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Economic Survey of Singapore 2011Feature ArticleCONCLUSIONIn this paper, we have shown that while productivity growth is a key driver of real wage growth, realwages may also be affected by other factors such as changes in labour share and relative outputprices. In Singapore, the productivity-wage link for resident workers has been relatively strong at themacro level. In recent years, however, falling relative output prices has dampened the translation ofproductivity growth to real wage growth for residents. This suggests that efforts are required to limitinflation and help the economy restructure.At the sectoral level, the productivity-wage relationship is much weaker. We observe different trendsfor externally-oriented and domestically-oriented sectors. For the former, productivity growth tendedto be strong, but the translation to wage gains for resident workers also tended to be dampenedby declining relative output prices. By contrast, productivity growth in domestically-oriented sectorstended to be weak, holding back wage growth. Our analysis thus suggests that apart from helpingexternally-oriented sectors restructure and move into higher VA product segments, emphasis shouldalso be placed on raising the productivity of domestically-oriented sectors to enable sustainable wagegrowth in these sectors.Contributed by:Tan Di Song, EconomistGuo Jiajing, EconomistEconomics DivisionMinistry of Trade and Industry70 MINISTRY OF TRADE AND INDUSTRY
Economic Survey of Singapore 2011Feature ArticleREFERENCESGraafland, J.J. & Lever, M.H.C (1996), “Internal and External Forces in Sectoral Wage Formation:Evidence from the Netherlands”, Oxford Bulletin of Economics and Statistics, 58, 2, pp.241-252.Montuenga-Gomez, M.V., Fernadez, M. & Romeu, A. (2007), “The Link Between Wages and Productivityin Spain”, International Review of Applied Economics, 21, 2, pp. 247-272.Sharpe, A., Arsenault, J. & Harrison P. (2008a), “Why Have Wages Lagged Labour Productivity Growthin Canada?”, International Productivity Monitor, 17, pp. 16-27.Sharpe, A., Arsenault, J. & Harrison P. (2008b), “The Relationship Between Labour Productivity andReal Wage Growth in Canada and OECD Countries”, CSLS Research Report No. 2008-8.Syverson, C. (2010), “What Determines Productivity?”, Journal of Economic Literature, 49, 2,pp. 326-365.MINISTRY OF TRADE AND INDUSTRY 71
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FEATURE ARTICLE - Ministry of Trade and Industry

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