Not true Singaporeans earn higher real wages

Mr Leon Perera’s Straits Times article [1] highlighted the contrast between Singapore’s high GDP growth and Singaporean’s low income growth which he attributed in part to Singapore’s low wage share of GDP. Previously, Straits Times also highlighted that wage levels hasn’t kept up with our high per capita GDP and also attributed it to low wage share of GDP [2].

The reply from MTI’s Mrs Cindy Keng [3] was that Singaporeans actually earn higher real wages compared to many developed economies. She referred readers to MTI’s 1Q 2013 Quarterly Economic Survey [4] for more details. The MTI report compared only 12 countries / economies and concluded there is no clear relationship between wages and wage shares across countries. MTI may have gotten better results if it had compared more countries. In any case, MTI figures cannot be verified so the numbers had to be worked out independently using exactly quotable sources instead [5].

There are two kinds of purchasing power parities – one for GDP and one for private consumption. The more appropriate PPP adjustment for wages is PPP for private consumption, not PPP for GDP because wages correspond more closely to consumption than to GDP. The table below shows that when adjusted for PPP (private consumption), Singapore wage is low amongst First World nations, contrary to Mrs Keng’s statement and MTI’s report [6].

Country World Bank PPP adjusted (consumption) average wage 2000 – 2009 (2009 USD)
United States $4,139
Luxembourg $4,132
Switzerland $3,924
Netherlands $3,576
Ireland $3,547
Belgium $3,493
United Kingdom $3,460
Australia $3,401
Denmark $3,349
Austria $3,296
Canada $3,197
Norway $3,184
Germany $3,059
France $2,865
Sweden $2,817
Finland $2,727
Japan $2,674
Italy $2,637
Singapore $2,546
Korea $2,538
Spain $2,530

It’s quite possible that MTI had adjusted wages using purchasing power parity meant for GDP. The table [6] below shows that without adjustments Singapore’s wage is low amongst First World nations. It becomes high only after adjusting for purchasing power parity meant for GDP.

Country Average wage 2000 – 2009 (2009 USD) Country PPP (GDP) adjusted average wage 2000 – 2009 (2009 USD)
Switzerland $6,053 Luxembourg $4,448
Luxembourg $5,636 Switzerland $4,313
Denmark $5,374 United States $4,139
Ireland $5,000 Ireland $4,012
Norway $4,976 Singapore $3,833
Belgium $4,402 Netherlands $3,683
Netherlands $4,329 Belgium $3,672
United States $4,139 Denmark $3,657
Austria $3,992 United Kingdom $3,656
Australia $3,866 Australia $3,655
Finland $3,797 Canada $3,480
United Kingdom $3,756 Norway $3,475
Germany $3,672 Austria $3,385
Canada $3,651 Germany $3,249
Japan $3,646 Finland $3,009
France $3,609 France $3,001
Sweden $3,397 Japan $2,932
Italy $3,102 Sweden $2,900
Spain $2,773 Italy $2,850
Singapore $2,656 Spain $2,798
Korea $1,760 Korea $2,768

It is the same story with our per capita GDP. Singapore’s per capita GDP [7] is, on its own low amongst First World nations but becomes high only after adjusting for purchasing power parity (GDP).

Country Average per capita GDP 2000 – 2009 (2009 USD) Country PPP (GDP) adjusted average per capita GDP 2000 – 2009 (2009 USD)
Luxembourg $99,060 Luxembourg $78,183
Norway $76,760 Norway $53,598
Switzerland $63,839 Singapore $47,681
Denmark $57,546 United States $45,641
Ireland $51,574 Switzerland $45,487
Netherlands $46,635 Ireland $41,387
United States $45,641 Netherlands $39,676
Finland $44,537 Denmark $39,166
Austria $44,472 Austria $37,711
Belgium $43,178 Canada $37,641
Sweden $43,117 Australia $37,442
France $40,587 Sweden $36,811
Japan $39,995 Belgium $36,014
Australia $39,610 Finland $35,302
Germany $39,541 Germany $34,981
Canada $39,492 United Kingdom $33,985
Italy $36,956 Italy $33,946
United Kingdom $34,919 France $33,749
Singapore $33,046 Japan $32,165
Spain $31,590 Spain $31,876
Korea, Rep. $15,009 Korea, Rep. $23,613

Thus, one reason why our per capita GDP is high while our wages are low is because GDPs are mostly compared on a purchasing power parity (for GDP) basis whereas wages are not. Wages are mostly compared in US dollars unadjusted for purchasing power parity. Purchasing power parity (for GDP) could be the essential ingredient that makes or breaks Singapore statistics, be it per capita GDP or wage.

Consider Singapore’s 2009 purchasing power parity (for GDP) to exchange rate ratio of 0.69. This means that Singapore’s 2009 price level was only 0.69 that of the US’ or what USD $0.69 can buy in Singapore will require USD $1 to buy in America. That would be like saying that a US$690,000 property in Singapore costs US$1 million in the US which is too good to be true considering that our HDB resale flats can be more expensive than US bungalows. Most international surveys also do not support the notion that Singapore’s 2009 price level was only 0.69 that of the US’.

Consider the Economist Intelligence Unit’s 2009 Cost of Living survey; Singapore’s index of 112 was higher than New York’s index of 100, not lower.

Consider too Mercer’s 2009 Cost of Living survey; only New York’s price level was comparable to Singapore’s. All other US cities had much lower price levels which can only mean that the overall US price level had to be lower than Singapore’s, not higher.

Cities Index
New York 100
Singapore 98
Los Angeles 87.6
White Plains 84.7
San Francisco 82.5
Honolulu 81.6
Miami 81.4
Chicago 80.7
Boston 77.3
Houston 76.4
Washington 75.5
Atlanta 73.7
Morristown 73.5
Seattle 71.1
Denver 70.8
Cleveland 68.9
St Louis 68.4
Portland 66.1
Detroit 65.5
Pittsburgh 65.2
Winston Salem 63.8

Or consider UBS Prices and Earnings 2009; with the exception of New York, most American cities had price levels comparable to Singapore’s, not as high as the 1 / 0.69 ratio suggests.

Cities Price level (include rent)
New York 100
Los Angeles 72.7
Chicago 72
Singapore 70.7
Miami 69.6

Conclusion: MTI’s failure to find a clear relationship between wage and wage share of GDP could be due to the small sample size of 12 economies studied. Be it wage or per capita GDP, Singapore ranks low amongst First World nations when no adjustments are made for purchasing power parity. There are two types of purchasing power parity, one for consumption and one for GDP. Our wages, when adjusted for purchasing power parity meant for consumption, remains low amongst First World nations. Our wages and per capita GDP becomes high only after adjusting for purchasing power parity meant for GDP. It may not be appropriate to adjust wages using PPP meant for GDP. Singapore’s PPP for GDP also doesn’t match up well to international surveys on cost of living.

[1] Straits Times, Different spin on wheels of productivity, 21 May 2013, Leon Perera
• From 2001 to 2010, while real GDP growth averaged well over 5 per cent a year, real median monthly income growth for Singaporeans averaged 1.2 per cent a year.
• The battle must be fought on two fronts: raise the wage share of GDP to ensure that the gains from productivity growth are well distributed

[2] Straits Times, First World country, but not First World wages, 15 May 2010
• As a result, workers get a slice of Singapore’s gross domestic product (GDP) that is considered unusually small compared with their counterparts’ share in those countries
• This means that Singapore may have achieved one of the highest per capita GDPs – at $51,656 last year – but the superlative showing may not reflect the wealth of workers or benefit them as much.
• So are wage levels keeping pace with economic growth? Or is Singapore’s low wage share of GDP an indication that workers have been losing out?

[3] Straits Times, Govt’s goal to create good jobs for S’poreans, 24 May 2013, Mrs Cindy Keng
• Compared to those in many developed countries, Singaporeans earn higher real wages even though our wage share is lower. A more detailed analysis of wage shares can be found in the 1Q 2013 Quarterly Economic Survey released yesterday.

[4] MTI 1Q 2013 Quarterly Economic Survey
• Exhibit 5: Average Monthly Remuneration Per Worker (PPP-adjusted, in 2009 Dollars)
• In Singapore’s case, our PPP-adjusted average monthly remuneration per worker, at US$3,106 between 2000 and 2009, in fact exceeds that of workers in countries like Japan, the Euro area and South Korea even though they have higher wage shares.
• their PPP-adjusted average monthly remunerations were US$2,935, US$2,919 and US$2,025 respectively
• Our PPP-adjusted wage level is higher than that in many other developed economies.
• the PPP-adjusted average remuneration for the two economies are only US$10 apart at US$3,250 and US$3,260 respectively

[5]
MTI didn’t provide the actual wages in local currencies; neither did MTI provide the PPP conversion rate used nor the specific source of data. The following table shows that none of the PPPs from World Bank, Penn World Tables or IMF could yield MTI’s PPP adjusted wages:

Wage (from OECD) adjusted for PPP using various PPP sources Ireland Japan Korea, Rep. United Kingdom
World Bank PPP for GDP $3,848 $2,906 $2,711 $3,665
World Bank PPP for consumption $3,519 $2,601 $2,430 $3,555
Penn World Tables PPP $3,941 $3,001 $2,674 $3,826
IMF implied PPP $3,773 $2,898 $2,698 $3,601
MTI $3,250 $2,935 $2,025 $3,260

A similar issue was faced trying to verify MTI’s PPP adjusted wage for Singapore. The only Singapore average monthly wage data from 2000 to 2009 I could obtain from the Internet was the International Labour Organisation, Key Indicators of the Labour Market 7th Edition, Table 15, Average Monthly Wages. It corresponded partially to the Ministry of Manpower, Report on Wages in Singapore, 2011, Table 7, Average (mean) monthly earnings per employee by industry and sex, 2006 – 2011.

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
ILO $3,063 $3,134 $3,158 $3,213 $3,329 $3,444 $3,554 $3,773 $3,977 $3,872
MOM $3,554 $3,773 $3,977 $3,872

The wages, given in current prices (meaning the respective years’ prices), had to be adjusted for inflation using the CPI to arrive at 2009 prices. The average was then taken to arrive at the 2000-2009 average monthly wage of SGD $3,758 at 2009 prices:

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Wage (current prices) $3,063 $3,134 $3,158 $3,213 $3,329 $3,444 $3,554 $3,773 $3,977 $3,872
CPI 87.6 88.4 88.1 88.5 90 90.4 91.3 93.2 99.4 100
Wage (2009 price) $3,497 $3,545 $3,585 $3,631 $3,699 $3,810 $3,893 $4,048 $4,001 $3,872

Neither of the PPPs from World Bank or the Penn World Tables when applied to Singapore’s average wage of SGD $3,758 could yield MTI’s figure of US$3,106.

2009 PPP (SGD per USD) PPP adjusted average wage from 2000 to 2009 (2009 USD)
Penn World Tables 2009 PPP for SG 1.107 $3,395
IMF 2009 implied PPP for SG 1.074 $3,499
World Bank 2009 PPP for SG GDP 0.981 $3,831

[6]
Wage data in national currencies are from OECD (except for Singapore which is from ILO). OECD has full set of wage data for each of the years from 2000 to 2009. ILO data is often incomplete for most countries. Only First World democracies are compared. OECD has its own purchasing power parity figures but to be comparable to Singapore which is not an OECD member, PPP adjustment is done through World Bank’s PPP figures.

[7] per capita GDP (2000 USD), per capita GDP (current USD), PPP adjusted per capita GDP (2005 USD) and PPP adjusted per capita GDP (current USD) all from World Bank

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