Rising wages amid weak productivity growth have been driving up labour costs since 2011, said the Ministry of Trade and Industry (MTI). It added in a study that costs for overall unit labour and utilities are likely to continue rising this year, although rents are expected to ease.

The study, released yesterday, showed that from 2011 to 2016, the overall unit labour cost for the Singapore economy grew at a compound annual growth rate of 2.7 per cent.

This came on the back of a 3 per cent annual increase in total labour cost per worker and weak real labour productivity growth at 0.3 per cent a year. Typically, an increase in the total labour cost per worker raises the unit labour cost, while an increase in real labour productivity reduces the unit labour cost.

The higher total labour costs were primarily due to increased wages per worker, the report noted. Over the past five years, wages per worker grew 3 per cent a year amid a tight labour market. This, in turn, contributed around 2.9 percentage points to the rise in total labour cost per worker.

The higher foreign worker levy, by contrast, accounted for only 0.3 percentage point of the increase in total labour cost for each worker, and this was largely offset by wage subsidies by the Government.

Within the manufacturing sector, the unit business cost fell sharply by 8.5 per cent last year, while the service sector lagged behind with a 0.1 per cent increase. Labour costs made up the bulk of total business costs for both sectors.

The unit labour cost for the overall economy is likely to face upward pressures this year as "wages are expected to continue to rise, albeit at a slower pace, while productivity growth is expected to remain moderate", MTI said. Over the longer term, "it is important to continue with efforts to raise productivity" to sustain wage growth without eroding competitiveness.