Higher wages create problems for Singaporean economy

The Singaporean tiger economy is getting a kick in the teeth from high wages. Johanna Son of Inter Press Service reports.

SINGAPORE (IPS): Inadequate wages are a perennial complaint in Asia's poorer countries, but in Singapore it is high salaries that are giving businessmen and economists a headache.

Like other fast-growing economies, Singapore is grappling with wages that are rising too fast for comfort and threaten to erode one of the pillars of competitiveness that has fueled growth over the last two decades.

Economists, foreign companies and even workers' groups are worried that uncontrolled wage rises may cause this tiger economy to lose some of its bite.

Senior managers in this city-state of 2.8 million people are already the third highest paid in the world after Tokyo and Hong Kong. In a country where demand for labor exceeds supply, staff turnover is quick and one out of eight employees quits in a year. Some say there are two jobs available for every worker.

The result has been a tendency for wages to go up, in a labor- tight economy that has had to turn to foreign labor in recent years.

In late June, the National Trade Union Congress warned: "If our total wage packets rise to the same level as in the West, it will make us less attractive as a location for multinational companies to invest. And this could push up our unemployment rate."

The employees' group wants the pace of wage increases this year limited to five percent, due to what NTUC head Lim Boon Heng said was slower economic and productivity growth. "This is why we are calling for caution on wage increases this year -- for both workers and management personnel," the group added. "It is not enough for workers alone to show restraint."

In a study for the Asian Development Bank (ADB), Tilak Abeysinghe of the National University of Singapore said real wages rose 3.7 percent in 1994 and are expected to go up by 5.4 percent this year.

Various factors affect wages in Singapore, among them economic growth that outpaces that of the West, higher costs of living and competition by companies to get and keep staff.

Even wages of lower-level workers are rising. One firm said there were no takers for a junior accounting clerk's job, despite a salary offer of US$1,300. Herman Tan, Seagate's vice president for regional human resources, said: "Turnover is so high that in the last six months, we had to interview almost 10,000 people to recruit about 1,000 people."

At a forum organized by the Straits Times in mid-June, legislator John de Pavya of the Singapore Manual and Mercantile Workers Union said firms are likely to continue paying their workers more if they are doing well, despite the desired five percent wage hike threshold. He warned: "Over the long term, if we carry on doing this, we are just hastening recession."

Businessmen say the situation could be eased if wage and productivity levels are not too far apart. In his study, though, Abeysinghe said productivity grew by 5.4 percent compared to the 3.7 percent rise in real wages in 1993. But for 1995, he projected that the expected 5.4 percent rise in real wages would outstrip productivity growth of 4.2 percent.

Most of the productivity gains were made in the manufacturing sector, whose growth in recent years has confounded those who expected to see increasing signs that Singapore's growth engine is shifting from manufacturing to services.

There were lay-offs this year in the electronics industry, which accounts for much of Singapore's manufacturing power. It is the world's leading producer of disk drives.

Many firms based in Singapore are finding other ways of coping with rising costs. Some are moving labor-intensive operations to Malaysia or other lower-wage sites, and expanding capital and skills-intensive jobs here. In an effort to lure and keep manufacturing firms here, the Singapore government is now offering grants for industrial research and upgrading infrastructure.

But some say higher costs do not have to drive away all manufacturers from Singapore. "If cost is the only consideration, every manufacturer will be setting up in Puerto Rico," the Straits Times quoted Wong Ngit Long of Venture Manufacturing as saying.

Some manufacturers say while Singapore's costs are higher than in many Asian countries, they are still much lower than in the West where many multinationals come from. And it remains a leader in high-value skills coveted by foreign firms.

Singapore continues to attract foreign direct investment because of its strategic location, good infrastructure, global connections and efficiency, though there are also fears that rising costs will dampen some investor interest.

Other ways are being tried too boost the supply of local labor by raising the retirement age, getting more women to work or by depressing demand for more labor by increasing automation. But businessmen say there is a limit to these approaches.

And while labor-intensive work in manufacturing can be moved to cheaper sites, Singapore's provision of financial services cannot. It is now honing financial services as a business edge as Hong Kong's 1997 return to China rule nears.

The other option is the use of foreign labor, though Singapore is wary about overdependence. Its working-age population is growing only at about half the pace of employment growth, with excess demand being filled by foreign workers who now make up more than 10 percent of the labor force.

Abeysinghe says Singapore's labor situation may affect its growth prospects. The economy is likely to keep on growing by nine to 10 percent in the next few years, but he says labor shortages could lead to rising costs and in turn dampen growth.

"Singapore has to depend heavily on imported on imported labor to achieve the current growth rates. (But) this is too much to expect in the long run because it will have to pay a price for overcrowding."