Businesses in Singapore projected to see salary growth of about 4.3% next year: Survey

Key Concepts

• Salary Growth Projections: Forecasted increases in employee salaries.
• Employee Turnover Rate (Attrition Rate): The percentage of employees leaving an organization over a specific period.
• Skills Gap: The disparity between the skills an employer needs and the skills its workforce possesses.
• Involuntary Turnover: Employees leaving due to reasons initiated by the employer, such as layoffs or business closures.
• Developed Economy: A country with a high level of economic growth and security, typically characterized by lower GDP growth and inflation compared to developing economies.
• Business Outlook: The general expectation for future business conditions.
• Headcount Dynamics: Changes in the total number of employees within a company.
• People Transformation: The process of evolving an organization's workforce skills and capabilities, typically a longer cycle than technology transformation.
• Learnability: An individual's capacity and willingness to learn new skills and adapt to new situations.
• Tripartite Alliances: Collaborations between government, employers, and unions to address labor market issues.
• Ecosystem (Talent): The interconnected network of factors (policies, education, compensation, infrastructure) that support talent development and retention.

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Overall Salary Growth and Employment Outlook for 2026

A recent survey of over 700 firms across six Southeast Asian countries projects an overall budgeted salary increase of 5.3% for the region in 2026. Singapore is projected to see a salary growth of 4.3%, which is the lowest among the surveyed countries, including Malaysia, Thailand, and Indonesia. In contrast, Vietnam is expected to have the largest growth at 7.1%.

The business outlook has shifted significantly. At the beginning of the year (pre-trade tariffs), nearly 50% of clients reported a positive business outlook. However, in the second half of the year, this figure dropped to approximately one-third, indicating a shift towards a neutral or slightly pessimistic outlook.

Regarding hiring, two-thirds of clients in Singapore project flat hiring, while 13% anticipate their workforces to contract by more than 5%. This headcount dynamic is crucial, as flat or reducing headcounts mean total wage bills are not increasing at the same rate as when headcounts were growing, despite the 4.3% salary increase.

Certain sectors are experiencing high involuntary turnover rates. Retail and hospitality, for instance, show an involuntary turnover rate of around 7%, reflecting stresses in the F&B environment and business closures. The technology sector has also seen well-documented layoffs in recent years.

Reasons for Singapore's Lower Salary Growth

Rahul Cha, Partner and Head of Talent Solutions for Southeast Asia at AON, explains that Singapore's lower salary growth is primarily due to macroeconomic factors. As a developed economy among the surveyed countries, Singapore typically experiences lower GDP growth rates (a fraction of Vietnam's >6% GDP growth) and lower inflation rates compared to developing economies. This means the lower salary increase is an outcome of these fundamental economic differences, not a reflection of an inability to pay or increase salaries. Singapore's economy has reached a certain level of maturity, and its growth rate will naturally differ from rapidly developing economies.

High Attrition Rates and Labor Market Dynamics

Singapore is projected to have the second-highest turnover rate among the surveyed countries, at 19.3%. This high attrition rate indicates a "thriving market" where international organizations are still willing to establish bases, viewing Singapore as a strong talent market for skills and capabilities. The market is described as "liquid," with mobile talent. Companies must compete effectively to acquire the right capabilities and skills to grow and transform their businesses, while also ensuring they do not "outpay the market."

Hiring Challenges and Skills Gaps

The study reveals significant challenges for businesses in Singapore:

• 42% of businesses report difficulties in hiring or retaining employees.
• 63% are facing skills gap problems.

The most in-demand jobs in the region are in sales, information technology, and artificial intelligence, reflecting a "sharp pivot towards digital and risk-focused capabilities." Cha attributes this trend to the rapid evolution of technology and business/customer needs. He highlights that "business transformation" (technology deployment) has a shorter cycle (1-3 years) compared to "people transformation" or "skill transformation" (3-5 years). This disparity in pace means businesses struggle to infuse the necessary capabilities to accelerate change, particularly in emerging areas like AI and cyber security.

Employer Strategies for Optimization

To optimize hiring and retention, employers should:

1. Leverage Data: "Be close to data" to understand existing capabilities within the business.
2. Internal Talent Identification: Identify "adjacent talent" internally that possesses "learnability," "curiosity," and behavioral skills to embrace new technologies.
3. Forensic Approach: Conduct a thorough analysis of both internal and external talent pools to find the best fit.
4. Data as an Enabler: Utilize data as a key tool in this dynamic process.

Policy Perspective and Ecosystem Development

Singapore has actively promoted skills upgrading, upskilling, and reskilling through various initiatives. This includes grants for Singaporeans to enhance their skills and for companies to redesign jobs. Tripartite alliances, supported by SNF grants, have been instrumental in helping companies redesign job architectures and descriptions to attract the right talent.

Cha emphasizes that more needs to be done to understand the specific capabilities required to transform economies and address emerging risks. This understanding must then translate into specific skills, which in turn inform foundational job architectures. He uses the analogy of a "Ferrari of skills": to run such high-performance talent, Singapore needs to build the "right ecosystem" – akin to having the right roads (devoid of speed bumps) and the right fuel (compensation and benefits). This holistic approach is crucial for nurturing and retaining top talent in Singapore.

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Synthesis/Conclusion

Singapore's labor market in 2026 presents a complex picture of moderate salary growth, high attrition, and significant skills gaps, all set against a backdrop of shifting business sentiment and rapid technological evolution. While the 4.3% salary growth is the lowest in Southeast Asia, it reflects Singapore's status as a developed economy with different macroeconomic dynamics. The high attrition rate, however, signals a vibrant and attractive talent market. The core challenge lies in the widening gap between the fast pace of technological change and the slower rate of people transformation, leading to difficulties in hiring and retaining employees with critical skills in areas like AI and cyber. To address these issues, employers must adopt data-driven strategies to identify and develop both internal and external talent. From a policy perspective, Singapore's existing efforts in upskilling and job redesign are commendable, but a more comprehensive "ecosystem" approach is needed to ensure the sustained development and retention of high-value skills, effectively building the "right roads and fuel" for its "Ferrari of skills."