What is the reason for the stagnant productivity in Singapore

WAGE AND INCIDENTAL COSTS SINGAPORE

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1 WAGE AND ANNEXAL COSTS SINGAPORE

2 Singapore (April 2015) Tight labor market continues to drive wages / productivity unsatisfactory in 2015 as well Kuala Lumpur (gtai) - Even if Singapore's economy is likely to grow somewhat weaker in 2015 than in the previous year, upward pressure on wages remains with full employment. The growth rates may, however, flatten out. Unit labor costs are likely to rise anyway. Despite intensive subsidies, productivity remains too low, and increasing it is a key concern of the government. As a result, it adheres to the immigration restriction for low-skilled foreign workers. General information on the labor market Singapore's job brand will remain tense in 2015, the Ministry of Labor forecast in mid-March. The upward pressure on wages and salaries is therefore likely to continue, especially in labor-intensive sectors such as construction, retail and hospitality. The Ministry of Manpower warns that the wage increases are only sustainable in the medium term if they are accompanied by increases in productivity. However, this has not yet materialized. The economy in export-oriented Singapore is likely to grow somewhat lower than last year in view of the global slowdown and uncertainties. After real GDP growth of 2.9% in 2014, the central bank downgraded its forecast for the current year from 3.1 to 2.8% in spring 2015. The government appears to be taking business concerns about scarce and increasingly expensive labor seriously. One of the effects of this is that in recent years it has itself steadily tightened the screw for the influx of foreign workers. Now, with the budget that came into force on, it is waiving a planned increase in taxes for foreign workers. Nonetheless, it is sticking to its long-term goal of restricting the influx of low-skilled foreign workers and making it more expensive. Almost 3% economic growth, which is supported not least by robust domestic demand, keeps the demand for labor high. However, the supply of labor remains scarce. After the unemployment rate was 2.0% in 2014, similar to the previous year, and fell to 1.9% at the end of the year, it is likely to remain at around 2% in 2015 as well. The demographic development, which is making fewer and fewer local workers available for entry into the market, also contributes to further full employment. The government, on the other hand, regulates and limits the compensatory influx of foreigners. This fine-tuning is flanked by incentives for companies that invest in higher productivity and automation. Ultimately, the goal is to reduce Singapore's dependence on low-skilled foreign workers, secure full employment for its own population and help the economy become more competitive. In the short and medium term, however, they cannot do without foreign workers, who are mainly found in labor-intensive sectors such as construction, shipbuilding and gastronomy. The willingness of employers to hire staff seems to be decreasing somewhat at the moment. According to a survey by the recruitment agency Hudson, only 37% of employers wanted to increase their workforce in the first half of 2015, 6.8 percentage points less than in the second half of 2014. At 52.4%, willingness to hire is only above average in the information and communication sector. The other sectors are clearly listed below Germany Trade & Invest 1

3 Singapore (April 2015) ger. The cause is the weaker growth in the euro zone and in the PRC. According to surveys by the Remuneration Data Specialists (RDS), only 65% ​​of companies want to hire staff in 2015 (previous year: 83%). According to a report by the Achieve Group, the proportion of those who want to create new jobs in the first half of 2015 is 45%, also lower than the 48% in the same period of the previous year. Willingness is most pronounced in the health and pharmaceutical sectors. A profound cause of the labor shortage lies in the demographic development, which, when the birth rate falls, turns the city-state into the oldest society in Southeast Asia. In 1990, there were 18.2 births for every citizens (Singapore Residents), compared with 13.7 in 2000 and 10.9 in 2014. After all, women in career-conscious Singapore are giving birth later and fewer and fewer children. The proportion of people over the age of 64, which was 11.1% of citizens in 2014, could amount to almost a quarter in 2030 with 23.3%. The group of seniors also grew by 6.7% in 2014, while that of the 20 to 64 year olds barely increased with an increase of 0.5% and that of the under 20 year olds decreased by 1.7%. Since the number of citizens (Singapore Residents) is nowhere near enough to keep the economy moving, the city-state is dependent on guest workers (Non-Residents). In mid-2014, these accounted for 1.6 million of the almost 5.5 million inhabitants. While the total population increased by 1.3% in 2014 (previous year: 1.6%), the number of non-residents rose by 2.9%. However, the growth is steadily slowing down and amounted to 4.0 and 7.2% in the two previous years. The government appears to be chalking this up as a success of its policy of regulated immigration of foreign workers. The Ministry of Manpower reports that the employment of local workers increased by (previous year:) in 2014. For foreigners, however, employment only increased by (previous year:). The goal of reducing the proportion of foreigners in the workforce to a third has not yet been achieved. Foreign employees accounted for 1.4 million at the end of 2014, still 37% of the 3.6 million total employees. After lowering the quotas for the influx of low-skilled workers in recent years and increasing the taxes to be paid for them, the government is now taking a breather. The tax hike planned for June 2015 will be postponed by a year, the finance minister said at the budget announcement in February. He made it clear that this is not a change of course in labor market policy. This means that the further increase in taxes on the employment of low-skilled construction workers previously announced for July 2016 should remain in place. It provides for a price increase from 600 to 700 Singapore dollars (S $; almost 470 euros; 1 S $ = 0.67 euros). The government will continue to tighten the screws on the influx of foreigners until the share of the workforce does not exceed a third and productivity grows by 2 to 3% annually. After higher fees and stricter conditions for obtaining work permits, the Ministry of Labor also raised the barriers for guest workers who want their spouses and children to catch up with them. Instead of previously S $, they now have to earn at least S $ in order to be able to afford to join them. Foreigners who earn S $ can also bring their parents to join them. While it is being made increasingly difficult for lower income groups, the government is more likely to roll out the red carpet for qualified professionals and top-level workers. Qualified employees and their families are allowed to have permanent residence permits (permanent resident 2 wage and ancillary wage costs

4 status). Citizenship can be granted after two more years. Behind the dual strategy is the intention on the one hand to reduce dependence on low-skilled foreigners. On the other hand, the necessary skilled and top-level workers are to be brought into the country. After all, the modern city-state strives for high-quality production as well as research and development while at the same time maintaining the goods-producing industry. At the same time, the government seems to want to make it easier for Singaporean workers to enter the senior management level. Since August 2014, for example, when employing foreign personnel below top management, employers have had to prove that they first tried to find a local candidate. Since the beginning of the year, they have had to pay qualified young foreign workers a higher salary in order to get the corresponding Q1 visa approved. The city-state is not unsuccessful in recruiting foreign specialists and managers. After all, he can come up with pleasant living conditions and excellent economic conditions, which repeatedly bring him top positions in international reviews. Meanwhile, Singapore also occupies a top position in terms of cost of living, which is among the highest in the world. The level of education is also high and the trend is rising. In mid-2014, 32.0% (previous year: 31.5%) of the labor force with residence status had a university degree and 19.5% (18.4%) had a professional qualification. In international comparison, Singapore offers a well-developed education and training system with numerous institutions. This also includes the two national universities - Nanyang Technological University and National University of Singapore, which cooperate with renowned foreign universities, including the Technical University of Munich. The government planning for the long term is aware of the demographic challenges and acts with foresight. The state actively supports training as a pillar of development. He also wants to make the world of work more family-friendly and promote the employment of women. Families receive more support with preschool fees, students in the tertiary sector receive higher scholarships, and children with special needs receive more financial allowances. Starting in 2016, every citizen over the age of 25 will receive a start-up loan of S $ 500, which they can use for a variety of training courses. The continued employment of older workers is also on the agenda. The government wants citizens to work beyond the official age limit of 62. Employers are required to re-employ suitable workers between the ages of 62 and 65. The government has also extended the Special Employment Credit until 2016. It encourages employers to give older Singaporeans jobs and now includes workers over 50 with incomes up to S $. As usual, job creation also increased in the fourth quarter of 2014 compared to the previous quarter - from to and thus approximately to the same number as in the same quarter of the previous year. In 2014 as a whole, however, 4.5% fewer jobs were created than in the previous year. Almost exclusively the service sector (+ 27%) and, to a much lesser extent, the construction industry, created additional employment. In the manufacturing industry, however, the number fell. Germany Trade & Invest 3

5 Singapore (April 2015) At the same time, the number of layoffs increased in 2014 - by almost 12%. The trend picked up from the 2nd quarter. It was above all the service sector and the construction industry that made more workers redundant. On the other hand, layoffs in the goods manufacturing industry declined. General labor market data 2014 Population (in million) 5.5 Labor force (in million) 3.6 Labor force (in million) 3.6 Unemployment rate, (in%) 2.0 Illiteracy rate (in%) 3.3 University degree (in % of the domestic labor force) 32.0 Average hours worked per week 46.0 Sources: Department of Statistics, Labor Market 2014; Ministry of Manpower, Labor Force in Singapore, 2014 The largest employer in Singapore is the service sector, which at the end of 2014 provided almost 2.6 million of the 3.6 million employees with work and bread. The processing industry followed and the construction industry with employees. The latter increased its workforce by 3.0% in 2014, while the service providers grew by 4.9% and the manufacturing sector was quoted almost 1% lower. The members of a union registered at the end of 2013 (+ 6.8% compared to the previous year) made up a good 18% of the workforce. They are mainly found in the manufacturing industry, followed by transport, warehousing and communication, and social services. The majority of the 64 individual unions are affiliated to the National Trades Union Congress (NTUC), which has close ties with the leading People's Action Party. For example, the state program Skills Training and Employability Enhancement for the Retrenched (STEER) runs through the NTUC. It provides financial aid to companies when they employ unemployed workers. Conflicts between the collective bargaining parties rarely come to light in the city-state. Although workers have the right to strike except in the water, gas and electricity supply sectors, disputes are usually resolved through informal consultations with the Ministry of Labor. If no agreement is reached, the parties may refer the case to an Industrial Arbitration Court for decision. The government emphasizes the need to work with unions and employers and seeks to resolve problems early. Of the 136 disputes registered in 2013 (previous year: 164), none led to a work stoppage. With the limited labor pool in Singapore and the tightening influx from overseas, it is becoming more difficult for companies to find suitable skilled workers. Recruitment agencies say that they are starting to turn to workers in existing employment, said the President of the Singapore Professional Recruitment Organization. Employers also break new ground when they need temporary staff for special projects. According to information from the Hays Recruiting Service, employers are increasingly using temporary workers. 4 wage and ancillary wage costs

6 The number of vacancies rose steadily from 2012 to 2014: from over to The majority of these are in the service sector, especially in social services, in retail and in the catering trade. It is particularly difficult to find service and sales staff, assisting specialists (professionals) and technicians as well as cleaning staff and unskilled workers. The most popular search engine on the way to new employment is the Internet. According to the Ministry of Labor, 53% of the unemployed used this in mid-2013. Responses to advertisements or independent letters to companies followed with 48%. 47% of job seekers asked friends and relatives. The proportion of those who go to walk-in interviews and register with recruitment agencies, on the other hand, is low at 13% and 14%, respectively. For companies that advertise, job advertisements in online databases are gaining in importance. These include portals of the websites jobscentral.com.sg; jobstreet.com.sg; jobsdb.com.sg; singaporejobsearch.com; monster.com.sg; singaporejobsonline.com and wda.gov.sg/jobs. Advertisements in newspapers and magazines remain important. The weekend edition of the Straits Times is the most popular. Hundreds of recruitment agencies also offer their services. Usually the employer has to pay a fee for this, which is based on the future wage / salary of the candidate. A list of the Employment Agencies licensed by the Ministry of Labor can be found on its website instead, organized by the Singapore Professional Center (SPC) (wages and salaries The upward pressure on wages and salaries is likely to continue in 2015, driven by full employment, continued robust demand for labor in domestic market-oriented sectors and the government-restricted influx of guest workers The increase in the median income of full-time employees, including employer social contributions, had already weakened to a nominal 2.5% (previous year + 7.1%) (monthly income June: S $) in 2014. In real terms, employees contributed in 2014 Employees in Singapore can expect nominal increases of 3.3 to 4.5% to pay home only 1.4% more money after 4.7% in the previous year, recruitment agencies forecast. For the previous year, the forecast had been at rates of increase of 4 to 5%. Higher growth could be possible in the financial, commercial and health sectors. In view of a significant drop in the inflation rate - the central bank expects only 0.3% after 1.0% in the previous year - employees can look forward to real wage increases of 3 to 4%. The National Wages Council (NWC), which is made up of representatives from the government, employers and trade unions, also recommends in its guidelines for 2014/15 a long-term increase in real wages in line with productivity gains. As factors, it takes into account global and regional economic development, Singapore's competitiveness, the development of Germany Trade & Invest 5

7 Singapore (April 2015) labor market conditions and productivity as well as the inflation rate. The annual guidelines of the NWC are not binding, but are largely observed.The degree of implementation is higher, the more the respective workforce is unionized. In general, the higher the position to be occupied, the greater the differences. Development of labor costs (change in%) Nominal wages 1) 6.3 5.8 7.1 2.5 Real wages 1) 1.1 1.2 4.7 1.4 Labor productivity 2.1-2.0 0.3 -0.8 Unit labor costs 2) -1.7 3.3 3.5 1.7 1) Median value of the gross wage including social security contribution from the employer; 2) in manufacturing industry; 3) Preliminary data Sources: Survey by the Ministry of Manpower, Ministry of Trade and Industry One of the main concerns of the government is to increase productivity. Businesses are encouraged to invest in cutting-edge technology and innovation and take advantage of the various funding programs, including the Productivity and Innovation Credit and the National Productivity Fund. Companies can also tap into programs such as the Workforce Skills Qualifications and the Skills Training for Excellence Program. The spectrum ranges from the training of low-paid workers to the advanced training of top employees. With the 2015 budget, funding of S $ 1 billion was announced for the next five years. With this, the government wants to help workers acquire the deeper skills required by industry. Despite all the promotional measures, labor productivity has not gone beyond stagnation and decline since 2012, according to preliminary figures it has shrunk by 0.8%, after having barely increased by 0.3% in the previous year. With the exception of finance and insurance, the service sectors in particular were characterized by declining productivity. This also applied to the construction industry (-2.3%). The manufacturing industry, on the other hand, recorded growth of 2.5%. It is above all the export-oriented branches of industry that have to assert themselves on the world market. In order to promote the internationalization of domestic industry and thus also its productivity, the government is encouraging them to relocate production abroad. There are also financial incentives for this, as the 2015 budget outlined. As a result of stagnating or declining productivity developments with rising wages, unit labor costs in Singapore's economy have risen since 2012, although in 2014, at 1.7%, only half as much as in the previous year, rising wage costs per product unit should continue to be expected. 6 wage and ancillary wage costs

8 Average monthly gross earnings by industry (in S $) *) June 2014 Total Financial and insurance services Information and communication Manufacturing industry Real estate services Construction industry Wholesale and retail transport and storage Hotels and restaurants *) Salary of full-time employees (outside the armed forces), including employer contributions to Social insurance Source: Ministry of Manpower, Labor Force in Singapore, 2014 In particularly difficult situations, companies can fall back on short-time work or temporary leave of absence for employees. They are also allowed to send employees to state-sponsored training programs, such as the Skills for Upgrading and Resilience (SPUR) program. Given the high number of low wage earners and the growing gap between rich and poor, the government is encouraging employers to raise wages in the lower groups. If workers earn no more than S $ gross monthly, they subsidize wage increases for them up to 40% in the period 2013 to 2015. This Wage Credit Scheme will cost the government S $ 3.6 billion. A workfare income supplement was introduced in 2007. It increases the income of employees based on age and wage level. The NWC expects a high degree of flexibility from the employees and an open attitude towards retraining measures, temporary financial cuts and changes in working hours. According to the International Labor Organization (ILO), with a weekly working time of around 46 hours, the employees are already among the most hardworking in the world. Average monthly wages and salaries by occupational group (June 2014, in S $) Occupational groups Basic wages / salaries 1) Gross wages / salaries 2) Managers, skilled workers, assistants, technicians, office workers, service and sales personnel, industrial workers, machine operators, assembly workers, assistants) Basic pay excluding social security subsidies, surcharges and other payments, 2) gross remuneration before deduction of social security subsidies and other contributions, taxes including overtime payments and allowances, excluding bonuses Source: Ministry of Manpower, Labor Force in Singapore, 2014 Germany Trade & Invest 7

9 Singapore (April 2015) A detailed breakdown of monthly wages and salaries by occupation can be found in the publications Singapore Yearbook of Manpower Statistics 2014 and the Report on Wage Practices, 2013 by the Ministry of Manpower (MOM). The Singapore National Employers Federation (SNEF) sells other studies such as the SNEF Salary Survey Reports Set, which shows salary structures, variable pay and other benefits in various industries. Bonuses, commissions, additional benefits In its guidelines for 2014/15, the NWC recommends that companies reward employees - where appropriate - with variable income components based on the company's performance and the employee's contribution. This variable component allows employers to react to changes in their economic situation and to adjust labor costs. They are required to reward their employees in good times and are allowed to reduce the performance-related remuneration in the event of weaker sales. Income components that are used for this purpose are bonus payments at the end of the year, the 13th monthly salary (Annual Wage Supplement, AWS) and a monthly additional component (Monthly Variable Component, MVC), which is based on operational sales or other operational success factors. The government recommends that companies adopt a wage structure in which the MVC account for around 10% and the annual bonus for around 20% of total earnings. In 2015, according to the survey by Remuneration Data Specialists, 83% of companies want to pay their employees a variable bonus (except for the AWS) compared to 88% in the previous year. For managers this was 2.0 monthly salaries, for executive employees 1.8 and for other employees 1.6 monthly salaries. In 2015, only 85% (2014: 88%) of employers want to grant the 13th monthly salary AWS. Half of all companies awarded the monthly additional component MVC in 2014, at a rate of 10.0 to 11.1% - a little more than the 9.2 to 9.5% in the previous year. In order to retain their employees in the highly competitive labor market, the companies offer additional benefits. These cover a broad spectrum, including special leave in the event of death in the family or marriage, as well as subsidies for transport costs and housing rents. Other wage components The most important social security institution is the Central Provident Fund (CPF), which originally only served to provide pensions for the population. In the meantime, the fund can also be used to finance medical care, to purchase residential property and for educational purposes. Foreigners are only obliged to pay contributions to the CPF if they have permanent resident status, but not if they are working in Singapore on a different basis (e.g. work permit). All recipients of a monthly salary / wage of more than 50 S $ who are otherwise employed in private companies are obliged to pay contributions. The upper ceiling is S $ per month. At the end of 2013, the CPF was managing contributions of S $ 253 billion. It counted 3.5 million members, of which almost 1.9 million were contributors and roughly employers. The full contributions amount to 17% of the gross wage for the employer and 20% for the employee if he is up to 50 years of age. In addition, the contributions are reduced. This applies to 8 wage and ancillary wage costs

10 also for employees with a monthly income of less than S $ 750. The aim is to improve employment opportunities for older workers and low-wage earners. The payments to these accounts earn interest. In March 2015, the interest rates on the Ordinary Account were up to 3.5% and on the Special, Medisave and Retirement Account up to 5.0%. Labor law The labor laws of Singapore allow a great deal of freedom in terms of contracts. For companies, however, there are upper limits on the ratio of foreign to local workers. In addition, there are maximum quotas for unskilled foreign workers. If a foreigner is to be employed, approval from the Ministry of Labor is required. In addition, fees have to be paid when hiring guest workers. The Ministry of Labor provides information on its website about the quotas for foreigners staggered by industry and the tax structure. The government has increased the retirement age from 60 to 62 years. Since 2012, employers have had to offer their employees a new employment contract until they reach the age of 65 after reaching retirement age. The Advantage and Prepare programs help companies prepare for this. Germany Trade & Invest 9

11If hospitalization is required, 15 (60) days per year probation period is not legally stipulated, but six months are common *) Standard for employees with a basic monthly salary of up to S $ and up to S $ for workers subject to the Employment Act, beyond that Extensive freedom of contract Legal basis Singapore's economic success is partly due to its flexible labor market. The working relationships are characterized by extensive contractual freedom. In practice, this also makes very short notice periods possible. The constitution of the city-state guarantees the fundamental right to freedom of association, which can, however, be restricted. One of the most important laws of labor law is the so-called Employment Act (EA), which regulates the main provisions for the employment of employees. Part-time workers who work less than 35 hours a week fall under the Employment of Part-Time Employees Regulations, which provide more flexible rules. In addition, the principles of common law are to be used. The group of employees to whom the EA applies was expanded with effect from. It covers all local and foreign employees and regulates the employment relationships for permanent and temporary employees as well as for day laborers. This does not apply to executives with a monthly basic income of more than S $, domestic helpers, seafarers, and employees of the government and government agencies. 10 wage and ancillary wage costs

12 Part IV of the EA, which relates to working hours, vacation and other, is only binding for workers with a basic monthly salary of up to S $ and white-collar workers up to S $. The regulations on paid leave and continued payment of wages in the event of illness have been in effect since then for all employees who fall under the EA. The qualification period for sick pay has also been reduced from six to three months. Residence permits and employment of foreigners are also regulated by the Employment of Foreign Manpower Act and the Immigration Act. Other relevant legal norms are a law on compensation regulations in the event of accidents at work (Work Injury Compensation Act) and a law on safety at work (Workplace Safety and Health Act). The Central Provident Fund Act contains provisions related to social security and the CPF pension scheme. The Ministry of Manpower (MOM) is entrusted with monitoring compliance with labor laws. The government also exerts influence on the settlement of disputes through his representative for labor. The Industrial Relations Act regulates labor relations between employers and trade unions and provides a system for resolving disputes between the collective bargaining partners that includes negotiation, arbitration and arbitration. The Trade Unions Act regulates the rights of trade unions, and the Trade Disputes Act regulates, among other things, the circumstances under which lockouts are possible. The laws mentioned can be viewed on the Internet at. Conclusion of a contract The employment contract between employer and employee is not tied to any particular form and can therefore be concluded verbally or in writing. Most employment relationships, however, are set out in writing. Employment contracts can be concluded for a fixed term or for an indefinite period. In Singapore, wage negotiations are conducted directly between the employer and the employees or, in the case of collective agreements, the union representatives. The government is allowed to set guidelines for wage structuring. The NWC is responsible for drawing up the recommendations. The guidelines of the Wage Council apply to both local and foreign companies; however, they are not legally binding. Termination of contract According to the EA - as far as it is applicable - the termination of an employment relationship must be made in writing. Unless notice periods are expressly stated in the employment contract, the EA stipulates minimum periods of one day to four weeks, depending on the length of employment. According to the regulations in the EA, the same notice periods apply to both parties. Legal experts advise against giving the reason for termination in the event of a regular termination while observing the agreed period. Otherwise, the employee could challenge this ground in court. He can also contact the Ministry of Labor if he believes he was wrongly dismissed. Germany Trade & Invest 11

13 Singapore (April 2015) Termination without notice is possible under certain conditions. Generally recognized reasons include gross misconduct, dishonesty or gross negligence. Severance payments can only be claimed if they are either expressly provided for in the employment contract or if the employer has implicitly recognized them or if the previous practice gave rise to a legitimate expectation. Apart from that, companies often provide severance payments voluntarily. In the case of unionized employees, the relevant agreements of the collective agreement must be observed. Contact addresses Practical information for expatriates, such as information on educational institutions, medical care and cost of living, can be obtained from the Federal Administration Office. Federal Office of Administration Information Center for Emigrants and Foreign Workers Internet: JobXchange, AHK Singapore Internet: Ministry of Manpower Internet: Central Provident Fund Board Internet: Singapore National Employers Federation Internet: Singapore Human Resources Institute (SHRI) Internet: 12 wage and non-wage costs

14 Contact Imprint Publisher: Germany Trade and Invest Gesellschaft für Außenwirtschaft und Standortmarketing mbh Villemombler Strasse Bonn Tel .: +49 (0) 228 / Fax: +49 (0) 228 / Internet: Company headquarters: Friedrichstrasse 60, Berlin Management: Dr . Benno Bunse, First Managing Director Dr. Jürgen Friedrich, Managing Director Author: Rainer Jaensch, Kuala Lumpur Editor: Helmut Kahlert, Tel .: +49 (0) 228 /, Contact person: Lisa Flatten, Tel .: +49 (0) 228 /, Editorial deadline: April 2015 Order no .: All rights reserved. Reprint - even in part - only with prior express permission. Despite the greatest possible care, no liability for the content. Layout: Germany Trade & Invest Funded by the Federal Ministry for Economic Affairs and Energy on the basis of a resolution by the German Bundestag.

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