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Singapore Table of Contents


Wage Policies

Following the rapid economic growth of the late 1960s and early 1970s, signs of a tight labor market emerged along with a concern that wages might escalate. In response, the government in 1972 established the National Wages Council, a tripartite forum with representation from the employers' federations, trade unions, and the government. As a government advisory body, the council recommended annual wage increases for the entire economy; ensured orderly wage development so as to promote economic and social progress; and assisted in the development of incentive schemes to improve national productivity.

The wage guidelines were not mandatory but were followed by the public sector (by far the largest employer) and widely implemented in the private sector. The influence of these recommendations generally was not applicable to private-sector professional and managerial workers, whose wages were determined more by international forces, but was more important for non-professional white-collar workers. For blue-collar workers, who constituted about 40 percent of the labor force in both the public and private sector, union influence was more crucial than the National Wages Council's recommendations, but market forces were even more important.

Between 1973 and 1979, actual wage increases followed the council recommended wage increases closely. In 1979 the "wage correction policy," in which there were three years of high-wage recommendations, was designed to force an increase of the productivity of higher value-added operations, to reduce the reliance on cheap unskilled foreign labor, and to raise labor productivity. From 1980 to 1984, however, actual wage increases exceeded the recommendations by an average of 2.4 percentage points per year, as the increasingly heavy demands for labor apparently outstripped its supply. Additionally, collective agreements for unionized workers lasted for two or three years with built-in wage increases. Although starting pay was relatively low, large gaps in wages were institutionalized through longevity of employment and annual raises.

The effect of wage increases, compounded by a further raise in the mandatory Central Provident Fund component of wages, was to price Singapore out of the market. High wages were a major contributor to Singapore's 1985 recession. Consequently, in 1986 and 1987 the government instituted a wage restraint policy: wages were frozen and the employer's contribution to the fund substantially reduced. The policy's relative success could be attributed to close government-labor ties and to the tripartite forum of the National Wages Council.

Proposals for wage reform--a "flexi-wage policy"--were announced in mid-November 1986 and became effective with the enactment of the 1988 Employment (Amendment) Act. Under this plan, the basic wage remained relatively stable with adjustments for good or bad years made by increasing or reducing the annual bonus. Negotiating the size of the bonus--frozen to the equivalent of one month's salary since 1972--was left to employers and unions, who would be able to bargain for its retention, abolition, or modification. Profit-sharing, productivity incentive, and employee share plans were encouraged to ensure that high wage payments awarded in fat years were not perpetuated in lean years and that individual as well as company productivity, growth, profitability, competitiveness, and prospects for the industry were taken into account. The government was anxious that wages not increase precipitously. This concern was shared by management, which worried about shrinking profit margins resulting from higher operating costs. Workers, on the other hand, wanted to share in the benefits of the economic boom after giving up wage increases to help cope with the 1985 recession.

Data as of December 1989