The Malaysian Insider

SINGAPORE, Nov 30 — The declining productivity of Singapore’s workers is likely to be a key issue tackled by the Economic Strategies Committee (ESC) when it releases its recommendations in January.

This is a problem the government-led panel — set up to find new ways for Singapore to grow over the medium term — should address, say economists.

Over the last few years, Singapore’s rapid growth has been mostly driven by a massive increase in the workforce, said Citigroup economist Kit Wei Zheng.

But it is clear that growth powered by importing foreign labour is simply not sustainable, he said.

Between 2006 and last year, the number of workers in Singapore jumped an average 6.5per cent a year, largely due to liberal immigration policies, said Kit.

By last year, foreigners accounted for a third of the three-million-strong labour force, up from only a quarter in 2004.Singapore’s economy boomed correspondingly with average growth of 8.2per cent a year between 2004 and 2007.

But while sheer numbers have fuelled growth, the actual productivity of each individual worker has fallen.

According to the first-ever Singapore Competitiveness Report produced last week by the Asia Competitiveness Institute, Singapore’s labour productivity — measured in terms of total output per employee — lags that of developed countries including the United States, France and Norway, as well as Asian neighbours Hong Kong and Taiwan.

The report also found that productivity here is falling in the sectors of manufacturing, construction, hotels and restaurants, business services and wholesale and retail trade — which, taken together, employ two-thirds of the workforce and make up 60per cent of the economy.

In manufacturing and hotels and restaurants in particular, productivity has been on the decline since 2006, said the report. This is about the same time foreign workers started entering Singapore in larger numbers.

For any economy, labour is a key ingredient in creating output and powering growth. To raise output through labour, an economy can either keep increasing the number of workers — which is not viable in the long term — or raise the amount of output from each worker.

More productive workers improve an economy’s competitiveness.

But improving productivity may involve tweaks to Singapore’s foreign worker immigration policy, say economists.

“One reason for the lower productivity may be the large influx of foreign workers in recent years,’“said an economist who declined to be named.

“With more workers available, each worker doesn’t have to work as hard.”

There have been hints that immigration policy may be tightened, said Kit.

He noted that in September, Prime Minister Lee Hsien Loong said the rapid influx of foreign workers would start to slow. Recently, the Ministry of Manpower tripled the minimum medical insurance for S-Pass and work permit holders, effectively raising the cost of hiring foreign workers.

“Gradually switching off the tap on low-wage foreign labour would force employers to come up with measures that enhance productivity,” he said.

But employers are likely to resist any tightening of foreign labour supply, given their frequent complaints that Singaporeans are unwilling to take on menial jobs.

In the end, the committee, chaired by Finance Minister Tharman Shanmugaratnam, may not be able to make much headway on the issue of productivity, said UOB economist Jimmy Koh.

“This is a question that should be debated, but I’m not sure there will be any concrete outcome from the ESC,” he said.

“National productivity is certainly something to watch, but on a corporate level companies are more likely to be concerned with unit labour costs than with productivity.”

An area the committee may focus more on instead is providing more social support for lower-income groups, Koh said.

Low-wage foreign workers have contributed to the widening of the income gap as they are more willing than local workers to accept less pay for lower-skilled jobs, said DBS economist Irvin Seah. He said some Singapore workers are struggling to keep pace as the economy develops and are in danger of losing their jobs. — The Straits Times