Wage growth likely to continue but has to catch up to inflation: Experts

The median household income grew in 2021, after it had fallen in 2020 for the first time in a decade. PHOTO: ST FILE

SINGAPORE - Global economic recovery and a generally bright outlook could support continued wage growth, experts said.

But they added that wages will also have to catch up to inflation, which has been on the rise.

These remarks were made after the release of a report by the Department of Statistics (SingStat) on Tuesday (Feb 15), which revealed that the median household income grew last year, after it had fallen in 2020 for the first time in a decade.

Maybank Kim Eng senior economist Chua Hak Bin said: "The strong economic recovery and generous wage subsidies likely drove household incomes above pre-pandemic levels.

"A tighter labour market, with many foreigners having left Singapore over the past two years, may have also increased resident wages and household income."

National University of Singapore business professor Lawrence Loh said: "The fundamentals have stayed strong with sustained consumer demand and business viability.

"(The rise in household income) is also built on the effectiveness of the pandemic support measures, especially those related to jobs and business reliefs."

Economists said this income growth should continue in the year ahead.

Prof Loh said: "The rising household income momentum will continue moderately in line with the broader economic growth forecasts."

He added that global economic recovery will be a critical factor in determining this increase.

Dr Chua said: "The outlook remains positive this year, as economic reopening and relaxation of border controls will support growth and employment.

"Economic reopening should revive the consumer-facing and hospitality sectors, which will support jobs and wages for lower and middle income households."

They also observed that household income inequality should continue to be lowered, thanks to progressive wages and manpower policies.

Dr Chua said: "The introduction of the Local Qualifying Salary and expansion of the progressive wage scheme to the retail sector in September this year will also lift wages for lower income households and help reduce inequality."

He added that wage subsidies during the pandemic had a disproportionately large impact on lower-income groups.

"Wage subsidies reversed what could have been a very regressive shock from the pandemic and lockdowns, which would have likely hit lower=-wage workers disproportionately hard," he said.

But wages may also have to play catch up with inflation, said OCBC chief economist Selena Ling.

Headline inflation rose to 4 per cent in December, exceeding economists' expectations and prompting the authorities to review their 2022 forecasts.

She said: "2021 was a blockbuster year of growth and the labour market continued to heal, coupled with an improvement in risk appetite which saw asset markets mostly gain as well.

"2022 may be more challenging due to central banks playing catch up on monetary policy tightening to combat elevated inflation. So expect bouts of risk on and off as the market grapples with policies accompanying inflation, potential new virus variants and geopolitical uncertainties."

Dr Chua added: "High inflation and the unwinding of the Jobs Support Scheme are however the wild cards and could erode the gains from an improving economy and job market, particularly for lower income households."

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