Construction firms are offering pay rises of up to 20 per cent to retain and attract experienced workers amid the labour crunch, and activists are cheering the hike.

Until about two years ago, wages in the sector had been stagnant with most workers earning just $500 a month, regardless of their experience.

It has since been bumped up to about $800 monthly for those who have toiled for four years, and is further rising to $1,000 with the latest jump.

"The thinking a few years ago was: 'If you want a job, take it. If not, I will find someone else who will want to do it.' But firms cannot afford to do this now," said Yang Seng Engineering senior manager Richmon Ng.

The reason is the drying up of the China and India supply pool.

Workers from the two countries, along with Bangladeshis, make up the bulk of the nearly 300,000 construction workers here. But Chinese and Indian nationals are now preferring to stay at home where the economies are booming.

The Building and Construction Authority (BCA) here has been trying to ease the shortage by tapping new sources. It recently helped firms to recruit experienced workers from Sri Lanka and the Philippines.

But higher pay is still the best weapon to combat the labour shortage.

"In the past, employers did not feel the need to increase pay because workers could be easily replaced since there was a ready supply," said activist John Gee of migrant workers group Transient Workers Count Too.

Not any more. Construction firms now raise salaries when seasoned workers renew their contracts. Top performers also get a bonus of one month's pay, according to 10 firms which The Straits Times spoke to.

Bosses said that experienced workers are crucial in helping them tackle the labour crunch, as they are more productive and need less supervision.

Seasoned hands also mean lower levies for firms. They pay less to the Government when they hire workers who have been in Singapore for at least four years and have gone for skills upgrading courses and tests offered by the BCA. This is to encourage companies to upgrade the workers' skills and retain talent.

Firms such as Fonda Global Engineering, for instance, are even giving workers a further 10 per cent pay rise when they pass the tests.

"The raise is our way of motivating them to pass the test and to encourage them to stay on to work for us," said the firm's director Melvin Ong.

Employers pay $300 or $600 in monthly levies for higher- skilled workers. The monthly levy for basic-skilled workers, who are relatively new to Singapore and have not gone for the upgrading courses, is $450 or $750.

Lower levies help maintain the bottom line to some extent, said construction bosses. However, they added that overall labour costs have still gone up.

So far, firms said they have been absorbing the costs of salary rises, reducing their profit margins.

But this is "not sustainable", said the president of the Singapore Contractors Association, Dr Ho Nyok Yong.

Although companies are currently placing low bids to win tenders for construction projects, he expects the tender offers to rise by 10 per cent to 15 per cent due to higher labour and operating costs.

Regardless of whether tender prices go up, bosses predict that salaries will soar as the race to get the best workers continues.

To buttress the spike, Mr Andy Goh, chief financial officer of Sysma Holdings, believes the long-term solution is to keep workers happy and loyal to firms.

"Pay is the No. 1 consideration for the workers, but other things like respect and giving them a choice in the type of work they like to do is important in building loyalty," he said.