Singapore Has The Lowest Wage Share Among High-Income Countries

Singaporeans Earn The Lowest Wage Share As Compared To Other High-Income Countries

“Wage share” refers to the share of wages in total GDP, which is the “proportion of economic value added which goes to wages“. According to the International Labour Office (ILO), “If the growth in average wages is slower than the growth in GDP per capita, then the wage share usually declines. If, on the contrary, average wages grow faster than GDP per capita, then it will usually be the case that the wage share increases at the expense of profits.”

Thus if wage share is low, this means that profits are high.

Do you know that Singapore has the lowest wage share among all the high-income countries (Chart 1)? This means that profits would be much higher as well.

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Chart 1: International Labour Office Global Wage Report 2008/09Ministry of Trade and Industry Economic Survey of Singapore First Quarter 2013

Also, you can see that whereas for all the countries, their wage share had maintained at a consistently higher level but Singapore’s wage share had remained at a consistent low, and hovered at near-40% (Chart 2). By now, you would know that Singapore is the richest, if not, one of the richest countries in the world, by GDP per capita. Yet, it performs so dismally in sharing the wealth that its people had helped it built with the people.

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Chart 2: International Labour Office Global Wage Report 2008/09Ministry of Trade and Industry Economic Survey of Singapore First Quarter 2013

According to the ILO, it is important to look at the wage share because “the wage share has often been given significance as an indicator of a “fair share” for workers. This is because a declining wage share usually implies that a larger share of the economic gains is directed into profits. Not only may this be seen as unfair, but it can also have an adverse impact on future economic growth.

The ILO also said that, “governments are encouraged to display a strong commitment towards protecting the purchasing power of their populations and hence stimulating internal consumption”.

However, do you know that Singaporeans have the lowest purchasing power among the developed countries (Chart 3)? Mind you, we are the richest country in the world, but we have the lowest purchasing power among the developed countries.

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Chart 3: UBS Prices and Earnings Report 2011

So, quite clearly, you can see that in Singapore, wages seemed to have remained stagnant, at the expense of profits.

Also, because of stagnant wages and rising prices, the purchasing power of Singaporeans have now become the lowest among the high-income countries.

Importantly, there are also clear benefits to increasing wage share, The ILO had stated that, “because the marginal propensity to consume is higher for labour income than for capital income, it is usually considered that an increase in wage share will have a positive economic impact. Recent studies of Europe estimated that one percentage point increase in the wage share would increase GDP by 0.17 per cent.”

But more importantly, the question is – is the PAP government more interested in maintaining high profits, than to increase wages for Singaporeans? You see, the government benefits from the high profits from two fronts. First, as mentioned previously here, the government has majority shares in the major companies in Singapore, through Temasek Holdings and the GIC, so if the companies do well, they do well. Also, when profits increase, corporate tax increases as well and increases the government’s revenue.

And as Singapore Singaporean had shared on Facebook, corporate tax in Singapore is high – “Over 6 years, it has grown by 39%. (Chart 10).

Corporate Income Tax

Chart 10: Singapore Singaporeans Facebook Page

Also, you can see that corporate tax forms the largest proportion of revenue for the government (Chart 11).

Singapore Revenue

Chart 11: Singapore Singaporeans Facebook Page

Knowing this, do you think that the wage share of only around 40% is too low in Singapore?

Do you think that it is healthy for the people when the PAP government takes such an overwhelming interest in profits, that this might come at the expanse of the people’s wages?

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3 comments

  1. Pingback: Daily SG: 24 Sep 2013 | The Singapore Daily
  2. leon

    You may be interested to know that this report by Lee Kuan Yew School of Public Policy refuted the UBS report, http://lkyspp.nus.edu.sg/aci/wp-content/uploads/sites/4/2013/04/20110503_UBS_ACI_Wages_Comparison_report.pdf:

    It understated wages in Singapore. It assumed a set of common occupations across the world, thereby understating the proportion of higher skilled occupations in Singapore. In particular, Professionals, Managers, Executives and Technicians (PMETs) were under-represented. The study assumed that Singapore had only 9% PMETs but in actual fact, our resident employed workforce is made up of 52% of PMETs. And because PMETs command higher wages, assuming a smaller pool of PMETs in Singapore resulted in the wages for Singaporeans workers being understated.

    It overstated the cost of living for the typical local household. UBS uses rents of private housing in the construction of the price levels (including rental). In Singapore’s case, however, the majority of our population stay in public housing and median rents in public housing are more than 30% lower than the figure used in the UBS Report.

    In statistics, there will always be debate on definitions and methodology. Since I’m no expert in these reports, I won’t venture to guess which report is more accurate.

    There are 2 ways of growing our Corporate tax receipts. One is to increase our corporate tax rates, and the other is to grow our economy to attract more companies to base their companies here. Hence, the growth of our IRs and our country’s pastime to be the hub for everything under the sun. If our corporate tax receipts are low, the other way to fund our government coffers would be to increase our personal income tax and gst.

    I do not think that Singaporeans are poor in general. Our median monthly income from work including employers’ CPF in 2012 is $3480. Compared to other developed nations, some of whom are facing sky high unemployment rates, I’m not sure how unfair our wages really are. Try telling the American grads who have taken school loans to pursue higher education to be waiting tables to pay off their tuition fees that our wages are unfair. But if you are focusing on the low income, then we are in consensus that more can still be done.

  3. Alan

    One old minister says we needed spurs. Another Minister tell us to be cheaper, better & faster. Another says we will lose jobs to others if min wage is implemented. Yet another says our reserves will be raided if they stop profitting from escalating land costs. On top of that they say without GST, they can’t really help the poor. And the best of all, these greedy Ministers says if they are not paid enough, they may be corrupt !

    So how can anyone expect a fair wage share if the ministers mindset are already like that ?

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