Wage subsidies helped trim Singapore firms' unit business costs in 2020: MTI report

OVERALL business costs have decreased on a unit basis in Singapore, as wage subsidies drove down the total cost of labour during the Covid-19 recession.

But labour costs are expected to go up again this year, as the subsidies wear off and salaries rebound from the projected economic recovery.

Unit business cost (UBC) in manufacturing lost 14.4 per cent year on year in 2020, while services UBC dipped by 0.2 per cent in the first nine months, the most recent period on record.

That's as unit labour cost (ULC) defied lower productivity and an uptick in remuneration to shed 9.1 per cent overall, according to a report published on Monday from Ministry of Trade and Industry (MTI) economist Geraldine Lim.

Last year, higher wage subsidies pared 10.9 points off the headline ULC, while foreign worker levies and rebates shaved off another 2.1 points, the MTI report noted. These more than made up for the rise in remuneration per worker, which otherwise added 1.7 points to the total.

UBC refers to the cost of producing one unit of output in the economy, and measures only operating expenses, without material costs and depreciation.

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ULC, which contributes to UBC, is based on the change in total labour cost per worker, less the change in gross real value-added.

Labour costs, work given out, and "other" expenses together account for more than three-quarters of business costs in manufacturing.

In the services sector, labour costs range from 9 per cent for transport and storage, to at least 39 per cent in manpower-heavy segments such as accommodation. Services expenses, such as advertising, utilities and rent, make up the bulk of the sector's business costs.

As such, manufacturing saw the biggest fall in ULC in 2020, to the tune of 22.8 per cent, helped by "strong labour productivity growth".

Meanwhile, the services ULC shed 4.9 per cent overall, in spite of the unit cost increases in the transport and storage industry, which is less labour-intensive, as well as in the professional services and other services industries.

All the same, the construction sector suffered from a ULC spike of 9 per cent, as the drop in productivity outstripped the decline in total labour costs.

The report added: "The overall ULC for the economy is likely to rise in 2021 on account of a tapering of the wage subsidies introduced in 2020 and as remuneration per worker rises in tandem with the gradual recovery of the labour market.

"At the same time, the costs of utilities, fuel and transportation are likely to see some upward pressure due to higher global oil prices, while industrial and commercial rental costs are expected to remain largely subdued."