Asian Wage and Salary growth. Is it sustainable?

15th July 1996

Signs are on the horizon that salaries, especially for executives in the Asian tiger ecomomies are not as sustainable as the recipients would like.

An AFP despatch today reported that the cost of labour is a potentially damaging factor in the competitiveness and growth of the 4 dragon economies of Hong Kong, Singapore, South Korea and Taiwan. Not only is business being lost to neighbouring tiger cub economies, but more significantly for the region as a whole, scattered instances of this being lost to the old world are increasing. To whit, the South Korean LG group decided last week to establish a 2.6 Billion US$ electronics complex in South Wales. (Yes you read that correctly!). Reports AFP, "Between March 1995 and April 1996, Korean companies announced 12 new investments in Britain alone, including Samsung's $675 Million US$ manufacturing complex in NorthEast England. Daewoo is also mentioned as one of those actively looking for extra-regional locations for their operations.

Salary increases in South Korea averaged 14% in the last 5 years with productivity growth well below 10%. Meanwhile in Singapore, encouraged by the goverment, companies are "...moving lower end production to cheaper locations in the region..."

But the higher end high tech manufacturing businesses, which Singapore is now depending on substantially to sustain its' economy, is facing competition from neighbours like Malaysia, who are also moving to capital intensive industries in response to chronic labour shortages. Land prices in Malaysia are not yet as significant as those in Singapore, South Korea and Taiwan, and threin lies a competitive edge for Malaysia.

In Hong Kong the average daily wage of craftsmen and operatives rose from HK$235 (appox US$30) to HK$314 (approx US$40) from 1992 to 1995, while in the same period, monthly salaries of supervisory and technical staff rose from HK$7,196 to HK$9,930. Many Hong Kong manufacturing operations have already moved across the border, leaving Hong Kong to concentrate on high value and service sector industry

APMF News has already reported salary growth figures but here are some more to add to the Hay Survey as well as the Hong Kong and South Korean figures above as reported by AFP.

• Singapore's wages rose 6.4% in the last year
• Average monthly earnings of Singaporean workers increased from S$1,325 (US$946) in 1986 to more than S$2,000 in 1995 in real terms
• One Singaporean worker's salary is equivalent to the pay of seven or eight workers in Indonesia or Vietnam
• The average monthly wage in Taiwanese manufacturing industries reached T$32,441 (US$1,178) in 1995 from 1991, a 33% increase.

Meanwhile, the Far Eastern Economic Review's annual lifestyle survey has published the average annual executive salaries in 10 countries. This survey, also reported in APMF news last year, is based on questionnaire responses from more than $3,000 FEER subscribers in 10 countries. This year the survey ran from April to June. The normal caution that should be taken in interpreting this data in the light of the methodology should be exercised. Add to this the in-built bias in comparing the profile of subscribers in predominantly English speaking countries with low income disparities (like Australia) with non-English speaking countries with high disparities, and extreme caution is advised!

Approx Annual Executive Salaries and Total Household Income (US$ thousand)
Source: Far Eastern Economic Review Annual Lifestyles Survey (Self Report data from stratified sample of Far Eastern Economic Review Subscribers published July 11th 1996).
Figures are transcribed from original graphic data.

	Annual Executive Salaries	Total Household Income
Hong Kong	190	250
Japan	140	180
Singapore	140	185
Thailand	130	195
Indonesia	125	185
Australia	120	150
Malaysia	115	150
Taiwan	105	210
Philippines	90	135
South Korea	90	115
Western Expats	175	210
Asian Expats	160	202

These pay packets are certainly not small by world standards. And they are being maintained amongst worrying signals of future lower productivity, rising business costs and peaking of ecomomic growth (...cool down, slow down, call it what you like!..).

Perhaps the next challenge for both tiger and tiger cub economies is to convince their respective populace that satisfaction can be gained from more than just material and financial rewards. The new Asia is heading for a difficult tranisition in the next decade. For some years now, economies have had to move from relying on selling products in the global marketplace with price edges due to lower labour and operations costs. The hard fact of life is that, in almost all cases, productivity is falling way behind wage and salary growth. Governments and industry have up to now been able to afford to motivate workers on the basis of material gain and affordability of technological "jiggery pokery" like cars, hand phones and other trappings of wealth. Other than nationalism, some have used little else. All the signs indicate that these policies are not sustainable.

Perhaps this is the most significant challenge of the Asia Pacific Century....