Wage Growth and Wage Inequality

Abstract

A feature of Singapore’s growth experience is that the wage share has been relatively constant. Given this, the steady increase in the real GDP per worker since independence has been accompanied by real wage growth. In the absence of technological progress and the opportunity for international trade, a steady increase in the capital-labour ratio leads to real wage growth. Nevertheless, as capital accumulation faces diminishing returns, the real wage growth peters out in the absence of technological progress and trading opportunities. However, Singapore has, indeed, been vitally integrated into the global economy in its economic development. As a result, the economy has moved up the ladder of comparative advantage even as the capital-labour ratio increased both as a result of domestic investment as well as foreign direct investment. In addition, as Singapore moved towards the technological frontier, the closing of the technology gap has also meant that, at given capital-labour ratio, the real wage has been pulled up…