Unemployment in Singapore
Singapore is a small and open economy who has been enjoying a high GDP growth in the recent 20 years. The Ministry of Trade and Industry announced today (May 20) that it has maintained its gross domestic product (GDP) growth forecast for 2014 at 2 to 4 per cent, after the Singapore economy grew by 4.9 per cent on a year-on-year basis in the first quarter.With a growth in GDP, Singapore also experience an increase in Aggregate Demand (AD), moving from the Keneysian range of the Aggreagate Supply (AS) to the intermediate range of AS. As AD rises, firms would experience a fall in inventories.. They would then step up on their production by hiring more workers to increase output. This would then lead to a rise in real national income. As one’s spending is another group’s income, due to the increase in the demand for the good and services they produce, this would trigger a multiplier effect (k) where there will be a multiple expansionary effect to increase the national output, employment rate and real national income. However, despite the in GDP growth in Singapore, we still face the issue of rising unemployment rate. Local unemployment (PR and Citizens together) was 2.9% while citizen unemployment rate was 3%.There is a possibility that the 3 factors stated below might be the cause of the rise in unemployment rate in Singapore.
The influx of foreign workers:
Firstly, the influx of foreign workers has been one of the reasons Singapore is facing, albeit low, unemployment. Foreigners now make up 36 percent of Singapore’s population and many feel that these foreign workers have taken away local citizens’ jobs. This is especially so for the lower-income low-skilled workers who are increasingly finding it difficult to find jobs such as those in construction sites, cleaning jobs, etc as these foreign labour largely come from big countries that have a big population and thus they have an excess of labour. Therefore, they are more willing to accept a lower wage as compared to the relatively more skilled Singaporean workforce who demands a higher pay for the same workload. As such, as firms are profits-oriented, they will tend to hire workers which demand a lower wage in order to reduce their cost of production of their goods/services. Furthermore, as Singapore is a knowledge-based economy, most Singaporeans do not wish to work in labour-intensive industries which tend to have long hours and require lots of effort.
Despite our need for foreign labour, the Singapore government also understands the need for local citizens to be employed; hence, it implements policies to improve the situation.
The government has reduced the Dependency Ratio
Ceilings (DRC), which specify the maximum proportion of foreign workers that
companies in various industries can hire, to curb foreign worker growth. The
two industries identified included the manufacturing and services industries.
There will be a cut from 65% to 60% and 50% to 45 % for the manufacturing and
service industries respectively.
Also, the Foreign Worker Levy, is a pricing mechanism to regulate the number of Foreign Workers in Singapore. Employers are liable to pay monthly levies to hire employees who hold work permits or S Passes (MOM).
With the recent uproar of missing plane MH370, Malaysia’s economy is definitely affected. Furthermore, yet another aviation tragedy has occurred for Malaysia where MH17 had encounter a disastrous crash at the Ukraine-Russia border. As a neighbouring country, Singapore is indirectly affected by Malaysia’s economy due to their close ties and interdependence with one another. Tourist will normally go for a tour or holiday to Malaysia where they will just drop by at Singapore for a short while along the way. Demand for Singapore’s tourist sector will be affected the most due to its tied relationship with Malaysia, where rising fear among consumers might make them travelling somewhere else instead. Also, foreign investors may not have confidence in Singapore’s business prospect and may invest in other emerging countries instead. Existing investors may actually switch away to other country as well. This leads to fall in Investment. As consumption and investment is a component of aggregate demand, this will lead to a fall in AD. There will then be an accumulation of inventories. Firms will respond to this by reducing production and hence lowering output. This leads to an increase in unemployment and lower real national income. The increase in unemployment may have an adverse effect on the economy which we should be mindful of and we use various policies to counter them when appropriate.
Structural Unemployment:
Secondly, Singapore faces Structural unemployment which may contribute to the rise in unemployment in Singapore. Structural unemployment refers to the mismatch of skills between the unemployed labour in Singapore to the skills required for new job opportunities.
In the recent years, Singapore has been moving away from low-end industries, particularly in manufacturing, to focus on value-added sectors such as biotechnology and pharmaceuticals. With the introduction of new techniques of production, the unemployed workers may not possess the knowledge and skill required to operate these machineries and technologies. For instance, Singapore was heavily dependent on the export of manufactured goods for economic growth but now it focuses on the provision of goods such as pharmaceutical researches and advancement. Thus, the workers previously working in the manufacturing industry would face structural unemployment as the skills they possess is no longer necessary and instead, workers specializing in that sector is in surplus. On the other hand, there is a rise in the demand for workers who possess skills required for the pharmaceutical industry. Yet, not many people are specialised in these skills. Thus, there is a shortage incurred in the pharmaceutical industry. “Structural unemployment may rise in Singapore and requires the special attention of companies and workers”, warned labour chief Lim Swee Say and noted that the mismatch between jobs and skills can happen in all sectors. Hence, there is a need for government intervention to curb the rise of unemployment. Especially structural unemployment.
In order to curb Structural unemployment, Singapore Government has implemented several policies such as the Progressive wage model in the cleaning sector. This is to ensure that cleaners are able to enjoy significant upgrades in their basic pay and get more when they upgrade their skills. In addition, Singapore has implemented the workfare training support (WTS) to encourage workers to upgrade their skils through training so they can improve their employability, upgrade to better jobs and earn more. This would ive the unemployed to have a chance to catch up with the progressing economy and keep them employed. WTS covers training courses offered under the Singapore Workforce Skills Qualifications (WSQ) System, including Employability Skills (ES) training courses. All WSQ courses receive 90% or 95% course fee funding support under WTS. This means that older low-wage workers, or their employers, only need to pay 5% or 10% course fees for all WSQ courses.
However, such policies may have long gestation period as it requires these unemployed to attend courses a long trainings before starting to look for a job. In addition, workers may not be willing to improve their skills and pay for such trainings. Employers may also be enjoying the lower cost of production due to the lower wage cost, thus increasing their profits.
Even though these policies are rather costly and hard to implement, fortunately, Singapore has been enjoying a budget surplus which gives us the ability to withstand the high cost of implementing these policies.
Frictional unemployment
Frictional unemployment is the short-term transitional unemployment due to people moving between jobs. Singapore’s Ministry of Manpower (MOM) explained in their Labour report that the increase in unemployment rate could be due to the fact that more unemployed persons were seeking work recently due to increased wages and more job openings and not necessarily because of more people being fired. Due to imperfect information in the labour market, Singaporeans are not fully aware of the types of jobs available and accompanying details. At the same time, employers are not fully informed of the type of labour which is available as well.
To deal with frictional
unemployment, government can consider using interventionist supply-side
policies to resolve it. Singapore’s government can provide more information on
labour market by spreading information through job agencies, mass media such as
newspaper, radio or even social media like twitter and facebook. This will
enable unemployed workers to be matched to job vacancies more quickly and reduce
frictional unemployment. In Singapore, MOM as well as Community Development
Councils (CDCs) provide job matching services. Job fairs and local job banks
are available to help workers to jobs available. Job advertisements are also
available in the various local newspapers such as Straits Times.
However, the problem of time lag is especially critical for supply side policies because of the long term span of the projects. For example, it will take time for job agencies to match workers to the suitable employers and workers may also take time to sieve through the information provided.
Government do not need to worry the costs of financing in the short run as we enjoy budget surplus which could cover the cost of financing these policies.
Reading Sources:
https://sg.news.yahoo.com/blogs/singaporescene/singapore-gov-t-tighten-foreign-worker-quota-081803198.html
http://www.mom.gov.sg/foreign-manpower/foreign-worker-levies/Pages/levies-quotas-for-hiring-foreign-workers.aspx
http://investvine.com/singapore-puts-infrastructure-projects-on-hold-to-reduce-foreign-worker-influx/
http://investvine.com/singapore-puts-infrastructure-projects-on-hold-to-reduce-foreign-worker-influx/
http://news.asiaone.com/news/singapore/beware-job-skill-mismatch-swee-say?page=0%2C0#sthash.vaztfXzZ.dpuf
