Wage-price spiral risks low as firms exercise caution

There are signs that businesses remain prudent about raising pay, reducing the risk of a wage-price spiral. ST PHOTO: KELVIN CHNG

SINGAPORE – The economy continues to thrive following the hit from Covid-19, but growing uncertainty globally has prompted employers to keep a lid on wages despite their need for workers in a tight labour market.

The Ministry of Manpower (MOM) released preliminary third-quarter labour data on Friday that showed 69.3 per cent of firms were looking to hire in the quarter ahead, slightly up from 69.1 per cent in June.

Demand in tourism- and consumer-related sectors is expected to remain robust, supported by the recovery of international visitor arrivals and year-end festive hiring, it said. But it added that trade-reliant sectors such as manufacturing may experience more subdued employment growth as global demand weakens.

There are also signs that businesses remain prudent about raising pay, reducing the risk of a wage-price spiral that could see higher salaries bid up the price of goods and drive up inflation in the process.

“For wage growth to be sustainable, wages should rise in tandem only with improvements in workers’ productivity and skills,” the MOM said.

The latest data shows 27.1 per cent of firms reported in September their intention to raise wages in the next quarter, a small decline of 0.5 percentage point from June.

This comes amid signs of a tight labour market, with data from the second quarter suggesting that there were more than 2.5 vacancies for each unemployed person.

“Companies may be anticipating weaker demand for their products and services due to the weakening of the global economy and are now taking a more cautious approach towards raising wages,” said National University of Singapore labour economist Kelvin Seah.

MP Patrick Tay wrote on Facebook that MOM’s comments on the low likelihood of a wage-price spiral could reassure the market that pay remains under control as firms chart a way through the global economic uncertainty.

The Russia-Ukraine war, rising US central bank interest rates and China’s economic slowdown are some reasons behind a weakened global economy, said Dr Seah.

Dr David Leong, managing director of human resource consultancy PeopleWorldwide Consulting, said employers are cautious about unexpected shocks in the last two months of the year, and would rather hold off on hiring than raising wages.

“It is best to hold the reins and work with whatever is on hand instead of building up for anticipated growth; the growth prospect is dimmed with the circumstantial tensions all around,” said Dr Leong.

Mr Nilay Khandelwal, managing director of talent consultancy Michael Page Singapore, said wage competition remains strong in the technology, biomedical and tourism sectors.

Nonetheless, he said his firm has seen employers jostling less for talent, with candidates usually receiving one to two offers in the third quarter, down from three to four in the second.

Job seekers looking beyond just pay for more flexible working arrangements or a more diverse and inclusive corporate culture are proving another check on wage growth.

“If a company has no framework around hybrid work, many candidates would likely look to other firms that offer these arrangements,” said Mr Khandelwal.

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