Local wages fell when economy was weak

Dr Tan Kong Yam's commentary ("Growth in a decade of shocks"; Tuesday) provided a useful perspective on the complexities of managing economic restructuring and preserving social cohesion in the face of global market forces. We share his belief that Singaporeans can continue to do well if we stay nimble and adaptable.

We have embarked on major restructuring of our economy in recent years. This has included the tightening of foreign worker policies, promoting productivity and ensuring a sustainable social balance. However, Dr Tan's suggestion that the inflow of foreign workers suppressed local wages before 2008 is not borne out by the facts. Foreign worker employment in fact fell during the period when local wages weakened, and rose at the same time as the recovery in local wages.

The weakness in local wages occurred during 2001-2004, when the economy was weighed down by the global dot.com recession and Sars. Local unemployment went up and real wages fell, especially for those at the lower end of the income ladder. The number of foreign workers in Singapore declined.

The most rapid inflow of foreign workers took place in 2004-2008. But this was also when we saw a recovery in local employment and wages. Median local wages rose significantly during the period, and that for lower-income workers began recovering.

Local wage trends have hence been shaped by employers' demand for labour, and not just the supply of foreign workers. Higher demand led to higher local wages, even when more foreign workers were employed.

Wages have continued to strengthen since the global financial crisis, with the labour market remaining tight. Consequently, taking the last decade as a whole, real incomes for the median worker and worker at the 20th percentile have grown by 24 per cent and 12 per cent respectively.

The decline in the wage share of income from 2001-2007, which Dr Tan highlighted, was also not due to foreign worker inflows. Rather, it reflected a shift in the economy towards more capital-intensive industries.

The more capital-intensive industries have lower wage shares, but workers in these industries generally earn significantly higher wages compared with a number of other sectors with higher wage shares. A Ministry of Trade and Industry study published in the Economic Survey of Singapore 1Q13 establishes this.

Cindy Keng (Mrs)

Director, Corporate Communications Division Ministry of Trade and Industry

Chong Wan Yieng (Ms)

Director, Corporate Communications Department Ministry of Manpower

This article was first published on August 16, 2014.
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