How globalisation affects Singapore's unit labour costs in the manufacturing sector

Abstract

Given the scale of how globalisation has transformed our industries, it was imperative for us to explore if success in interconnected markets rely solely on sustaining low unit labour costs (ULC). While low ULCs are conventionally equated with constrained wage growth for workers and high labour productivities, we conducted a novel estimation study that encompasses ULC's primary determinants - real remuneration growth, capital intensity growth and total factor productivity (TFP) growth - in assessing cost competitiveness. Our findings of Singapore's manufacturing sector up to the two-digit level revealed that cost competitiveness can be maintained if increases in real wages are offset by proportionate increases in capital intensity and TFP. The results reaffirm the conclusions of Ordóñez and his colleagues (2015) and provide empirical evidence for Singapore's on-going effort to restructure her economy. Hence, an economy primarily needs to be manpower-lean, more capital-intensive and foster high TFP growth to compete more effectively.