The Singapore government’s proposal of increasing productivity to raise wages will not work

PM Lee Hsien Loong had said at the NTUC May Day Rally 2012 that his government will aim to achieve “about 30 per cent real wage growth in a decade”.

He also said that, “that is a very ambitious target. Let me try and explain to you what 30% real wage growth means. To get that, you must get the same productivity growth at least. Right? So you must get at least 30% productivity growth in 10 years because then the employer will share some, the workers will share some. And if you look at it year by year and break it down, that means every year, I need to make 2.7% productivity growth. 2.7% by year, 10 years compounded, I can make 30% in a decade and then we can raise the workers’ wages by 30%. 2.7% doesn’t look a very big number but it is a very challenging target. Since 2000, the last 12 years, what have we done? 1.7% per year. 2.7% is almost one-third better. If you compare with developed countries, let us see what they have done? Most of them have done 1 to 2% – US, the best, UK, less, Japan, just 1%. So when we say we want to make 30% productivity increase, 30% wage growth in 10 years, we are talking about stretched targets for Singapore. Not easy to do but I think we should set an ambitious goal and try our best to achieve it to the best of our ability and make sure that we make progress over the next 10 years. [1]

Let’s look at the actual statistics in Singapore in the most recent decade for a more accurate and relevant understanding of PM Lee’s speech.

A. Real Basic Wage Lags behind Productivity Gains in Past 10 Years

PM Lee had said that his government would aim to achieve 30% productivity growth so as to achieve 30% wage growth. However, based on past statistics, this isn’t accurate. If you look at the chart below, the real basic wage does not grow in tandem with productivity. In fact, just looking at the past decade, since 2002, if you look at the average growth of the real basic wage as compared to productivity growth, the growth in real basic wage [2] lags behind productivity growth [3] by 1.43%.

Thus it is more the case that even if we were able to achieve 30% productivity growth, it is unlikely that we are able to achieve a similar increase in wage growth. Wage growth will lag behind productivity growth if the past is anything to go by. Thus if the government can actually attain 2.7% productivity growth, our wage growth will still only grow by 1.27%, based on the past decade.

But this is only if the government can actually achieve its target of 2.7% productivity growth.

B. Singapore’s Productivity Growth on Downward Trend

PM Lee had said that his government would need to make 2.7% productivity growth every year in order to achieve 30% wage growth in 10 years. He has admitted that this is a stretched target and will be challenging. According to the Ministry of Trade and Industry (MIT), “the experiences of the developed countries have shown that productivity growth tends to slow as a country becomes more developed due to diminishing returns from quantitative increase in inputs.” The MIT concludes that, “Singapore’s productivity growth has been on a downward trend”.

Thus the government has acknowledged that it would be an uphill task to increase productivity. Why then did they propose to increase our wages by raising productivity?

C. Slow Down in GDP and Productivity Growth will Cause Wages to Stagnate

The government has highlighted that the trends in productivity growth follow similarly the trends in GDP growth.This can be seen in the chart below. According to PM Lee himself, our GDP growth has slowed gradually over the years, from 8.4% in the late 1980s [3] to 5.6% in the past decade [4]. Even with the most optimistic rough estimate that Singapore’s GDP grows by 4% in the next 10 years, productivity growth will only grow by possibly only 0.5%. Based on the previous calculation that the growth of real basic wages will lag at 1.43%, this means that real basic wages will not increase but decrease by 0.93%.

What this shows is that tying a proposal to increasing wages by raising productivity puts the wages of a country’s people in danger because of the fluctuations and downward trends of both productivity, and of GDP growth, which affects productivity growth.

In all likelihood, if we were to parallel our wage growth to productivity growth as PM Lee has suggested, the growth in our wages will more likely stagnate than grow. The government’s proposal to peg our wage growth in relation to productivity growth is flawed and unrealistic right from the start, yet the government is trying its best to sell the flawed proposal to us.

Why would the government sell us a spoilt Bentley knowing full well the car will splutter and die after running a few more miles?

D. Why Use a Compounded Figure of 30%?

Why does PM Lee illustrate wage growth using a compounded figure of 30%, when what he’s really saying is an average growth of 2.7% on average? The government knows that using a compounded figure of 30% will look more attractive as a proposal to obtain the buy-in and the oohs and aahs of the people. No where in the reports of the Ministry of Manpower or MIT are compounded growth figures used to illustrate productivity or wage growth. However, will this really be a 30% increase in our wage growth?

E. What are the Hidden Costs to the Proposal?

PM Lee said, “I can make 30% (growth in productivity) in a decade and then we can raise the workers’ wages by 30%.” But is it so clear cut? Is it so straightforward? What PM Lee doesn’t talk about is – how is productivity measured? How will companies be able to recognize whether growth within a company is due to an increase in productivity? Can companies actually measure this? Will companies translate productivity growth, even if it can measure it, into wage growth? Or will companies take the more likely step of keeping any returns on profits than channeling it to its workers? How will the increase in productivity take the form of an increase in wage? This is not discussed. Does the government deem Singaporeans not bright enough to understand this or does the government chooses not to illustrate the scenarios as this will highlight the inherent flaws in the proposal to link productivity growth to wage growth?

A thesis study by Nikhil Sachdev has shown that wage growth will not grow with productivity gains because, “firms have been reaping the benefits of increased productivity by keeping the costs of labor in line and maximizing corporate profits.” [5]

F. Lower Income Earners Will Not Benefit

Finally, PM Lee talks about a 30% real wage growth. However, whose wage growth are we talking about? Median, average (mean), growth of the lower income earners or the high income earners?

Our Gini Coefficient has risen from 0.433 in 2000 to 0.465 in 2010 [6], as can be seen in the chart below. According to the CIA The World Factbook, the Gini Coefficient has risen even further to 0.473 in 2011 [7]. This means that the income divide in Singapore is growing wider.

Thus even if wages increase, will the wages of the lower income earners continue to remain low while the rich get richer – and thus the overall increase in basic wages?

A very good article by Jacqueline Loh discusses the impact of low income for low income earners in Singapore. It talks about how, “it has been estimated that a family of four would need $1,700 to cover basic costs of living… A household income level of $1,500 is the threshold level specified by the Ministry of Community, Youth and Sports (MCYS) that determines household eligibility for many of the support programmes funded through the Community Care Endowment Fund (ComCare Fund). Based on the most recent 2007/2008 household expenditure survey, which measures monthly income for all households rather than only employed households, the average monthly income of the bottom 20% of households is only $1,274. As the median is never more than the average, likely 12-14% of Singapore households live under the most conservative unofficial poverty line of $1,500.” [8]

The government has refused to implement a minimum wage policy. There are currently more calls for perhaps a targeted minimum wage policy at industries which pay their workers a low income. Why do we want minimum wage? Why should we want wage growth? Because as a society develops economically, we want to be able to help the poor in the country rise in standards, so that they will also benefit and be able to have a basic standard of living which allows them to be psychologically and mentally well adjusted enough to seek further employment, for example. But is the government interested in ensuring that their wages are equitable, in our economically developed country? Or do they not fit into the notion of meritocracy? Do they not deserve merit?

G. What if Targets are Not Met?

Last but not least, if the proposal is flawed and it is highly unlikely the government is able to raise productivity so as to increase wages, who will hold them accountable? How can we hold them accountable?

PM Lee had “tried” to explain what his vision of 30% wage growth is, which is quite different from how we would imagine it. He had also put up a proposal of increasing our wages by increasing productivity. Clearly, it doesn’t seem that the government is interested in increasing our incomes in the short term. Have they created this proposal to buy time for them to amass as much surpluses as they can in their coffers whilst they can, before finally having to respond to the people?

What are you waiting for, PM Lee? Is it because the government has calculated that Singaporeans would still vote for a majority of your government for the next 2 elections and you can thus choose to buy time for another 10 years?

If so, my fellow Singaporeans, what would we do about this? How do we feel about being pawns in a chess set, which we weren’t even asked with our permission to be played?

I had originally posted this article on my Facebook page:


[1] Speech by Prime Minister Lee Hsien Loong at NTUC May Day Rally 2012 (English)

[2] Income: Growth of Real Basic Wage

[3] Productivity Growth

[4] “Singapore’s Future Among The Leading Global Cities” – Speech by PM Lee at Economic Society of Singapore Annual Dinner, 8 Jun 12

[5] An Examination of the Wage Productivity Gap

[6] Singaporeans in the Workforce

[7] CIA The World Factbook Distribution of Family Income Gini Index 

[8] Bottom Fifth in Singapore


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