Singapore’s nominal wage growth may slow further in 2024 as labour market cools

SINGAPORE’S nominal wage growth may slow further in 2024, as the labour market cools to the pre-pandemic norm amid economic uncertainty.

Yet unlike 2023, when high inflation caused wages to shrink in real terms, there is a chance of real wage growth this year as inflation slows.

Labour market tightness peaked in 2022 as Singapore emerged from the pandemic. Manpower demand was red-hot as Covid curbs eased and activity picked up – but supply was constrained, as the non-resident workforce remained below pre-pandemic levels.

This has since eased on both fronts. The global slowdown has dampened demand, and the full-swing return of foreign workers has meant higher supply.

Job vacancies have fallen from a record high. There were 78,400 job vacancies in September, down from 87,900 in June and a high of 126,000 in March 2022, according to Manpower Ministry (MOM) data.

The ratio of job vacancies to unemployed persons is still above the pre-pandemic average, but down from 2022 levels, noted DBS analysts Chua Han Teng, Philip Wee and Eugene Leow.

The ratio dropped to 1.58 in September, down from 1.94 in June 2023 and a peak of 2.56 in June 2022.

Industry watchers expect labour demand to cool further in 2024 – especially early in the year – amid sluggish economic activity.

“The initial softening in labour market conditions (since Q2 2023) – from a very tight starting point – is the start of a lagged reaction to weaker external and domestic demand that is likely to continue over the coming months,” said Oxford Economics senior Asia economist Alex Holmes in a report.

Hiring sentiments have weakened. Jaya Dass, managing director of permanent recruitment for Asia-Pacific at Randstad, noted that recruitment has slowed as companies tighten their belts in view of higher inflation and a deteriorating global economy.

“As we have witnessed over the past few weeks, business restructuring exercises have already been happening, mostly against the backdrop of high inflation and manpower costs,” she added.

Nominal weakness, but a real chance

After recent large rises, nominal wage growth is expected to “soften considerably” in coming quarters, said Oxford Economics’ Holmes.

He thinks year-on-year nominal wage growth could slow to a low of 0.35 per cent in Q3 2024 – on a four-quarter moving average basis – before rising to 1.24 per cent in Q4.

Coface Asia-Pacific economist Eve Barre agrees that as the labour market normalises, nominal wage growth could be flat or “at least very low”.

This slowdown is expected to be “more intense” for export-oriented sectors such as manufacturing, which are expected to remain weak in the near term, she added.

Recruiters expect lower or absent wage rises in 2024. Some companies – including financial sector and professional services firms – have announced wage freezes in view of macroeconomic challenges, said Supriya Dikshit, DHR Global’s managing partner for Asia Pacific and Singapore.

“Given the challenging economic conditions at present, the priority now (for companies) is to conserve cash, preserve jobs as best they can, ensure profitability and attain stability, before embarking on major business moves,” she said.

According to the latest MOM data, the share of firms planning to raise wages has fallen to its lowest since the pandemic: 18 per cent in September, down from 28 per cent in June.

The combination of labour market normalisation and high inflation has meant shrinking real wages. According to MOM data, which takes June as its reference point, real median income fell 2.3 per cent in 2023.

In its November report, MOM said that real income growth is likely to remain negative for the rest of 2023, but should improve in 2024 as inflation eases.

Official forecasts put headline inflation at 3 to 4 per cent in 2024, down from around 5 per cent in 2023. Core inflation – which excludes accommodation and private transport – is expected at 2.5 to 3.5 per cent in 2024, down from around 4 per cent.

Responding to the MOM report, Maybank regional co-head of macro research Chua Hak Bin said the improvement in real wage growth will be “not much better”, as headline inflation remains high by historical standards.

He expects real wage growth to turn positive but “barely so”, in a range of 0 to 1 per cent.

Moody’s Analytics economist Denise Cheok expects “a slight positive” growth in real wages in 2024, saying: “A cooling labour market will rein in nominal wage growth, while still-elevated inflation will further weigh on real wages.”

Sectors to watch

Some sectors are seen as having better wage prospects. Randstad’s Dass noted that businesses remain optimistic about opportunities in technology and the green economy, as well as returning Mice (meetings, incentives, conferences, and exhibitions) events and tourism levels.

With the recovery of travel, related sectors such as tourism and hospitality are likely to maintain a high demand for labour, said economist Kelvin Seah from the National University of Singapore (NUS).

DHR Global is seeing growing talent demand from sectors such as electric vehicles and biopharmaceuticals, said Dikshit. “Our team in Singapore is also seeing growing investments into IT, aerospace, semiconductors, and advanced manufacturing, which are continuing to drive talent needs as well.”

Support for retrenched workers

Wages aside, the 2024 labour landscape will be shaped by an upcoming policy: support for lower- and middle-income involuntarily unemployed job-seekers. The scheme has been discussed at length by the government and labour movement, with details expected at Budget 2024.

NUS’ Seah noted that it may be “quite different” from unemployment insurance schemes in Europe. Singapore’s version may have payouts tied to workers’ willingness to receive training, undergo career counselling, or both.

In October, Manpower Minister Tan See Leng said that a “large component of the scheme” will be pegged to upskilling and retraining.

Tying benefits to retraining will help workers move into “higher-value positions” with better remuneration and opportunities, while protecting the scheme from abuse, said Marcus Loh, director at digital transformation services company Temus.

He added: “Singapore must avoid the practical pitfalls observed in some systems elsewhere, where unemployment support has unintentionally kept workers unemployed, by dissuading firms from investing in growing their talent, and discouraging displaced workers from rejoining the workforce.”

But Singapore University of Social Sciences economist Walter Theseira cautioned: “There are probably going to be unmet labour market security needs from this first version, such as income security for self-employed workers.”

Middle- to higher-income workers might also feel left out “if there is no explicit support provided for them”, he added. Rather than income support, this group may instead benefit from policies centred on encouraging or subsidising retraining and career transitions, he said.

It will take time to understand the effects of employment support, such as whether it improves the quality of job matches and family resilience, he concluded. “It is best to treat this as something that needs to be iterated on for some time – rather than a policy that is going to be set for all time.”