Assoc Prof Jamus Jerome Lim (Sengkang): 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%, relative to the previous year. But by the end of last year, this had slowed to 1.6%, lower than the Monetary Authority of Singapore’s (MAS’) unofficial target of just under 2%.
It is amply clear to all Singaporeans, however, that while the speed by which prices increase have slowed substantially, price levels remain painfully high. We need not go again into comparisons of just how much kopi-o or mee rebus or biryani now command, compared to a few years ago. But suffice to say that, especially for those reliant on fixed incomes, the cost of living has become ever harder to bear.
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 should not 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% in the 2010s, this fell to 2.3% in 2020, 0.9% in 2021, -1% in 2022 and 0.2% in 2023.
While, as Prime Minister Wong shared in the Budget, this has rebounded last year, real wage growth over the past half-decade has lagged overall. This was, perhaps most distressingly, against a backdrop where labour 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 has consistently improved, hitting highs for all age groups, with the exception of youths, aged 15 to 24 years, in 2024. In other words, it was not for want of productivity improvements or a soft labour 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% over the past five years. Annual earnings per employee have also moved gradually upward, from around $5,500 per month in 2019 to $6,500 in 2023. But these impressive figures mask some important truths.
For starters, the large headline number applies to a typical resident household where both 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 MOM’s own calculus, real wages grew by only 0.7% between 2019 and 2024, significantly lower than the prior decade where it was closer to 3%. And as 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.
Perhaps most troubling in terms of actual progress among local households is that this median may actually 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 should be unsurprising if the new additions tend to be 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 homegrown workforce may be changing much more slowly, if at all.
That is why claims like rising standards of living – like what Prime Minister Wong articulated in his Budget speech – sometimes ring hollow to many low- and middle-class families here. To be clear, what I am stating is not meant to foster discord between native-born Singaporeans and new 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 have enjoyed much of the vaunted progress that the Government crows on about, since the growth of their median earnings do not reflect their own absence of economic progress.
If we accept this state of affairs, then the relevant question is what policymakers can do about. 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 which I support. But such handouts, while welcome, are also perceived by many Singaporeans as palliative measures and insufficient to meet the structural changes required in 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 and 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 to longer 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.
Sir, I believe that this process 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 economy-wide wages should evolve in light of higher prices but also ensures that our hardworking agents 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 public granular data on civil service salaries. Still, we can make some inferences, indirectly, using the expenditure on manpower line item in fiscal budgets from years past. In what follows, I will use data from MOE.
Based on my calculations, between 2019 and 2024, wages grew, in inflation-adjusted terms, at an average annual rate of 1.1% for this group. This means that our school teachers and other education service professionals – the ones that 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%.
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 relatively slow rate of wage progression, in the face of high inflation rates, falls short.
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, and I quote, “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% 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 1% 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 the 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 is not to say just let real wages rise indiscriminately over time, in blatant disregard of efficiency improvements. Rather adjustments to nominal income that neutralise 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 alone.
Notwithstanding the difficulties of prescribing generalised increases, NWC guidelines I believe 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%, 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 has fared. While NWC recommendations should not be mandatory, an economy-wide 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.
In my classes in macroeconomics, I teach my students about the benefits of stabilisation policy. Typically, I talk about either monetary policy, via the interest rate, or fiscal policy, via taxes and government spending. But interventionist policies also include those affecting the exchange rate and, crucially, wages. Wage policy is tricky, however; in most economies, workers, that is, voters would often be up in arms if the government were to recommend wage cuts, even if it could, in principle, shore up the aggregate economy during downturns.
When asked for an example, I use our CPF system. The employer’s share does not generally factor into household day-to-day expenses – families make ends meet with their take-home salaries. So, 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 has passed.
Contribution rates have certainly changed over time. When the scheme was in its infancy, forced saving amounted to a mere 10% of wages, with 5% 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% in 1984 before tapering down to 40% 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%. While this was then incrementally increased to 16% at the turn of the millennium, it was cut again in 2003. This rate then crept up to the present 17% by 2015, but we never again saw a restoration of an equal employer share.
Two Budgets ago, the Government raised the CPF monthly ceiling, from $6,000 to $8,000. This move, as Prime Minister 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 suggested the same. In 2014, the Labor Movement asked that employers’ contributions be increased to 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.
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 formalise 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 all 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, Prime Minister Wong set this at $1,600 for full-timers.
This is in line with the WP’s 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 the LQS is now nine 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.
Therefore, elevating the minimum wage is not just good for just those on low salaries; they benefit all workers, by shaping everyone’s earnings expectations and improving their bargaining positions in the labour 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 alluded to. What is more, there have been no clear detrimental unemployment effects. The unemployment rate – including that for youths, the group that is most likely to be negatively affected by a minimum wage – has steadily tapered downward since 2022.
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 in response to a one-off wage hike.
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 have 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 labour market unprecedentedly tight, it is difficult to envision mass redundancies triggered by a one-off increase.
Finally, some argue that wages should only rise when productivity does. Yet as I have 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.
Mr Deputy Speaker, since the pandemic, wages have fallen behind both increases in inflation as well as productivity. It is high time for our salaries to rise and there is more the Government can do to expedite this adjustment. This includes ensuring that NWC guidelines are more widely adopted, equalising the employer share of CPF and instituting a statutory universal 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. It is time for wages to rise.
26 February 2025
https://sprs.parl.gov.sg/search/#/sprs3topic?reportid=budget-2563
Mr Speaker: Assoc Prof Jamus Lim, you have a clarification to make?
12.14 pm
Assoc Prof Jamus Jerome Lim (Sengkang): Thank you, Speaker, and just a quick clarification for Deputy Prime Minister Heng. Let me start by declaring that I am a researcher and academic myself who, through collaborations with principal investigators in our autonomous universities, could potentially benefit from the National Research Fund. I will also add, at the outset, that I am fully supportive of increases to our national R&D spending, having called for this in Budgets past. And I share Deputy Prime Minister Heng’s concern about how, in many administrations around the world, this has been slashed.
That said, if I may appeal to the Government, when it comes to projects to be funded by the National Research Fund going forward, if we could expand the fields of inquiry to also non-science, non-tech areas, so long as these have a broad societal applicability. I will include here social sciences as well as areas in the humanities and liberal arts, such as design, linguistics, psychology, history and, of course – I am being a bit self interested here – economics as these areas can also indirectly contribute to our more techy or sciencey endeavours.
Lest we forget, Steve Jobs, for example, was a liberal arts major who brought Apple from a pure tech company into a global consumer lifestyle juggernaut. Jack Ma, founder of tech giant Alibaba was also an English major.
Mr Heng Swee Keat: Sir, first, let me thank Assoc Prof Jamus for his support for R&D spending. I am very happy to hear that.
As for his specific inquiry, actually, we have many different pots of research funding for different activities. The National Research Fund oversees the part that is largely related to science and technology. But beyond science and technology, where there are parts that are related to how science and technology may be deployed; we also fund some of those research. For instance, in the field of ageing, it is not just the biomedical aspects of ageing, but also the behavioural aspects of ageing. How do we nudge people towards healthier lifestyle, healthier behaviour. So, where it is closely related, we do fund those projects as well.
At the same time, there are also many different pots of research funding. When I was at the Ministry of Education (MOE), we have and we still have the Academic Research Fund at different tiers that is administered by MOE. We have our research panels that look at the quality of these proposals as well. We have also recently, a few years back, created the Social Sciences and Humanities Research Group that will look at the research in this area.
The question is, how do we bring all of this together? I think for individual researchers, do apply for that, look at what may be relevant. My personal appeal to researchers is that I know there are some who love to look at just the basic research of it. We do fund a lot of that, particularly in the sciences. But there is also a lot of scope for us to fund and do research that can be translated into actual practices, into seeing immediate improvements in the lives of people, whether it is in healthcare, and that is why I mentioned one of the big challenges that we are working on is healthy longevity.
27 February 2025
https://sprs.parl.gov.sg/search/#/sprs3topic?reportid=budget-2570
The Prime Minister and Minister for Finance (Mr Lawrence Wong): Assoc Prof Jamus Lim highlighted that wage increases in recent years have lagged productivity growth and there is scope for wages to go up further. But we should be looking at the data over a longer timeframe. Over the past decade, real wage growth has been commensurate with productivity growth. We will continue to push for this – to push for higher productivity as well as higher wages. That is why we opted for the Progressive Wage Model, which ensures continued skills upgrading for workers as they move up the wage ladder.
We will also keep an eye on costs and provide short-term help to companies where needed but without blunting the incentive for them to restructure. That is why we have corporate income tax rebates in this Budget. And we are increasing co-funding levels for the Progressive Wage Credit Scheme to help companies co-pay the wage increases for lower-wage workers.
Mr Speaker: Assoc Prof Jamus Lim.
Assoc Prof Jamus Jerome Lim (Sengkang): Sir, I appreciate the Prime Minister’s explanation that the Progressive Wage Model (PWM) is one approach and indeed, perhaps the Government’s preferred one for uplifting wages at the lower-end of the income distribution. But as I said in my speech, where I think the squeeze is felt most acutely is by those in the middle, those who are sandwiched by commitments to their parents and children, but who do not happen to work in one of the eight sectors that the PWM currently covers.
So, the first question I have is what is what is being done to help these workers realise wage increments that are commensurate, both with their contributions to greater productivity and the high cost of living?
Related to this, the Prime Minister emphasise that skills upgrading and re-training is key to elevating nominal wages and I do not disagree with this in principle. But as I explained in my speech, real wage gains over the past five years have not kept up with increases in productivity and the cost of living. So, the question that begs to be asked is, how can the Government assure Singaporeans who do choose to re-train and reskill and upskill, that those efforts will ultimately be rewarded by actual wage increments when the unfettered labour market does not seem to already be doing so?
Mr Lawrence Wong: Sir, we are focused not just on the lower-wage workers. We are pushing their wages through progressive wages, Workfare and many other initiatives. But we are also focused on the middle-income and on the broad middle to ensure that Singaporeans do enjoy continued real wage increases.
Generally speaking, we have been able to achieve positive outcomes. I know Assoc Prof Jamus Lim talked about the last five years of data where wages seem to lag behind productivity growth. But you can slice data over any shorter-term period and look at the lags or when sometimes wages will be lagging behind, sometimes wages will be ahead of productivity.
Certainly, in the last five years, wages have not caught up with productivity. But if you look at the longer-term time frame, we want to ensure wages do match productivity increases and it has been so. It has been so. And we will continue to ensure this remains. The best way to do that is to ensure a strong, vibrant economy. But not just leaving it to market forces alone, but to support workers with all the investments we are putting into SkillsFuture, which is not only benefiting the lower-wage workers, but supporting the broad middle of our workforce. And that is why we are redoubling efforts, investing more in every worker through a whole range of incentives and schemes and programmes through working with the National Trades Union Congress (NTUC), our brothers and sisters in the Labour Movement through the Company Training Committee (CTC) grants, working with enterprises who are prepared to do work workforce transformation. We are putting in place all the building blocks that are necessary to strengthen our SkillsFuture system and to make sure that Singaporeans continue to enjoy sustained real income increases.
Mr Speaker: Assoc Prof Jamus Lim.
Assoc Prof Jamus Jerome Lim: Sir, I appreciate your indulgence. Just a quick clarification. The Prime Minister mentioned earlier on that had there not been a GST increase, we would have run a deficit over the past two years. I recall, during our debate on the GST that the fiscal hole that would have been met by the GST increase would have been something in the order of $3.7 billion. I understand that last year, we ran a very small surplus, but this year we appear to have run a significant surplus. So, were GST receipts substantially larger than we expected this year?
Mr Lawrence Wong: Sir, I mentioned that we would have been in deficit in FY2024 and also FY2025 because of both factors: if we did not do GST; and the unexpected upside in corporate income tax. So, it is both factors, not just GST alone. As I said in my Budget Statement, if we were to plan on previous assumptions for corporate income tax, it would be about 3%-plus of GDP. It has gone up to 4%-plus of GDP now. And when we plan for Budget 2025, we have assumed the higher base.
But without that unexpected increase on corporate income tax, without the GST rate increase, certainly FY2025, based on whatever we are proposing to spend in the Budget, would end up in a deficit.
28 February 2025
https://sprs.parl.gov.sg/search/#/sprs3topic?reportid=budget-2573
Office of the Leader of the Opposition 