Our overall cost structure is
not significantly out of line. Singapore is internationally
competitive, unlike in 1985. But we should be
careful to do nothing to weaken our competitiveness
during this period of slower economic growth.
Cost containment will be a major concern for all
Wages form the largest component
of business costs. We need to watch wage costs
very carefully. Our priority this year should
be to protect jobs.
Companies are already trimming
back wage increases, and in some cases freezing
wages. The Government has announced that salaries
of ministers and civil servants will effectively
be frozen this year. Wage moderation and flexibility
are an important part of our response to the regional
Up to the 1985 recession, our
wage system was too rigid. This made it difficult
for companies to trim wage costs when the economy
slowed, and contributed to deepening the recession.
To trim costs, we had no alternative but to cut
the employers CPF contribution rate. So after
the recession, we set up the flexible wage system.
As the economy grew, year by year we built up
a variable component of wages, instead of locking
in all the wage increases of good years in the
fixed wage. This variable component would be a
buffer that could be reduced not too painfully
when business conditions changed.
In 1987, when the flexible wage
system was introduced, the variable component
was, on average, 11 per cent of total annual wages.
Today, in the civil service the variable component
has increased to at least 20 per cent of annual
wages, while in the private sector, the variable
component is about 16 per cent.
We built up the variable component
of salaries precisely to meet a situation like
this year. If we need to trim wage costs this
year, these variable components will be the first
line of defense. This will depend on the NWC recommendations.
Slower economic growth also makes
it more urgent for workers to re-skill, re-train
and upgrade themselves. There will be retrenchments
as industries and companies consolidate. Workers
who add significant value to companies are those
who will keep their jobs. The key challenge for
workers is to remain relevant and employable.
The Government's policy has always
been to create the right conditions for companies
to create good jobs, and to provide ample training
and upgrading opportunities for workers. We have
not opted for unemployment insurance, but instead
have kept our labour market flexible. This approach
has served workers well and produced full employment
for many years.
However, despite this, nobody
can expect lifetime job security. From time to
time workers will be retrenched, even in a full
employment economy. When this happens, those who
have been retrenched must be willing to be flexible
in their expectations, and if necessary accept
a little less pay to secure a new job. The longer
a worker stays unemployed, the more difficult
it will be for him or her to rejoin the workforce.
Even now the number of foreign professionals and
workers is still increasing in Singapore. There
are more jobs to be filled than Singaporeans available
to do them.
Companies too need to tighten
their belts during this period. They should look
at streamlining and consolidating their operations
to cut costs. They should also take the opportunity
to upgrade their capabilities, and enhance their
existing products and services to prepare for
the upturn. At the same time, they should make
more efforts to upgrade their workers. While MNCs
and larger companies have made significant progress
in worker training, reaching roughly 4-6 per cent
of investment payroll, smaller companies still
lag behind, spending an average of only about
2 per cent. Just as the Government is not letting
up on our investments in education, companies
too should not neglect to improve the quality
of their workforce.