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Singapore's growth to stall without foreign labour

Publication Date : 26-09-2012

 

There are limits to the growth of the local workforce in Singapore, and this will in turn hold back economic growth for the country unless foreign workers continue to be allowed in, the Ministry of Trade and Industry (MTI) has warned.

Its occasional paper, released yesterday, follows the National Population and Talent Division's July paper on population issues.

"What we're trying to do in this occasional paper is focus on the trade-off, or the relationship between population and economy," Minister for Trade and Industry Lim Hng Kiang told reporters ahead of the release yesterday.

According to the MTI paper, the local workforce will start to shrink in eight years, or 2020. This is because the number of working-age Singaporeans exiting the workforce will exceed those entering it.

One way to solve the problem is to get more locals to enter the workforce. A rise of one percentage point in the resident labour force participation rate - which is the proportion of working-age locals in jobs or looking for jobs - would add 30,000 workers.

But this cannot go on indefinitely, said MTI. Of local working-age men, for example, 92.1 per cent are already in the workforce - one of the highest participation rates in the world.

Moreover, Singapore's population is ageing, added the ministry. If not managed well, this could lead to lower innovation and productivity.

Singapore's current growth target is 3 to 5 per cent per year, of which 2 to 3 per cent is expected to come from productivity gains.

This means the local labour force must still grow 1 to 2 per cent, and attaining this with a shrinking local population means that foreigners are needed, said Lim.

He noted that Singaporeans may well say that they do not need 3 to 5 per cent growth and would settle for 1 per cent. "Well, (if) that's the outcome of the exercise, then we just have to be sure that everybody goes into it with a clear mind, that they understand the trade-offs," he added.

MTI also pointed out in its paper that the problem of how to deal with an ageing and shrinking workforce was not unique to Singapore. Germany is trying to attract skilled foreign workers and Japan is looking to relax foreign worker policy.

It set out five ways in which foreign workers are important to Singapore. These include filling the gap while locals are being trained for new and emerging industries, and doing jobs that locals do not want. MTI warned, however, that an overly liberal foreign worker policy could depress local wages, put stress on public infrastructure and leave Singaporeans feeling displaced.

DBS economist Irvin Seah said the MTI paper "lays out very clearly the ongoing debate" and Singapore's economic challenges, but did not shed much new light. With its technical expertise, MTI could have done a rigorous study and put numbers to scenarios.

National University of Singapore economist Hui Weng Tat felt the report did not quite prove that higher growth means better welfare for workers. He noted that some countries experienced the same real wage growth as Singapore, even though they had lower GDP growth.

"The correlation is not very convincing," he said.

 

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