In a blogpost on 30 September, Acting Manpower Minister Tan Chuan-jin laid out some numbers to show that the growth in the foreign workforce is moderating. At the same time, he discussed the difficult balance that has to be struck between business anxieties about labour shortage and popular frustration over too many foreigners in Singapore.
Popular frustration takes three forms: (a) job competition, (b) crowding and infrastructure overload, and (c) cultural destabilisation. Different people would give a different weightage to these concerns. For this discussion however, I am going to focus on job competition alone.
While his figures might show a recent effort to slow down the rate of increase in the intake of foreign workers especially at the Employment Pass level, the five-year figures give us a better picture of what happened previously. Other figures that I have located for this essay suggest that productivity improvements — a matter Tan touched on in the blogpost too — remain elusive. Yet, important political issues like closing the income gap and keeping a check on the need for foreign labour hinge on productivity improvements, at least as far as the government’s dogma goes. Without achieving such improvements, when will we ever close the income gap?
The five-year picture
The minister provided a table of numbers, which though limited in scope is perhaps more information than his ministry has ever provided. This tells us how opaque the government has been previously. I have recast the numbers he provided in the table below. The figures for “Other Work Permit” and “Work Permit Subtotal” were not given in Tan’s blogpost, but were derived by me from his totals.
Employment Pass holders, which under current rules would mean those earning (this figure now corrected) $3,000 or more a month, grew 76 percent between December 2007 and June 2012.
S Pass holders — those earning $2,000 to $3,000 a month under current rules — grew 188 percent in the same period. There are nearly three times as many S Pass holders today as there were about five years ago.
Work Permit holders — those earning below $2,000 monthly — grew 23 percent.
The different rates of increase tell us why the issue exploded in the last few years. During the last five years, the numbers of foreigners grew most strongly in the same middle- and high-income job categories where Singaporeans aspire to be. Perceived job competition intensified.
Yet, if I present the absolute numbers graphically, a different picture emerges:
In terms of population numbers, low-wage foreign workers far outnumber the Employment Pass and S Pass holders. It also suggests that low-skill Singaporeans have suffered from job competition from foreigners far longer than the middle- and high-income ones, probably since the 1990s. Yet job competition didn’t become a political issue until lately when the better-off Singaporeans began to feel the heat. This tells us something about the lack of political voice of low-income Singaporeans.
Separately, we can also infer that complaints about crowding and infrastructure overload are rooted the far larger numbers of Work Permit holders, not the other two categories.
Despite the explosive growth in the numbers of Employment Pass and S Pass holders in the last five years in percentage terms, their absolute numbers are not particularly large. My gutfeel is that most international cities such as Hong Kong, Sydney, London or New York, would have similar proportions of skilled and professional foreigners.
It may be argued that the graph understates the job competition for middle- and higher-income categories. Foreign competition does not only come from holders of Employment and S Passes. Many foreigners have also been given Permanent Residency status over the last few years, so the numbers in the table and graph above understate the real growth.
There may be some merit in that argument. There was an increase of 83,900 Permanent Residents over the same five-year period. See the table above (2007: 449,200 PRs; whereas in 2012: 533,100 PRs). However, we should also bear in mind that some Permanent Residents are dependents, and are not in the labour force.
Consider the unemployment rate
That Singapore continues to have a low unemployment rate for citizens and Permanent Residents tells us that if there is competition from foreigners from jobs, it is not so severe as to throw Singaporeans out of work. It is much more consistent with the argument that foreigners are needed because job vacancies remain unfilled.
Much harder to ignore is the argument that salaries have been depressed by the open door policy. Here I am much more skeptical about the government’s productivity mantra as a cure for this. I think they’re putting the cart before the horse.
The government is basically saying that wage rises should follow productivity increases. This is not how the real world works. Necessity being the mother of invention, job retooling that effect productivity improvements follows the pain of rising wages. Wages largely reflect the demand and supply of labour, and this is true of both unskilled as well as skilled workers. Productivity improvements are triggered when wages have risen to a level that makes investments in automation and process redesign cheaper than paying workers to do things the old way, or when workers simply can’t be found. Automation and process redesign is very hard to do and very demanding of management attention. Employers would put off doing this unless it gets really painful to avoid it any longer.
Tan Chuan-jin wrote in his blogpost:
Our tightening has certainly had an impact and is being felt by companies, but businesses are still expanding or being set up. This demand for foreign manpower is very considerable and many businesses remain prepared to pay the higher costs involved.
– Tan Chuan-jin on Manpower blog, 30 Sep 2012, Manpower realities: Beyond the numbers. Link.
If many businesses remain prepared to pay the higher costs involved, it means that costs are not high enough to push them to automate.
Thus, there is much merit to the shock therapy that Lim Chong Yah recently proposed. He said we should mandate minimum wage rises over several years to spur employers to invest in productivity improvements.
Flat productivity growth
The measure that economists use for productivity is called Total Factor Productivity. The formula looks very complex and I don’t know how to calculate it.
This paragraph added 12 hours after publication: At the time of writing, I couldn’t find (through using the Search function on the Department of Statistics’ website) any information on productivity year-on-year, but reader Gard has now pointed me to Table 4.14 of the 2012 Yearbook of Statistics. Link to the Labour and Productivity Section of the Yearbook. I reproduce the relevant table at left; click on the thumbnail. It’s a little bit frustrating because it only gives percentage change year-on-year. A better appreciation of trends needs looking at it over several years, at least an economic cycle. End of added paragraph.
Instead, here is a rough and ready indicator based on easily available data. Economists may laugh at my amateurism, but I think laymen will find it relatively easy to understand, and unlike the table from the Yearbook, I show you how the figures were derived. I have also anchored the ratio comparison on the same base year of 2007. We take the labour force numbers from the Ministry of Manpower for the mid-year points of five years, and the Gross Domestic Product in 2005 dollars (i.e. inflation has been stripped out). For each labour force participant, how much GDP was generated in each of these five years?
As you can see, the ratio swings quite a lot from one year to the next, reflecting the economic cycle. But the disappointing thing is that in 2011, the average worker in Singapore produced only 1.5 percent more output compared to 2007.
The danger is that by being doctrinaire about its wrong-headed model (wage rises should follow productivity improvements), productivity improvements will either not come, or come so slowly that the income gap simply doesn’t close. Unwilling to inflict enough pain on employers to compel them to invest seriously in productivity improvements, the government may never tighten foreign inflow sufficiently. We may moderate, but never truly break the vicious cycle of high inflow leading to depressed wages leading to no incentive to improve productivity.
Closing the income gap requires a complete reworking of the social model. It requires a re-examination of how we reward different kinds of skills and labour; it requires a critique of social status and the way we value it. It necessitates a re-carving of the economic pie. I have yet to see any interest in doing that.
A major theme running through Tan Chuan-jin’s blogpost is one of being circumspect and moderate as we deal with problems, balancing various interests. Normally, being middle-of-the-road has much to recommend it. But sometimes, this gets confused with the uncourageous route known as muddling through. When problems have arisen because in the past an extreme neo-capitalist position had been taken, then we should ask whether, to properly correct the ills that have arisen, we need to be a bit more extreme in the opposite direction, at least for while?