Singapore Labour Costs Analysis

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Singapore Labour Costs Analysis

Key View: Flexiblewage-determinationstructures, pairedwith a highlyeducatedworkforce, setsSingapore in a competitivepositionfrom a labour-costperspective. This is boosted by theless-stringentregulatoryrequirementswithregard to hiringandfiringpractices, as well as lowseverancepaypackagerequirementsandredundancydismallnoticeperiods. Theonlymajorlabourcostsforbusinesses, apartfromemployeesalaries, aremandatorysocialsecuritycontributions, whicharemoderate on a globalcomparisonand do notsignificantlyweighdownotherbenefitsthatemployerswillenjoy. In addition, unionisation is notextensiveandemployer-labourrelationsaregenerallyworkable, withstrikes a rareoccurrence. Whilerestrictions on immigrationmayincreasecostsforbusinesses in some sectors, we expectthatSingaporewillremaingenerallyopen to internationalmigrantsoverthemedium-to-longterm as thesearecrucialparticularlyforlow-valuepositionsthatitshighlyeducatedresidentsarereluctant to take. Consequently, Singapore is ranked first, on both a regional and global comparison, for the Labour Costs pillar ofour Labour Market Risk Index, with a high score of 80.0 out of 100.

Highly Productive Labour Market Benefits Businesses

East & South East Asia - Labour Costs

Note: 100 = Lowest Risk; 0 = highest risk. Source: Fitch Solutions Labour Market Risk Index

Latest Labour Costs Analysis

Retrenchments more than doubled in 2020 to 26,100, compared to the 10,690 registered in 2019, due to the impact of the pandemic on the economy. This was carried out by 1,962 companies, higher than the 1,189 companies that downsized their workforce in 2019. The services sector was the hardest hit when it came to retrenchment of workers, making up 19,760 or 76% of 2020s retrenchment figures. This was followed by wholesale trade (15%), arts, entertainment and recreation (8.5%), and the air transport (7.6%) sectors. There was fewer retrenchment in the petroleum, chemical and pharmaceutical products (0.6%) and real estate services (0.5%) industries. When it came to retrenched residents, the most vulnerable were clerical, sales and service workers; females; those under the age of 30; and those over the age of 50. Moving forward, the labour market recovery is expected to be uneven across sectors.
A wage subsidy scheme, launched in September 2020, has spurred many companies to hire more locals, including mature workers. The hiring has been widespread, spanning different sectors and some 27,000 local employers hired about 130,000 locals with the support of the Jobs Growth Incentive (JGI) in the scheme's first three months.
Singapore is one of only a few nations, along with Cambodia and Brunei, without a mandatory national minimum wage across the East and South Asian region. This, together with the presence of a highly educated workforce, boosts Singapore’s competitiveness relative to key peers such as South Korea, Malaysia, Thailand and China. By contrast, governments in countries such as Cambodia, Vietnam and the Philippines have been succumbing to union pressure as they seek to prevent outbreaks of social unrest that could cause political instability. As a result, the East and South East Asian region has generally been experiencing a rapid rise in minimum wage over the past five years. Given that the population in most countries in the region has lower educational attainment levels, the increase in minimum wage is gradually eroding East and South East Asia’s competitiveness as an ideal location for labour-intensive operations (see ‘Rising Labour Costs Gradually Eroding East And South East Asia's Competitiveness’, May 3 2019).

Cost And Flexibility Of Labour

The costs associated with employing workers in Singapore are lower than in other states in the region, boosting the state’s appeal for labour-intensive industries. This is largely owing to the absence of a nationally legislated minimum wage and no redundancy package. Firms face minimum upward pressure on labour costs and high levels of productivity in the city-state. Consequently, Singapore scores a high 85.4 out of 100 for Costs of Employment, ranking it in second place out of 18 markets in the East and South East Asia region and 10th globally, behind Brunei.

Employers operating in Singapore face a flexible labour regulatory environment which eases business operations and and improves firms' ability to manage their workforce. Flexibility in adjusting the size of the workforce makes it easy to adopt new technologies and respond to changes in trends, incurring minimal costs and little administration. Employers enjoy significant bargaining power during wage negotiations - improving cost management. Consequently, Singapore scores a high 94.6 out of 100 for Flexibility of Labour, ranking it in first place out of 18 markets in the East and South East Asian region, and third place globally, behind the US and Puerto Rico.

Direct Labour Costs

Minimal additions to labour costs enhance business operations for firms in Singapore. Companies operating in Singapore will benefit from the fact that the state does not have a national minimum wage, making it one of four states in the region that do not have a national minimum wage. Worker productivity relative to minimum wages is among the highest in the region, benefiting employers looking to hire highly efficient workers in labour-intensive sectors. Further benefits to firms are the regulations regarding redundancies. Singapore does not have a severance package for redundancy cases, boosting the state’s competitiveness in the region. The lack of additional costs for redundancy dismissals makes it easier for firms to adjust their employees in response to the evolution of product and services taking place in industries. Additional labour costs, however, do come in the form of social contributions and overtime costs. The payment of social contributions and labour taxes in Singapore (at 17.8% of gross salaries) are the third highest in the region, behind China and Vietnam. Several markets in the region have far lower labour taxes, including Hong Kong and Thailand, which makes the country somewhat less competitive for labour-intensive businesses. In addition, overtime work is paid a 50% increase on the hourly rate – increasing business costs for firms that will require workers to put in more hours for long or intensive projects. A wage subsidy scheme, launched in September 2020, has spurred many companies to hire more locals, including mature workers. The hiring has been widespread, spanning different sectors and some 27,000 local employers hired about 130,000 locals with the support of the Jobs Growth Incentive (JGI) in the scheme's first three months.

No Minimum Wage Boosts Labour Appeal

East & South East Asia - Minimum Wages, USD/month (2020)

Note: As applicable to the worker assumed in the case study. Source: World Bank 'Doing Business' Report, Fitch Solutions

Flexibility Of Labour Regulations

Employers in Singapore face an investor-friendly labour regulatory environment which reduces the overall cost of operating a business and increases the flexibility with which firms can manage their workforce. The low number of annual paid leave days (11) is below the regional average and reduces the number of days employees are absent from work. The short redundancy notice period of just three weeks is the second lowest in the region, after Vietnam and Indonesia. Consequently, the process of adjusting the size of the workforce in Singapore, which may be necessary due to new technologies or changing economic trends, is straightforward and poses few additional costs to businesses. This makes it easier to hire younger workers or replace redundant tasks, increasing firm productivity. Flexible wage determination affords employers bargaining power during wage negotiations, improving a firms’ ability to manage costs. The relative ease of hiring and firing workers reduces administration and legal costs, and allows employers access to a larger labour pool with minimal risk.

Singapore - Labour Regulations Governing Flexibility Of Workforce

Contracts
Fixed-term contracts prohibited for permanent tasks?	No
Maximum length of a single fixed contract (months)	No limit
Working Week And Absences
Maximum working days per week	6
Premium for overtime work (% of hourly pay)	50
Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in working days)	10.7
Paid or unpaid maternity leave mandated by law?	Yes
Minimum length of maternity leave (calendar days)	105
Redundancy
Dismissal due to redundancy allowed by law?	Yes
Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years of tenure, in salary weeks)	3
Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years of tenure, in salary weeks)	0
Source: World Bank 'Doing Business'

Labour Unrest Risks

While there are around 60 trade or labour unions in Singapore, the risks of labour unrest resulting from workers going on a strike are very minimal which boosts the city-state's attractiveness as an investment destination. Disputes are usually resolved privately between employers and employee representatives which has been successful in preventing widespread strikes in Singapore. In particular, strikes are an extremely rare occurrence highlighting a very mature and advanced labour code which is beneficial to employers. More than one-fifth of the workforce belongs to a union with most unions affiliated to the National Trades Union Congress, which maintains a symbiotic relationship with the ruling party. Most workers in large industrial plants and offices are unionised. Collective bargaining, covered under the Industrial Relations Act, normally occurs on a company-by-company basis and covers all employees in a firm except managerial and executive branches.

The consensual style of labour relations has kept strikes very rare - since 1978 there has been only one strike, which lasted just two days. A union can strike if consent is obtained for that strike from many union members via a secret ballot, though workers in essential' services such as healthcare and public transport must provide 14 days’ notice. Foreign workers on fixed term contracts cannot join unions, and utility workers cannot strike at all. Government's active intervention to mediate agreements prior to actual strike action plays a key role in keeping the risk of strike action low. Strong labour relations between the private sector, government and labour unions reduces the risk of disruptions to productivity and financial loses to firms.

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.