Tipping Singapore into a recession to ease labour market tightness would be a very bad idea

SINGAPORE’S labour market tightness – and accompanying wage pressures – has been so persistent that some wonder if it can only be cured by the economy entering a recession.

But wishing for a recession is too drastic a response – it is, after all, possible to ease labour demand without going to that extreme.

In a tight labour market, employers typically offer higher wages to attract or retain workers. They may then pass these higher labour costs along to consumers by raising prices. This is known as wage push inflation. Higher wages might then be needed to compensate for the hike in the prices of goods, running the risk of a so-called wage-price spiral.