Singapore’s high dependence on foreign labor begs an alternative model of growth

Deborah Lee Proaño

In a televised speech on the eve of Singapore’s National Day in 2013, Prime Minister Lee Hsien Loong said “We face difficult choices: We need foreign workers to serve our economy and Singaporeans’ needs, and immigrants to make up for our shortfall of babies.”

Singapore’s GDP growth has depended more on input than productivity increases, as reflected in the high dependence on foreign low-wage labor. This phenomenon is evident in blue-collar jobs in Singapore, especially in three main industries: domestic services, F&B and construction. These sectors rely almost exclusively on imported low-wage labor.

It's about wages

Mr Lee's statement begs some important questions: do we really need foreign workers to serve our economy and our needs? Why can’t Singaporeans serve our own economy in these sectors and meet our own needs?

The short answer is that the wages of blue-collar jobs in Singapore are unsustainably low, such that Singaporeans working in these job sectors would not be able to support a decent standard of living in Singapore. In an economy where the labor supply is closed, wages would rise to a point where supply would meet the demand for workers. Singaporeans would be willing to work in these jobs because of the higher pay. Businesses would hire fewer workers but focus on staff retraining and capital investment to sustain high productivity.

However, this natural progression has been stymied by Singapore’s labor policies that allow businesses to import low-wage and low-skilled labor from neighboring developing countries. The abundant supply of low-wage labor suppresses wages in these industries and has had the inadvertent effect of discouraging GDP growth from productivity increases: businesses rely on greater inputs from low-wage labor to increase output instead of increasing productivity.

Meanwhile Singaporeans have been pushed out of blue-collar jobs by temporary lower-cost foreign workers who will put up a much lower standard of living in the short-term so as to eventually purchase a better way of life in their home-countries where the costs of living are much lower.

While businesses in these sectors profit from the ample supply of low-wage imported labor, the costs of the economic inefficiencies of high-input, labor intensive growth are passed on to Singaporeans: adding more people to land-scarce Singapore inevitably raises the cost of residential housing, commercial rents and creates congestion in transportation and over-crowding in public spaces.

Singapore’s rapidly rising housing costs effectively prices property out of the reach of many middle-class and younger workers, while transferring wealth to a small percentage of older and wealthier Singaporeans. The rise in housing prices compounds the problem of population replacement: young couples are reluctant to reproduce due to the high-cost of living. While Singapore has become a playground for the wealthy, many ordinary Singaporeans with modest incomes increasingly feel crowded out by foreigners and alienated in their own country.

The problem does not lie with foreign workers or with Singaporeans, but rather with labor policies in Singapore that predisposes Singapore towards a model of low-wage, high-input growth instead of a high-wage, high-productivity growth model. While it is easier to implement, this model of growth is unsustainable in the long run because of the strain it puts on Singapore’s limited land resources and the ever-widening cultural and socio-economic divisions it creates.

Many affluent economies such as that of Norway, Switzerland, Japan and the United States, have achieved GDP growth through higher productivity instead of higher inputs. This dispels the notion that low-wage labor is necessary to sustain growth.

Limiting the supply of low-wage foreign labor in these countries have encouraged businesses to invest in upgrading the skills of workers and in substituting capital for labor. For example in the US, the construction industry is a high-wage, high-skill and capital-intensive industry that employs mostly unionized native workers.

Similarly, in the F&B industry, many restaurant workers are seasoned professionals pursuing a full-time, long-term career. Customary tipping and a minimum wage incentivize restaurant servers to provide a high level of service that encompass conversation skills, customer relations and knowledge of the menu. In the domestic service industry, domestic workers are often professional self-employed workers serving multiple clients for domestic services at hourly rates many times the minimum wage.

Counting the benefits

Limiting the supply of foreign labor in all of these sectors will have three main beneficial results. Firstly, the wages in these jobs will rise and these jobs will go to Singaporeans.

Secondly, Singaporeans will no longer have to subsidize the economic inefficiencies of a low-wage model of economic growth. Instead, higher wages will encourage businesses to innovate, invest in capital and upgrade the skill-set of their employees. Those businesses that cannot survive on this model will need shut down or relocate to other countries thus freeing up resources such as land and labor to those that can. A lower population will mean lower residential costs and less over-crowding in public infrastructure and spaces.

Thirdly, the standard of service in all of these sectors will also improve as companies focus on upgrading the skills of their employees so as to achieve higher productivity per worker. The people working in these sectors would be paid higher wages resulting in a mindset shift towards blue-collar jobs: instead of viewing these jobs as being of that of a “low-status”, people will take pride in their work and see it as viable career opportunities that can support a decent standard of living in Singapore.

The productivity question

Higher wages with higher productivity and lower rent do not necessarily mean higher costs, but even if costs increase, the multiplier impact of consumers local spending will be greater as the higher costs accrue to other Singaporeans’ higher income, most of which is spent in Singapore. This is far better than the current situation, where most of the money earned by foreign workers is remitted back to their home-countries.

As Singapore’s growth model has been reliant on low-wage labor for decades, it is clear that this change needs to happen gradually; policies need to be created that eventually phase out the dependence on foreign labor and which incrementally reintegrate Singaporeans into these job sectors.

This could include investment incentives tied to the hiring and training of Singaporeans, and awarding work permits and employment passes only if it is ascertained that there are no qualified Singaporeans for the jobs – standard practice in US and many other parts of the developed world.

If Singapore is to truly live up to its status as a developed country, Singapore’s policy makers need to turn away from the unsustainable model of high-input growth leveraged by importing low-wage labor. Instead, labor policies should focus on high-productivity growth underpinned by a high-waged and highly skilled domestic labor-workforce. Making these changes will require significant adjustments in business practices and in the lifestyles of Singaporeans’, it will not be easy to implement and execute, and will upset many people initially, but it will be rewarding and more importantly, sustainable in the long-term.

References

Lim, Linda. How Land and People Fit Together in Singapore’s Economy, Hard-Choices: Challenging the Singapore Consensus Ed. Donald Low and Sudhir Thomas Vadaketh. Singapore: NUS Press, 2014. (Ch. 2) Kindle file.

Lee, Hsien Loong. Prime Minister Lee Hsien Loong's National Day Message 2013. Prime Ministers Office Singapore. Web. 31 Oct. 2014.

Chu, Han Wong. The Strike That Rattled Singapore: A WSJ Investigation. The Wall Street Journal Southeast Asia. Wall Street Journal, 26 Aug. 2013. Web. 31 Oct. 2014.

Tan, Jeanette. S'pore Must End Over-reliance on Foreign Workers 'sooner or later': AWARE Director. Yahoo News Singapore, 30 Dec. 2012. Web. 31 Oct. 2014.


Deborah Lee Proaño is a singer-songwriter and film-music composer from Singapore. She did her Master’s by Research in Southeast Asian Studies at the National University of Singapore and studied film-music composition at UCLA-Extension. She currently resides in Los Angeles. She contributed this article to the SDP.

Perspective Tuesday, 11 November 2014 speakup2 Print

LEAVE A COMMENT