Logos Consultancy Benjamin Tee | Marcus Leong | Seumas Yeo

FROST & SULLIVAN CASE CHALLENGE SINGAPORE 2014 – PRELIMINARY SUBMISSION

Solving the Human Conundrum in Nairu Vision 2024: Toward a resilient labor force that fuels a dynamic economy

Current State Analysis

Labor market inefficiencies are primarily responsible for NAIRU’s deepening economic stagflation

ü  Strong industrial growth and consumer demand

ü  Growing skilled labor demand ü  Strong political mandate

Deepening Economic Stagflation

Labor Market Inefficiencies

×  Poor informational efficiency ×  Free mobility of labor in EU

§  Negative real GDP growth §  High unemployment (9.7%)

RESULT IN HOWEVER

Labor Infrastructure Labor Supply Labor Demand

Systemic Imbalance

Refer to excel model for detailed assumptions and estimates used in deriving the desired outcomes (KPIs) 1.  By increasing the rate of growth of new labor supply with respect to labor demand 2.  To ensure rising standard of living assuming GDP growth is maintained at 6%

Notes:

Fac

tors

C

urre

nt

Situ

atio

n D

esire

d O

utco

me

§  Education & Retraining §  Immigration rate §  Participation rate

§  Regulation & hiring requirements §  Job & skills matching §  Automatic Stabilizers

§  Wages §  Structure of the Economy

§  Loss of local talent; 40,000 annually

§  Low female participation rate

§  Proliferation of illegal foreign workers; 800,000

§  Skills mismatch among local grads

§  Wage-push inflation; foreigners favored

§  Strong competition for labor between public & private sector

§  Reduce brain drain by 10% annually

§  Increase female participation to approx. 47.5% in 10 years

§  Zero illegal foreign workers in 5 years §  Raise graduate employability to 55%

in 3 years, 75% in 5 years §  Reduce supply-demand imbalance1,

hence unemployment

§  Maintain wage inflation of 7-8%2 §  Reduce dependency on skilled

foreign labour by 1% annually §  Balance competing demands for

labour

Optimistic Economic Conditions

2

Solution Mechanics & Justification

Vision 2024: Toward a resilient labor force that fuels the development of a dynamic 21st century economy

Enhance

Encourage Enable

•  Independent think-tank analyzing policy impacts on labor market which provides recommendations to the civil service

•  Established to analyze data on structural unemployment provided by WERC@Nairu platform

•  Self-sufficient as it will leverage on grown capabilities to embark on income-generating external consulting projects

Institute of Labor Market Studies (ILMS) Workforce Enhancement & Retraining of Capabilities (WERC@Nairu)1

•  Tripartite Agreement (Employers, Employees & Government)

•  To encourage worker retention during recession •  Creation of mandatory, individualized notional

‘working time’ accounts3 where overtime pay is deposited during non-recession years

•  Individual account is debited during recession years to keep worker employed as wages become subsidized

•  Finance ministry will manage a low-risk and liquid mutual fund sustained by account contributions; returns on investment will aid government subsidy of wages during recession

•  Excess will be allocated as pension payouts

Employment Stability Scheme (ESS)3

•  Collaboration with industry partners, universities and professional qualification bodies

•  To increase the productivity of skilled local labor by providing subsidized training for in-demand skills, in accordance with economic direction

•  Enhances employability of skilled professionals and reduces brain drain

Professional Training Scheme (PTS)

•  To increase female participation in the workforce through shared parental childcare leave

•  240 days fully paid shared parental leave for each new-born

•  Encourages shared burden of childcare which reduces opportunity cost of female participation in workforce

•  Research2 shows that paid parental leave incentivizes women to join the workforce and increases re-entry after childbirth

Women @ Work2

•  To encourage private sector to hire local undergraduates as interns through tax subsidies

•  Aims to bridge the gap between industry requirements and academic curricula

•  Increases the employability and relevance of local graduates

Graduate Employability Scheme (GES) 3E Committee

•  Chaired by Minister of Manpower •  Sets strategic direction for Vision 2024 and

reviews labor policy initiatives periodically •  Establishes and maintains relationships

with key stakeholders

•  Partnership between manpower ministry and private agency •  To establish online labor registry of local and foreign workers

to facilitate regulation of foreign workers and enhance job matching opportunities for locals

•  To establish nationwide training centers catering to retraining of unskilled local workers

Refer to excel model for detailed assumptions and policy mechanics 1.  Flagship policy proposal inspired by EURES jobs portal and Germany’s Hartz reforms (2002-2005) 2.  Modeled after Sweden and Finland’s childcare and parental welfare schemes; based on OECD research (DOI  :10.1787/1815199x)  3.  Modeled after Germany’s Hartz reforms (2002-2005); inspired by the Swedish pension system’s defined contribution framework

Notes:

Efficient Information Flow & Matching

Greater W

orkforce Participation

Loca

l Em

ploy

men

t & T

rain

ing

3E framework led by:

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Greater Workforce

Participation

Solution Framework

Vision 2024 seeks to achieve its goals via a progressive funding model and partnership with stakeholders

Policy Initiatives & Objectives

Local Workers

Foreign Workers

3E Committee

Key Industries

Professional Training Scheme

Women @ Work

Employment Stability Scheme

Graduate Employability

Scheme

WERC @ NAIRU

Institute of Labor Market

Studies

Providing an adequate supply of relevant skilled

local labor (Supply-Side )

Funding Stakeholders

Local Employment &

Training

ENCOURAGE

Market infrastructure reduces market frictions

(Market Infrastructure)

Partnership with key industries to train &

retain locals (Demand-Side )

Labor force that fuels development of a dynamic 21st century economy

Efficient Information

Flow & Matching

ENHANCE ENABLE

1. Policy initiatives will be self-sustainable due to increased tax base as a result of increased employment; refer to excel model Notes:

No required increase in

marginal tax rate1

Private Investment via Equity Ownership

Government-linked commercial

initiatives

Inter-Ministry Task Force

4

§ Acts on and manages proposed policy initiatives

§ Management of WERC@NAIRU initiative

§ Strategic direction & review of initiatives

§ Manages relationship with private agency

§ Houses the Institute of Labor Market Studies

§ Responsible for labor data collection & analysis

Institutional Framework

§ Leads Inter-ministry Taskforce

§ Supervision of 3E committee

§ Outlines labor policy objectives

§ Curriculum matching

§ Manages university network

§ Manages industry partners

§ Facilitate industry collaboration

§ Monitors public sentiment

§  Integration of foreign workers

§ Supervises ESS initiative

§  Implements tax subsidies

NAIRU Federal Government

A coordinated inter-ministerial approach toward implementation of proposed labor policy initiatives

University Network

§  Implementation & escalation of policy initiatives

§ Coordination & contact

3E Committee

Minister of Manpower

Minister for Social Affairs

Minister of Trade & Industry

Minister of Finance

Minister of Education

Inter-Ministry Task Force

Institute of Labor Market Studies WERC@Nairu

Professional Training Scheme (PTS)

Women @ Work Employment Stability

Scheme (ESS)

Graduate Employability Scheme (GES)

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Other Key Stakeholders Private Agency

Action Plan & Key Performance Indicators

Implementation timeline & guiding milestones for policy success

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Key

Per

form

ance

Indi

cato

rs

Mile

ston

es

Pro

ject

Wor

kflo

ws1

0% illegal foreign workers

Brain drain below 20,000

Foreign skilled labor force at 18% of total skilled

New labor supply growth rate of 9%

43.5% Female participation in workforce

Brain drain minimized to 11,000

47.5% female participation in workforce

New labor supply growth steady at 4%

55% graduate employability

Foreign skilled labor <15% of total skilled

Foreign unskilled labor <25% of total unskilled

WERC @ Nairu (P1)

GES (P1)

WERC @ Nairu (P2) Fully operational online infrastructure and 50% of all training centers

Industry-wide compliance with mandatory foreign labor registrations and data harnessing

Establish industry partnerships GES (P2) Extension of industry partnerships, revised university curricula

PTS (P1)

1.  Workflows arranged in order of decreasing priority. Prioritization determined by degree of short-term observable impact and 10-year Economic Value Added (EVA) Notes:

Establish partnerships with industry, universities & professional qualification bodies PTS (P2) Refine partnerships, decrease reliance on public funding for initiatives

Women @ Work (P1) Roll out of new childcare policy initiatives Women @ Work (P2) Review of childcare policy initiatives

ESS (P1) Stakeholder consultation & policy refinement ESS (P2) Rollout of policy initiatives & subsequent review

ILMS (P1) Establishing institutional framework & research facility ILMS (P2) Commencement of labor research studies & undertaking of external consulting projects

75% graduate employability

2015: Officiate industry partnerships

2016: Full adoption of WERC @Nairu online platform

2016: All Phase 1 executions completed

2019: WERC@Nairu training centers nationwide

2014: Establishment of 3E Committee

2017: Fully functional ILMS research facility

2018: Fully functional ESS system

2021: Mid-term policy review & assessment

2024: 10-Yr strategic review & planning

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Resource Requirements & Funding Mechanisms

3E framework initiatives are based on a self-sustaining and progressive labor policy model

Proposed Initiative Management

Model Source(s) of Funding Gov’t Revenue Streams1 Gov’t Revenue

Generated (€ billion)

Overall Impact on Gov’t Budget

WERC@Nairu PPP •  Government Budget •  Private Investment

•  Subscription fees (50% stake) •  Tax revenue attributed to increased

local employment 9.31 (+)

Employment Stability Scheme

PPP •  Indv. contribution to notional

account •  Government budget (buffer)

•  Tax revenue attributed to worker retention

•  Investment returns 6.61 (+)

Institute of Labor Market Studies

PPP •  Government Budget •  External consulting projects

•  External consulting projects •  Tax revenue attributed to reduced

structural unemployment 10.75 (+)

Professional Training Scheme

PPP •  Government Budget •  Tax revenue attributed to productivity

gains 2.29 (−)

Women@Work Public •  Government Budget •  Tax revenue attributed to increased

female participation 5.29 (−)

Graduate Employability Scheme

Public •  Tax subsidies •  Tax revenue attributed to increased

graduate employability 5.82 (+)

Refer to excel model of detailed breakdown of assumptions and calculations 1.  50% of proposed initiatives are partially self-sustainable due to government-linked commercial initiatives as an alternative source of funding 2.  Proposed figure is based on a 10-year time frame, at current prices. Annual equivalent is assumed to be the amortized amount over a similar period

Notes:

8% 5%

16%

69%

2%

Required Capital Input2

ILMS will require 0.03% of proposed budget

€52.8 billion  

Women@Work

Professional Training Scheme

Employment Stability Scheme

WERC@Nairu

Graduate Employability Scheme

Institute of Labor Market Studies

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Impact Assessment

Impact assessment of proposals by 3E labor policy framework

€1.27 Billion Annual Impact on

Government Budget

0.50% Contribution to Budget Deficit1

€62.3 Billion 10-year Economic

Value Added (EVA)

4.9x

Multiplier Effect

Based on Average scenario. Refer to excel model for detailed assumptions, alternative scenarios, and assessment methodology 1. Derived % reflects the scenario where there is no assumed increase in marginal tax rate

Notes:

Economic Impact of Labor Policy Initiatives

•  Annual EVA of €6.23 billion over a period of 10 years •  Structural and cyclical unemployment will fall due to reduced informational asymmetry,

incentives, and automatic stabilizers •  PTS & WERC@Nairu will increase local workforce productivity which translates into

increased standard of living through higher wages

Social Impact of Labor Policy Initiatives

•  Women@Work will reduce the opportunity cost of female participation in the workforce. Increased empowerment of women will lead to greater gender equality

•  Training programmes under PTS and WERC@Nairu will reduce the degree of income disparity resulting from skewed differentials in productivity gains

Impact on Industry & Businesses

•  WERC@Nairu will reduce employee screening costs for businesses during recruitment due to greater informational efficiency

•  ESS will help businesses better manage labour demands and normalize market cyclicality

Impact on Labor Market Function

•  ILMS will serve as an independent feedback mechanism, improving the efficacy of labour policies

•  WERC@Nairu will reduce informational asymmetry and the supply-demand imbalance •  GES will significantly improve graduate employability and better integrate graduates into the

workforce

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Risk Management Strategies

Spearheaded by the 3E Committee to ensure policy oversight and actionable outcomes

Implementation Risks

Liquidity Risks

Political Risks

Market Risks

•  Mismatch between policy goals and actual policy adoption

•  Unpredictable or poor management of initiatives

•  Clear and continual communication to facilitate compliance

•  Regular policy review and renewal in accordance with strategic direction

•  Sharing of managerial risks via PPP framework

Identified Issues

Mitigation Strategies

•  Business cyclicality negates the positive impact of proposed initiatives

•  Stress testing of labor market model •  Follow-up on policy recommendations

by independent think tank

Identified Issues

Mitigation Strategies

•  Additional strain on government budget

•  Lack of funding mechanisms for long term policy maintenance

•  Sharing of financial risks via PPP framework

•  Progressive funding model driven by government-linked commercial initiatives

Identified Issues

Mitigation Strategies

•  Political resistance when trying to escalate proposed initiatives

•  Poor or no follow through of policies in subsequent political term

•  Early-stage stakeholder consultations to garner feedback and increase policy receptiveness

•  Establish sustainable and binding partnerships that ensure industry buy-in

Identified Issues

Mitigation Strategies

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Logos Consultancy

Leong Yong Yi Marcus Singapore Management University Bachelor of Science (Economics)

Key Achievements: •  Former semi-professional cyclist •  University Scholars Programme (SMU) •  Semi-finalist, Singapore Public Policy Challenge 2013

Singapore Management University Bachelor of Science (Economics), Master of Science (Applied Finance)

Key Achievements: •  Treasurer, Team Singapura Everest 2015 •  University Scholars Programme (SMU) •  Semi-finalist, Singapore Public Policy Challenge 2013

Yeo Jian Wen Seumas

Tee Chin Min Benjamin Singapore Management University Bachelor of Business Management

Key Achievements: •  Semi-finalist Singapore Public Policy Challenge 2013 •  Arisaig Partners Foundation Award 2013 •  Ultimate Frisbee Player & Tech Enthusiast

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