Over the course of the past year, inflation has tamed substantially. At the brink of 2024, prices were rising at an uncomfortable rate of 3.7 percent (relative to the previous year), but by the end of last year, this had slowed to 1.6 percent—lower than the Monetary Authority of Singapore’s unofficial target of just under 2 percent.
It is amply clear to all Singaporeans, however, that while the speed by which prices increase has slowed substantially, price levels remain painfully high. We need not go again into comparisons of how much kopi-o or mee soto or biryani now command, compared to a few years ago. But suffice it to say that, especially for those reliant on fixed incomes, the cost of living has become ever-harder to bear.
Real wages have fallen behind inflation and productivity
Yet even those who are still currently working for a living feel the pinch of how costly things are. And if we look at the data, it shouldn’t be much a surprise: annual real basic wages—that is, take-home pay after adjusting for sticker prices—has failed to keep pace with rising costs. From increases that were mostly between 3 and 4 percent in the 2010s, this fell to 2.3 percent in 2020, 0.9 percent in 2021, negative 1 percent in 2022, and 0.2 percent in 2023. While, as PM Wong shared in his budget, this rebounded last year, real wage growth over the past half-decade has lagged overall.
This was, perhaps most distressingly, against a backdrop where labor productivity actually increased—especially in 2021 and 2022—and remains at a level substantially higher today as compared to the pre-pandemic period. By a similar token, the employment rate consistently improved, hitting highs for all age groups, with the exception of youths (aged 15–24 years), in 2024. In other words, it was not for the want of productivity improvements or a soft labor market that wages have been suppressed.
The government routinely trots out numbers for how measured real median household incomes are high—in 2024, it clocked in at $11,297, higher than most comparable advanced economies—and have steadily progressed, with median earnings growing at an average annual rate of 3.8 percent over the past 5 years. Average earnings per employee have also moved gradually upward, from around $5.5K per month in 2019 to $6.5K in 2023. But these impressive figures mask some important truths.
For starters, the large headline number applies to a typical resident household where both the husband and wife work, in contrast to other countries where it is possible to survive on a single breadwinner. More importantly, the dual-income household is not always the result of how both father and mother would like to work, but because they feel that they must, if they hope to make ends meet.
Furthermore, once we correct for inflation, wage growth over the most recent five-year period is actually much lower. By the Ministry of Manpower’s own calculus, real wages grew by only 0.7 percent between 2019 and 2024, significantly lower than the prior decade, where it was closer to 3 percent.
And as virtually every worker will attest, this high gross wage quickly dissipates once standard deductions are made. After subtracting CPF contributions and taxes, disposable incomes have to be made to stretch further and further.
Wage growth of native-born households is likely overstated due to immigration
Perhaps most troubling in terms of actual progress among local households is that this median may be capturing a moving target. Recall, the numbers trotted out apply to residents, which include permanent residents (PRs) and new citizens. This resident population has, of course, been creeping up. But since the criteria for those granted PR or citizenship explicitly require economic contributions, it is unsurprising if these new additions are higher-income.
The data support this: wage growth was three times higher in the top decile relative to the middle ones. The upshot of all this is that, whether one relies on mean or median wages, we are faced with a moving benchmark, one that is steadily drifting upward, even if the standing of our home-grown workforce may be changing much more slowly, if at all.
That’s why claims about rising standards of living—like what PM Wong articulated in his budget speech—ring hollow to many low- and middle-class families here. To be clear, what I’m stating isn’t meant to foster discord between native-born Singaporeans and newer arrivals. Like the government, I agree that immigrants that come here—and make Singapore their home—enrich the economy and society of our Little Red Dot.
But we must not deny how many local households feel: that despite impressive statistics, they do not feel like they’ve enjoyed much of the vaunted progress that the government crows on about, since the growth in median earnings do not reflect their own absence of economic progress.
Nominal wages will need to rise
If we accept this state of affairs, then the relevant question is what policymakers can do about it. The government’s approach—which, to be clear, I had supported (and even called a moral imperative)—has been to rebate much of the higher nominal tax take to workers, as illustrated by the giveaways in last week’s budget speech. But such handouts, while welcome, are also perceived by many Singaporeans as palliative measures, and insufficient to meet the escalation in costs of living.
For the remainder of my speech, I will offer some suggestions on how we can better realign the seemingly-stagnant incomes of working Singaporean families with the harsh realities of a seemingly-inexorable rise in the cost of living.
The bottom line is actually remarkably simple: nominal wages will need to rise, more decisively than they have in the post-pandemic era. In the short run, this may add some near-term pressure in terms of wages. In the medium run, however, so long as the increases are in line with overall productivity trends, we should see a rebasing of wages in a manner that reflects the overall higher sticker prices that have emerged over the past half-decade. This will restore the purchasing power of our workers to what had prevailed prior to the post-COVID-19 outbreak of inflation.
Increasing wages in the civil service as a signal to the private sector
I believe that this should begin with the civil service. The reason is simple: doing so will have a salutary effect. It not only sends the message that the government is taking leadership in setting expectations for how economywide wages should evolve in light of higher prices, but also ensures that our hardworking workers in the public sector are not shortchanged in their service to the nation.
And how has wage growth been for this class of workers? Unfortunately, the government does not make publicly available data on civil service salaries. Still, we can make some inferences, indirectly, using the expenditure on manpower line item in fiscal budgets of years past. In what follows, I will use data from the Ministry of Education (MOE).
Based on my calculations, between 2019 and 2024, wages grew, in inflation-adjusted terms, at an average annual rate of 1.1 percent. This means that our schoolteachers and other education service professionals—the ones we entrust to preside over our children’s learning and development—saw their incomes increase at a rate not much different to the very modest nationwide increase of 0.7 percent.
Is this sufficient? If MOE is representative of how the rest of the bureaucracy is paid, civil servants are, at least, not falling behind. But if we believe in the signal value of government action in nudging the private sector, then we must surely feel that this slow rate of wage progression, in the face of high inflation rates, falls short.
National wage council guidelines should be broader and more widely adopted
Of course, the government has not entirely abdicated its strategic role in the economy. The National Wages Council (NWC) has consistently offered advice on the direction that wages should trend, and in its most recent guidelines, it stressed that “employers who have done well… should reward their employees with [either] built-in wage increases [or] variable payments”.
The NWC has advocated for built-in wage increases of between 5.5 and 7.5 percent for lower-wage workers. This push is welcome and helps redress the still-yawning gap in income inequality. And NWC direction on this front has not been for naught: last year, this group saw their real incomes expand at a rate that was more than one percent faster than that of the median.
However, the Council held back from analogous recommendations for the workforce as a whole. Admittedly, it is harder to dictate similar increases across diverse economic conditions faced by different sectors and industries. But we need to remember that, much like lower-wage earners, the middle class has seen their purchasing power erode in recent years. The inflation tax is borne by everyone, regardless of income.
Just as important, wage increases premised on addressing rising costs of living should not be made conditional on upskilling and productivity improvements. This isn’t to say that real wages rise indiscriminately over time, in blatant disregard of efficiency improvements. But adjustments to nominal income that neutralize the effects of past inflation is the very least that employers owe to their workers, especially with so many companies also posting record profits, due to higher sticker prices.
Notwithstanding the difficulties of prescribing generalized increases, NWC guidelines should at least recommend that all workers in profitable firms, not just those at the lower end of the distribution, be inflation-proofed. With cumulative inflation over the past two years of around 7 percent, it is fully justifiable for the NWC to expand its recommendations to an across-the-board, one-off wage hike of between 5.5 and 7.5.
To help expedite adoption, the Ministry could also monitor adherence to these guidelines across companies, not least how the civil service itself has fared. While NWC recommendations should not be mandatory, an economywide stocktaking—especially for firms reporting sales turnovers in excess of $10 million—will nevertheless impress on businesses that the government does indeed care about the extent to which corporations take guidelines seriously.
Restore the employer share of CPF
In my classes in macroeconomics, I teach my students about the benefits of stabilization policy. Typically, I talk about either monetary policy (via the interest rate) or fiscal policy (via taxes and government spending). But interventionist policies include those affecting the exchange rate and wages. Wage policy is tricky, however; in most economies, workers (read: voters) would often be up in arms if the government were to recommend wage cuts, even if it could shore up the aggregate economy during downturns.
When asked for an example, I use our CPF system. Since the employer’s share does not generally factor into household day-to-day expenses—families make ends meet with their take-home salaries—Singapore has historically used this tool to promote economic recovery, with temporary cuts of the employer’s CPF contribution. There is grumbling and discontent, but the implicit understanding is that there would be compensation, after the storm had passed.
Contribution rates have certainly changed over time. When the scheme was in its infancy, forced saving amounted to a mere 10 percent of wages, with 5 percent each from employer and employee. In these early decades, the employer share was even occasionally higher than that of the employee’s. Overall contributions gradually rose—to a peak of 50 percent in 1984—before tapering down to 40 percent in the late 1990s. Through it all, the shares borne by workers and their companies were roughly equal.
This changed in 1999. In response to the Asian crisis, the employer share was slashed in half, to 10 percent. While this was then incrementally increased to 16 percent at the turn of the millennium, it was cut again in 2003. This rate then crept up to the present 17 percent by 2015, but we never again saw a restoration to an equal employer share.
Two years ago, the government raised the CPF monthly ceiling, from $6,000 to $8,000. This move, and as PM Wong shared at the time, allows CPF contributions to better keep pace with rising salaries. But the policy is only material to those who earn above the ceiling. In contrast, raising the employer share will help all workers.
I understand that, ultimately, employers look at an employee’s overall cost in making hiring decisions, and that any call for restoring the employer’s contribution to a higher rate amounts to an increase in the company’s overall wage bill. Regardless, the imbalance in employer and employee shares should be redressed. Others have previously suggested the same. In 2014, the Labor Movement asked that employers’ contributions be increased more than those of employees’. In other instances, NTUC has also called for a delay to employer contribution cuts, or an accelerated restoration. But momentum behind this has stalled, and our workers have endured an extended wage cut for the better part of two decades. With costs of living so high, there is no better time than now to make workers’ gross incomes made whole again.
Convert the effective minimum wage to a universal statutory one
Sir, I have focused on policies that will promote faster adjustment in overall wages. For lower income earners, we can do more, notwithstanding the gains that the group has managed to eke out over the past year. In particular, the time is right for us to formalize our minimum wage.
Following revisions to the Local Qualifying Salary (LQS) framework in 2022—which expanded the scheme to all companies hiring foreign employees, rather than just those bound by a foreign worker quota—there is now an effective minimum wage for Singaporeans. At the same time, the LQS salary, which used to be around $1,000, has been revised upward; in last year’s Budget speech, PM Wong set this at $1,600 for full-timers.
This is in line with the Workers’ Party advocacy of a $1,300 take-home minimum wage. Since the coverage of low-income earners by either the minimum wage component of the Progressive Wage Model or Local Qualifying Salaries is now 9 in 10 workers, I believe that the minimum wage should simply be made statutory and universal.
After all, the beneficial effect of a higher minimum wage is not limited to low-income earners. Research has consistently identified spillovers of a higher minimum wage for those further up the wage distribution. Elevating the minimum wage isn’t just good for those on low salaries; they benefit all workers, by shaping everyone’s earnings expectations and improving their bargaining positions in the labor market.
Just as important, businesses have adapted. While it is true that some companies have suggested that they will pass on some of these costs to their customers, many others have been able to adjust with productivity improvements. A small price rise is to be expected, and was a possibility I had previously alluded to. However, we have also not seen detrimental unemployment effects. The unemployment rate—including that for youths, the group most likely to be negatively affected by a minimum wage—has steadily tapered downward since 2022.
Increased wages need not negatively impact inflation, employment, or productivity
The natural concern with pursuing increases in wages is that it could have negative implications for inflation, employment, or productivity.
On inflation, some have cautioned against pushing for wage increases, under the premise that this could revive inflationary pressure, and—in the extreme—set off a negative feedback loop of higher wages prompting price hikes, and vice versa. But neither theory nor data lend much support that such a “wage-price spiral” will emerge.
One may also worry that rising wages could lead to companies shedding workers. But the relationship between wage inflation and unemployment has, in recent decades, been very weak. And as I’ve shared with this House before, the majority of minimum wage studies point to little or no job loss effects, especially when the increases are modest. With our labor market is unprecedentedly tight, it is difficult to envision mass redundancies triggered by a one-off wage increase.
Finally, some argue that wages should only rise when productivity does. Yet as I’ve argued earlier, productivity has risen, while wages have not caught up. There are even many reasons why slightly higher wages may improve efficiency, by reducing shirking, improving morale, lowering turnover, and making hiring easier.
Conclusion
Since the pandemic, wages have fallen behind both increases in inflation as well as productivity. It is high time for salaries to rise, and there is more the government can do to expedite this adjustment, including ensuring that NWC guidelines are more widely adopted, equalizing the employer share of CPF, and instituting a statutory minimum wage. Restoring the real purchasing power of wages is a sure-fire way to help working Singaporeans cope with sky-high costs of living.
