 1.2 per cent recorded in 2020 and comparable to that in 2019.

MOM said the rebound in total wage growth reflects “the broad-based economic recovery across industries, and a tight labour market due to border restrictions slowing down the inflow of non-resident labour.

Even so, the ministry noted that last year’s wage growth was lower than that seen after the global financial crisis, where total wage growth recovered to 5.7 per cent in 2010. “(This suggests) that employers may have been more cautious in raising wages given the longer tail of the Covid-19 pandemic,” said MOM.

Wage growth also had less ground to recovery last year compared to in 2010, as the pandemic had a less severe impact on wages compared to the global financial crisis.

All sectors experienced higher total wage growth in 2021 compared to the year before. More establishments were also able to give wage increases last year compared to in 2020, though the proportion at 60 per cent was still lower than before the pandemic at 69 per cent in 2019.

In particular, outward-oriented sectors - such as information and communications; finance and insurance services; and manufacturing - saw strong wage growth in 2021.

Among the domestic-oriented sectors, retail trade registered the highest wage increase at 5.5 per cent. Even the sectors most affected by the Covid-19 pandemic registered wage increases as demand for manpower rose with the relaxation of border measures.

For instance, total wage growth in the accommodation sector was up 1.7 per cent, compared to 2020 where it contracted by 5.3 per cent. The transportation and storage sector recorded a 2.8 per cent growth in total wage growth, while food and beverage services saw total wage growth grow by 2.6 per cent.

The proportion of profitable establishments also rose last year to 75 per cent, from 63 per cent in 2020. This enabled some employers to restore wage cuts made in 2020 and led to a higher proportion of employees with wage increases in 2021, said MOM.