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The hidden cost of higher wages

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Wages are set to go up this year, but this isn’t good news for everyone.

The wage increase will result in higher labour cost and put businesses under more cost pressures, the Monetary Authority of Singapore (MAS) has said.

The central bank said Singapore’s overall wage growth could average 3% this year, compared to 2.3% in 2012. However, the Ministry of Manpower reported only 20,800 jobs were created last quarter, compared to 44,000 in the previous three months, resulting in steeper competition.

Another factor contributing to the changes is the restrictions on foreign labour. In February, Singapore tightened its foreign labour policies for the fourth consecutive year and will continue to do so until 2015, Bloomberg reported.

“With more firms turning to locals to fill job vacancies, resident wages will rise at a slightly faster pace across all sectors. As a result, unit labour costs will continue to increase, despite some improvement in productivity,” MAS said.

MAS said Singapore’s economy will also be affected by “outstanding fiscal issues in the U.S. and the potential for policy missteps in the Eurozone”.

“As such, the Singapore economy is likely to continue to be confronted by intermittent bouts of external volatility, although a sharp deceleration is not envisaged at this juncture.”

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