Feb 22, 2013
PERSPECTIVE ON POPULATION DEBATE
Reducing Singapore’s dependence on foreigners won’t affect living standards if productivity and wages rise.
By Linda Lim For The Straits Times
THE current debate about Singapore’s population policy seems to assume that fewer foreign workers and lower immigration levels will hurt economic growth and businesses – and thus Singaporeans as well.
Other affluent economies with low fertility, ageing demographics and small populations have managed to achieve continued if modest improvements in living standards without importing large numbers of foreign labour and talent. There is no reason why Singapore cannot do the same, by borrowing from technological and business process innovations that are already implemented elsewhere.
Higher productivity (more output per worker) can substitute for more workers in achieving a particular gross domestic product growth rate.
Lower aggregate growth is not just inevitable for a mature economy, given diminishing marginal returns to added inputs of labour and capital. It may also be desirable, when real income (discounting for inflation) and total well-being (reduced congestion, environmental degradation, income inequality, social unease) are considered.
Locals fuel the economy
ECONOMICALLY sustainable activities that may generate lower growth but employ a higher ratio of Singaporeans will also contribute to higher wage and domestic shares of GDP (Singapore’s are currently among the lowest in the world). Simply put, a higher proportion of a given dollar of GDP will accrue to Singaporeans, so local living standards can be maintained or increased with slower growth.
Policy instruments to achieve this could include: investment incentives tied to the hiring and training of Singaporeans, and awarding work permits and employment passes only after a process ascertaining that there are no qualified Singaporeans for the jobs (standard practice in the United States).
Higher wages would encourage employers to improve productivity and attract more Singaporeans into particular jobs, giving both an incentive to invest in upgraded skills (since there will be a higher income payoff).
Businesses that cannot afford the higher wages would exit, releasing workers for those businesses that remain. A reduction in demand would alleviate any labour shortage. Fewer foreign workers would also ease pressures on the housing market and on commercial rents, so businesses may benefit from lower or more slowly rising rents even as they pay out higher wages.
Reduced foreign capital inflows to purchase property, and other investments, would mitigate asset inflation and Singdollar appreciation, thus helping to maintain cost competitiveness.
Higher wages with higher productivity together with moderating rents do not necessarily mean higher costs. But if they do, these are costs Singapore’s consumers will have to pay. As consumers are also workers, their real incomes may increase with higher salaries, lower rents and mortgage payments. If those enjoying higher wages are Singaporeans (rather than foreigners with higher savings rates and remittance outflows), the multiplier impact of their local spending will be greater – their higher costs are other Singaporeans’ higher income, most of which is spent in Singapore.
Better productivity, different mindsets
MANY high-income economies have trodden this path of increasing productivity before Singapore.
However, emulating their market-derived solutions requires mindset and values shifts among Singaporeans. Consider three sectors in Singapore that are labour-intensive, and usually considered low-wage, low-skilled and low-productivity jobs that “Singaporeans don’t want to do”.
First, the construction industry: in no other high-income country is this associated almost exclusively with foreign labour from neighbouring countries.
In the US, this is a high-wage, high-skill, capital-intensive industry employing mostly unionised native workers, with high safety standards, sophisticated equipment and processes. Construction workers earn at least twice the median national wage in the US state I live in; their hourly wage is probably three times higher.
Some Singaporeans would be willing to work in this sector if adequately compensated, while construction firms would employ them at high wages if productivity was sufficiently high.
Second is the food and beverage (F&B) industry. In even high-immigrant big cities and on the coasts of the US, most restaurant workers are Americans. They include students or mature individuals (mothers, retirees) working part-time for extra income or social interaction, as well as seasoned professionals for whom this is a full-time, long-term career. Skills in conversing, understanding customers, knowledge of the menu and wine list are required and rewarded, with tips that average 20 per cent of the bill and can be much higher. There is a strong monetary incentive to develop skills and even a personal brand, and aspiring job candidates often queue up for months and even bid (pay) for the privilege of waiting tables at expensive restaurants. In the kitchen, much food preparation has been automated and outsourced to specialist food services such as Sysco.
In Singapore, the use of temporary foreign workers and the standardised service charge has kept wages and upward mobility low, thus discouraging the participation of Singaporeans in this sector.
Third is the domestic service industry of household help, care for children, the elderly and disabled.
This is a heterogeneous sector, but nowhere in the rich world is the dominant mode of operation that of the individual maid bound to a single individual or household. Rather, professional services of house maintenance, cleaning, food preparation and delivery, child and elder care and transport are the norm, compensated at hourly rates many times the minimum wage. Many self-employed workers in this sector simultaneously serve multiple clients, some for many years at a stretch or to work part-time, while private enterprises employing such workers provide a range of customised services.
Many offering child and elder-care services are personally dedicated to helping others, or are training for careers in teaching or nursing. Foreign workers in both this sector and F&B are usually new long-term immigrants, not temporary guest workers, so integration into the majority society is only a matter of time.
Improving wages, status
IN ALL three sectors, much higher wages would both attract more workers and encourage investments in higher productivity methods.
But there is also a mindset shift required, which is the social status and value collectively ascribed to such occupations.
In the US, social barriers are highly permeable and there is respect for hard work, enterprise and professionalism even in “blue collar” or manual service occupations, helped by the fact that they may pay better than many “white collar” jobs.
A social egalitarian ethic in Europe, and national group solidarity in Japan, both regions with limited income inequality, fulfil the same role. More money alone cannot compensate for lack of respect, which in Singapore is inordinately directed by and towards those with academically based credentials and professional achievement.
This analysis could be extended to many other occupations, such as highly compensated “skilled trades”, and personal services (such as the beauty and wellness industry), which are particularly attractive to self-employed entrepreneurs.
Many solutions are possible but businesses will be motivated to innovate only if the easy alternative of importing low-skilled, low-wage foreign labour is restricted. Innovations could be accelerated by temporary public subsidies that would not cost more than the investments in the housing and transport infrastructure required to accommodate a larger population.
Slower growth, stronger nation
THE situation at the higher end of the labour market is more complex, given the global or regional role many companies fulfil from their Singapore base and the geographically mobile talent that they may require.
Employment passes should be flexibly awarded according to the need and value to the nation of a particular company. Businesses should professionalise human resource practices to maximise recruitment of Singaporeans, for example through school or university partnerships and campus recruitment efforts.
The bottom line is that Singapore can survive economically, even prosper, without further large increases in foreign labour and immigration. A reduction in both will also deliver compensating benefits, such as lower housing costs, higher domestic consumption, lower income inequality and a less congested, more environmentally friendly city whose residents may even be willing to have more children.
Businesses and people can adjust to slower labour growth as they do in other countries. The nation – which is more than its GDP – will be the stronger for it.
The writer, a Singaporean, is professor of strategy at the Stephen M. Ross School of Business at the University of Michigan in the United States.