atans1

Double confirm, Ah Loong is lucky

In Economy on 24/02/2016 at 3:56 pm

Oil prices collapsed at the right time.

Here I pointed out how lucky Ah Loong was in calling a GE in 2015 before the global economy took a turn for the worse. Here’s another example of his luck.

Recently, while searching my online archives for some historical data, I came across a note to self that I wrote in very late 2014 referencing a piece in the constructive, nation-building media that reported the slow growth in wages since 2011. I commented to self on how this slow growth in real wages would affect the elections in 2015 (Remember by then I had predicted a  GE in 2015.). Nominal wage growth barely compensated for the growth in inflation. Inflation was a problem.

I tot that the slow real wage growth since 2011 reported in the article would mean that it would not be possible for the PAP to win big in coming GE.

But were the economists (they are still employed in the banks today) quoted in the report wrong, very wrong because in 2015:

The median Singaporean worker has seen “significant real income growth” in the last five years – a “really quite unusual” performance when most other countries have seen little or even negative income growth, said Deputy Prime Minister Tharman Shanmugaratnam.

Since 2010, after the global financial crisis, the median household income in Singapore has grown by 18 per cent in real terms – that is, after adjusting for the increase in the cost of living, he noted at a walkabout at Taman Jurong on Sunday (Sep 3) evening.

“We’ve seen very unusual sustained income growth in real terms, not just for the people at the top, but for the middle class – and in fact, the households in the low-income group have seen slightly faster real income growth than those in the middle,” he said. (CNA)

(I assume he was using the data summarised here.) Note this was said days before the GE.

— The bi-annual survey compiled by Towers Watson’s Data Services Practice also revealed that in real terms, salaries in Singapore will rise 4.4 per cent. The salary increase budget for 2016 is expected to increase 4.5 per cent, according to the survey. (CNA in May 2015).

The collapse in inflation in 2014 and 2015 due to the collapse in oil prices starting in October 2014 changed everything when it came to real wages because even if wage increases were “peanuts”, the collapse in inflation would ensure that wages went up in real terms. And the nominal increase in wages were not “peanuts”: The total wage increase in 2014 stemmed from a basic wage gain of 4.9% in 2014 (a slight decrease from 5.1% in 2013), while bonuses remained unchanged at 2.21 months of basic wages in 2014. (NWC Guidelines 2015/ 2016 published in May 2015)

If anyone is interested, here’s my note to self (Explanation: The Italic bits are the original article which paints a really gloom picture of real wages (remember oil prices had started falling only three months earlier in October 2014). The words in normal font were my comments at the time:

Why not possible for PAP to win early elections big

The PAP is deluded if thinks can win big in an early election. Real wage growth has been slow, really slow.

It’s not the usual suspects raising the issue but the constructive, nation-building media allied to the PAP administration.

For those who have placed the blame for slow wage growth squarely on cheap imported labour, this year’s headline figures in manpower would have been sobering  Despite sharp pullbacks in manpower inflows in the past few years – to the extent that the percentage of vacancies being filled by Singaporeans rather than foreigners this year hit its highest level since 2011 [Can believe Mom’s data meh?].- average pay cheques, after adjusting for inflation, grew by only 0.4 per cent amid tight labour market conditions.

And if Singapore’s struggles with boosting productivity persist, the picture on the wage growth front next year is unlikely to be any rosier, said economists, especially given the poor global economic outlook. The impending cessation of the Wage Credit Scheme (WCS), which subsidises firms for pay raises, will add another chokehold …

The reality

“Companies don’t want their margin to be squeezed. They want to save more, hold on to a profit margin, to prepare for the next year when there’s no more WCS,” said UOB economist Francis Tan. “Once you increase the wages, it will be hard to move them down again. And if the workers are still not as productive as you want them to be, it can be quite dangerous for the existence of the company.”

Labour productivity contracted 0.8 per cent year-on-year in the third quarter, worse than the 0.3 per cent fall in the first half, figures from the Ministry of Manpower showed. The first half of last year registered a 1.3 per cent decline, but this improved to 0.8 per cent growth in the second half.

Why productivity matters [Update in 2016: Still matters, low inflation not withstanding]

The repercussions of flagging productivity, as the International Monetary Fund (IMF) has warned, could extend to the whole of the Republic’s economy. With the tightening of the tap on foreign workers pushing up wages more quickly than productivity, not only will firms pass on the higher costs to consumers, but Singapore’s potential growth and competitiveness could also suffer a blow, the IMF said.

FTs needed

DBS economist Irvin Seah noted: “Businesses are unable to pursue more orders because of this labour crunch. This will also prevent them from increasing their top-line, unless the productivity of the existing manpower is able to improve.”

Besides sluggish productivity growth, OCBC’s Ms Selena Ling said companies face pressure from higher rental costs. Singapore is expected to top the rental forecast for Asia-Pacific cities, with a 25 per cent increase in office rents from this year to 2019, based on a report from property consultancy Knight Frank in September.

In adjusting to these costs, business will take into account the differing flexibility of the various types of business costs. Between rental and wage costs, wages provide a “little bit more room for negotiation”, said Ms Ling.

Agreeing, Mr Tan said many companies have been moving towards higher variable components in wages to help buffer against economic cycles.

Workers who benefit from WCS – those earning below S$4,000 – are not considered as vulnerable as low-wage workers. But given the modest growth prospects next year, some economists speculate that the Government could extend the scheme.

“At this moment, it looks like the United States is showing signs of much more broad-based sustained recovery, while the rest of the world is in different stages of recovery and slowdown,” noted CIMB Research economist Song Seng Wun.

Mr Seah, however, noted that the WCS, which represents a form of government transfer, was never meant to last and that the more sustainable approach to boost workers’ pay is to equip them with the right skills.

PAP returns to its roots

“Although I think our fiscal policies are gradually becoming more socialistic in nature, I think the Government has continued to emphasise the need for self-sufficiency and the notion of meritocracy,” he said. “I think such principles should continue to remain the hallmark of our economic policies.”

Employers kanna pay and pay

Indeed, firms have had no choice but to paymore in the stretched labour market, which workers have been quick to capitalise on.

“And it’s not just the blue-collar workers, but the senior and middle management too,” said RecruitPlus Consulting’s managing director, Mr Adrian Tan.

But inflation is rising too, so no real wage growth/ Growth/ What growrh?

Mr Erman Tan, president of the Singapore Human Resources Institute, added that firms will face pressure to keep wage growth at least on a par with inflation. Core inflation, which indicates the rise in everyday out-of-pocket costs, has been estimated at 2 to 3 per cent next year, higher than the 2 to 2.5 per cent expected this year.

“Inflation is still putting pressure on staff. Firms have to make sure staff have the peace of mind to work, so you can change work procedures, change mindsets and invest in automation, leading to improvement in productivity,” he said.

in the push for wages to grow because of productivity improvement. In September, the cleaning industry became the first to adopt a skill-wage ladder as a criterion to secure licensing, representing a breakthrough in lifting the pay of a group of workers who have seen their income stagnate. The Progressive Wage Model was also announced for security guards and will be implemented in 2016.

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  1. Am sure Ah Loong consulted the oracles of Freud, I mean psychologists, who told him slam dunk must hold elections in 2015 because daddy juz gave the voters a misty eyed gloss.. All else is chaff in the wind.

  2. […] – Word of Mouth: Becoming an Innovative (and Inclusive) Society – Thoughts of a Cynical Investor: Double confirm, Ah Loong is lucky […]

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