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In Singapore, the high cost of living means that we want our wages to at least keep pace with inflation, ideally surpassing it. Wage growth and the economy are usually closely connected. In 2023, Singapore’s economy grew by 1.1%, while labour demand cooled throughout the year. Recently, the Ministry of Manpower (MOM) in Singapore released data from an annual wages survey, detailing changes in total wages for Singapore residents in 2023. While wages continue to grow, it’s important to differentiate between two types of wage growth: real wage growth and nominal wage growth. What are the differences, and how have they varied in Singapore over the past decade? The MOM report indicated that nominal wage growth in Singapore continued in 2023, with a 5.2% increase. However, this was lower than the 6.5% nominal growth seen in 2022. Nominal growth represents the percentage increase in wages without considering other factors. When we factor in annual inflation, we derive real wage growth. . It provides a more accurate reflection of economic reality, as everyone is affected by inflation. In other words, if inflation increases by more than your (nominal) wage, you are actually earning less in terms of your real wages. So, what was Singapore’s real wage growth rate last year? According to the MOM, it was 0.4% in 2023, similar to the rate in 2022. This real wage growth in 2023 was much lower than the growth seen from 2013-2019, primarily because inflation was extremely low during those years. Since then, inflation has surged in Singapore and globally, leading to a decline in real wage growth in recent years compared to the preceding years. While inflation is reducing a lot of the nominal wage growth, the data suggest average Singaporeans are still slightly better off coming into 2024 on an inflation-adjusted basis – but only slightly. The MOM survey also examined the proportion of establishments in Singapore that provided wage increases to their employees. In 2023, most establishments (82.1% of those surveyed) remained profitable, though this rate was lower than in 2022. As a result, fewer establishments gave wage increases to their employees. Specifically, 65.6% of firms surveyed granted wage increases in 2023, down from 72.2% in 2022. All industries in Singapore saw wage growth in 2023, with particularly notable increases in Administrative & Support Services, Food & Beverage Services, and Retail Trade. As previously mentioned, real wage growth was substantially stronger in the pre-pandemic years, a trend supported by MOM’s summary data. From 2013 to 2023, the median gross monthly income increased nominally by 3.4%, while the real growth rate was 2%. However, if we divide this period into two five-year segments (2013-2018 and 2018-2023), it becomes clear that the earlier period experienced much stronger real wage growth. In fact, due to the low inflation environment between 2013 and 2018, the annual average nominal wage growth of 3.7% and the annual average real wage growth of 3.5% were quite similar. However, from 2018 to 2023, the annual average nominal wage growth was 3.2%, significantly higher than the annual average real wage growth of 0.5% for the same period. This disparity highlights the impact of inflation on real wage growth. This discrepancy is also evident in the cumulative changes over these periods. From 2013 to 2018, cumulative real wage growth was 18.7%, compared to just 2.5% for the period from 2018 to 2023. When it comes to wage growth, the comparison between real and nominal figures is extremely useful because nominal figures can be misleading if we don’t account for inflation. This concept also applies to other areas, such as real and nominal investment returns on an annualized basis. If nominal wages grow at the same pace in 2024 as they did last year, but inflation decreases, our real wage growth will improve this year. Overall, by considering inflation and its real-life impact on our spending power, we can better assess the true pace at which wages grow over time.