Wage growth likely to be 'relatively muted', a tad higher than last year's 1.4%: MAS

THIS year's wage growth is expected to remain relatively muted, even though the pandemic-induced increase in labour productivity is likely to be permanent, the April edition of the Macroeconomic Review has said.

Said the Monetary Authority of Singapore (MAS) said in the review published on Wednesday: "Resident wage growth is anticipated to rise only slightly from the 1.4 per cent recorded last year, in part reflecting its lagged response to improving labour conditions."

Lingering economic uncertainties and weakened corporate balance sheets should also limit the pace of resident wage increases, it said.

However, a rebound in productivity should temper some of the increase in effective labour costs to businesses, even as wage subsidies taper off over the year, it added.

Total employment fell by 181,000, or 4.8 per cent, in 2020, compared with end-2019, with the burden of the net contraction borne entirely by the foreign workforce.

Meanwhile, resident employment rebounded in the second half of the year to expand by 14,900, or 0.6 per cent, for the year as a whole.

The central bank said total employment may not recover completely to pre-Covid-19 levels in the near term, as labour demand in parts of the economy has "likely shifted structurally lower".

"In particular, some of the projected increase in labour productivity is expected to be permanent, as automation and digitalisation initiatives adopted during Covid-19 will allow firms to rely on fewer labour inputs in the medium term," MAS said.

It added that the pandemic may also have accelerated the economy's shift away from low productivity sectors badly affected by Covid-19, towards sectors with strong post-pandemic growth prospects and workers that bring higher value-add.

Nonetheless, labour market conditions could possibly be somewhat tighter than currently projected towards the end of 2021, stemming from stronger-than-expected demand for workers, the MAS said.

"The anticipated step-up in underlying productivity could also fail to materialise if firms take longer than expected to transit to less labour-intensive methods of production," it added.

Stronger labour cost pressures could thus emerge towards the end of the year and into the next, against these constraints to the economy's aggregate supply capacity, it said.