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L Does Singapore need foreignworkers and immigrants foreconomic growth?

THE short answer is yes.This has been true for most of

Singapore’s recent history be-cause of its limited local popula-tion and a declining fertility rate.

Traditional economic growththeory explains that the more fac-tors of labour and capital are add-ed, the faster the economy ex-pands. The efficiency of labour isdetermined by its productivity.The higher the productivity, thefaster the growth.

By adding foreign workers tothe local labour force, Singapore’seconomy can grow even fasterthan its potential might have al-lowed – likened by some to ster-oids that enhance performance.

Singapore has used levies andquotas to manage the foreignworker inflow, while making surethe economy did not overheat.

For most of its history, this hasworked.

But in the last 10 years, theforeign workforce has increasedmuch faster than anticipated.

The foreign labour force ex-panded from 605,000 in 2003 to1.19 million people at the end oflast year.

The Government has explainedthat it allowed more foreign work-ers to enter Singapore to ride on astrong wave of growth after itseconomy suffered a period ofweak growth at the century’sstart.

In 2000, the dot.com bubbleburst in the United States, andnot too long after, the Sars crisisfollowed in 2003. The economystabilised and grew after that.

Prime Minister Lee HsienLoong explained in 2006: “Whenthe conditions are good and thesun is shining, we should go for it,as fast as we can, as much as wecan.”

But there are drawbacks tousing large numbers of foreignworkers to drive growth.

The first is that there is less in-centive to raise productivity, espe-cially in sectors where large num-bers of foreign workers are al-lowed such as in construction.

Productivity growth aver-aged 1.7 per cent a year overthe past decade, fallingfrom an average of 2.5 percent between 1995 and2000.

It creates a vicious cir-cle: Cheap foreign workersdepress wages for somejobs, fewer locals are will-ing to do the work, andcompanies are forced to de-pend on foreigners.

A second effect is thatwages at the bottom havestagnated.

The median monthlyhousehold income grew1.8 per cent in real terms– after inflation is accounted for– each year from 2001 to 2010.

But the monthly household in-comes of the poorest fifth grew on-ly 0.8 per cent in real terms overthe same period.

A third effect is rising incomeinequality. As wages at the bot-tom fall, wages at the top arepushed up by the very top earnerswho include locals, as well as for-eigners and immigrants. Result: awidening income gulf in between.

The top fifth of employedhouseholds earned 12.9 times thatof the bottom fifth last year.

The rapid influx of foreignersin the last decade has also led tounhappiness over crowded trans-port and public spaces, clashesover the location of foreign work-er dormitories, and strong de-mand for housing driving pricesto record highs.

This has sparked debate onwhether Singapore should go forslower growth so it does not needso many foreign workers.

Tweaking numbers

THE prevailing thought has beento pursue productivity, and to re-duce the reliance on foreign la-bour.

The Government has acted toslow the inflow of foreigners, toraise wages at the bottom and toboost productivity.

By July next year, the levies forforeign workers are set to increaseto between $300 and $600 forthose in construction and ser-vices, and $250 to $550 for thosein the manufacturing sector.

Dependency ratio ceilings,which determine how many for-eigners a company can employ forevery Singaporean, have also beenreduced across the board.

At the higher income end,S-Pass and employment pass crite-ria have been raised, making ittougher for companies to bring inforeign professionals.

Permanent residency and citi-zenship are also being given out insmaller numbers than before.

The Government has acted onthe social aspects as well.

It has recently raised the in-come requirements for foreignerswho want to sponsor their familymembers to live in Singapore.

But is it too much, too soon?Or not enough?

Some foreigners are growingwary of Singapore turning “an-ti-foreigner”, despitewanting to remainopen.

Singaporefirms have beenin a tizzyover thetighten-ing ofthetap,with

many small and medium-sizefirms warning that the costlier lev-ies and difficulty in finding Singa-porean workers may force them toshut down.

During the restructuring,economists say unemploymentwill probably rise.

And PM Lee has said: “Becauseit’s not as if you send away all theforeign workers or keep out all theforeign workers, then we live inparadise. There is a price, and it’squite a high price to pay. As wetry to manage the population inSingapore, we are going to also ac-cept a lower growth rate.”

With fewer foreign workers, la-bour inputs are reduced, leadingto slower growth.

But slower economic growthcan lead to higher wages, econo-mists say, if it is driven by produc-tivity increases.

A more productive worker cando the job of more workers, andshould therefore be paid a higherwage for doing more with histime. This would help to raise wag-es at the bottom, and reduce theneed for foreign labour.

As Economic Society of Singa-pore vice-president Yeoh LamKeong has argued: “We shouldgrow at our potential where la-bour force growth is restrainedto a low rate estimated to bearound 0.5 per cent to 1 percent, that both enables incen-tivisation of productivitygrowth and does not lead toan overcrowded population.”

Based on 2 per cent to 3per cent productivitygrowth a year, and popula-tion growth of not morethan 1 per cent, Singa-pore’s optimal growth rateis around 2 per cent to 4per cent, he said. This islower than the 3 per centto 5 per cent the Govern-ment has previously esti-mated.

But raising productivi-ty is no easy feat. Busi-nesses will have tochange their attitudesafter being reliant onforeign labour.

Some employersmay hope that theGovernment will re-open the tap for

temporary relief.But there is no in-

dication it willdo so.

Singapore-ans too willhave to adjust

their life-styles with

fewer foreign workers.They will have to take

up jobs now filled by largenumbers of foreign work-ers, such as constructionworkers, factory machine

operators or wait staff.But they will demand high-

er salaries. Will companies be pre-pared to pay more for these ser-vices?

And if they do, the price ofgoods and services will surelyrise. How will Singaporeans ad-just and adapt?

And at the top end of the skillsspectrum, other countries arecompeting for the same pool offoreigners that Singapore may re-linquish.

Australia recently tweaked itsimmigration policy to boost theeconomy and woo workers to jobsshunned by its citizens. A newvisa category is being created togive permanent residency towealthy migrants who invest atleast A$5 million (S$6.5 million) inthe country.

Singapore is feeling the stress-es and strains of a decade ofgrowth assisted by the steroid of alarge pool of foreign workers.

The conversation on foreignworkers and immigration has cer-tainly changed, but Singaporeansshould be wary of the tide turningtoo much against foreigners.

Singapore does not have the lo-cal population needed to drive thefast growth of the past. Growthcan therefore come from produc-tivity, or foreign workers, or both.

Unless productivity increasesdramatically, or the birth rate ris-es sharply, Singapore will contin-ue to need foreign workers, evenif it is in smaller numbers.

chanckr@sph.com.sg

By ROBIN CHANPOLITICAL CORRESPONDENT

Think youknow it all?

This primer is the ninth instalment of a 12-partseries in the Opinion pages, in the lead-up toThe Straits Times-Ministry of EducationNational Current Affairs Quiz.

PRIMER

Foreigners still needed for growth

WHAT DRIVES GROWTH?

ST GRAPHICS

1,200

1,000

800

600

400

200

02001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

GDP (% Growth)Foreigners in labour force ('000)

A liberal foreign worker policy has helped spur economicgrowth, but also caused strains in the economy

Source: MINISTRY OF MANPOWER

-3

0

3

6

9

12

15

4.9%

1,157,000 foreign workers 1,157,000 foreign workers

Financial crisis

A30 OOPPIINNIIOONN F R I D A Y , J U L Y 2 0 , 2 0 1 2