Singapore to slow down hiring of foreign workers

February 23, 2010
Singapore Democrats

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AFP

Singapore said Monday it will raise levies to curb the hiring of foreign workers, amid growing unease among locals over the influx of guest workers and immigrants in recent years.

The phased-in increase from July 1 is aimed at reducing dependence on foreign workers, who already comprise almost a third of the city-state’s total workforce, Finance Minister Tharman Shanmugaratnam said.

“We should moderate the growth of the foreign workforce and avoid a continuous increase in its proportion of the total workforce,” he said in presenting the 2010 fiscal year budget in parliament.

“There are social and physical limits to how many more (foreign workers) we can absorb.”

But instead of imposing quotas, Shanmugaratnam said the government will raise the levies paid by companies for every worker they hire.

“This allows the foreign workforce to fluctuate across the economic cycle and enables employers who are doing well and need more foreign workers to continue to hire them rather than be constrained by fixed quotas.”

He said the rise in the levies will be phased-in over the next three years.

The government will allot 5.5 billion Singapore dollars (3.9 billion US) in the next five years to help upgrade the skills of local workers to boost their productivity, resulting in higher salaries.

The move to slow the influx of guest workers follows a recent public backlash over Singapore’s open-door policy, with locals complaining that they were having to compete for jobs, housing, medical care and other needs.

Foreign workers have also been blamed for soaring property prices.

Singapore had earlier taken steps to sharpen the distinction between locals and permanent residents in a bid to placate criticism that immigrants were getting almost the same benefits.

Singapore’s first Prime Minister Lee Kuan Yew recently warned against reducing the number of foreign workers drastically, warning of “low growth, maybe even zero growth” for Singapore as a result.

However, analysts said the move to raise the levy will affect labour-intensive sectors but will ultimately benefit the economy.

“In the short term, it will be more expensive for labour-intensive businesses… like construction,” said Ho Woei Chen, an economist with United Overseas Bank.

“But in the long-term, it will push the economy towards higher productivity business activities,” she told AFP.

Much of Singapore’s growth over the past decade took place between 2004 and 2007 when gross domestic product grew an average 8.0 percent a year.

The workforce surged 5.0 percent annually during those four years, with foreigners accounting for about half of that growth, said Shanmugaratnam.

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Singapore moves to curtail immigration
Patrick Barta & P.R. Venkat
The Wall Street Journal

Singapore announced new steps to curb immigration as it tries to defuse one of its most contentious emerging political issues.

The rich Southeast Asian city-state has for years admitted large numbers of foreign workers to boost its population and to stay competitive with China and other countries with deeper pools of cheap labor. But Singaporean citizens are increasingly dissatisfied with the policy, which they say causes overcrowding and depresses local wages. Economists believe an over-reliance on foreign workers also is keeping productivity levels down, jeopardizing Singapore’s future growth.

Responding to those concerns, the government said in its annual budget Monday that it will raise levies on foreign workers in phases, starting in July. By 2012, employers will be expected to pay an increase of about S$100 (US$71) in per-worker levies in the manufacturing and services sectors, while charges for construction workers could be higher. The government also will introduce some additional changes resulting in higher levies.

Although relatively small in absolute terms, analysts say such costs are high enough to discourage some employers from hiring low-skilled workers from overseas, especially companies with big work forces in manufacturing and other industries, where profit margins are razor thin.

It’s unclear, though, whether the steps will placate citizens who feel the government hasn’t done enough to keep Singapore’s foreign-born population from growing too rapidly. Between 2005 and 2009, Singapore’s population surged by roughly 150,000 people a year to five million—among their fastest rates ever—with 75% or more of the increase due to foreigners.

Opposition leaders, including those in a new Reform Party created in 2008, have increasingly used the immigration issue to criticize the government, and may be getting some traction, analysts say. Historically, Singapore’s opposition parties have had limited growth, in large part because of the government’s ability to deliver solid economic growth and rising standards of living.

Given popular dissatisfaction over the issue, the government needs “to look like they’re doing something” on immigration, says Tim Condon, an economist at ING in Singapore.

The government has signaled for some time that it is willing to limit immigration, but it is unclear how far it would be willing to go. Singapore already has an exceptionally low unemployment rate of 2.1%, so any move to restrict labor flows is likely to be unpopular among companies that need more workers. Singaporean officials have argued that the higher costs will ultimately force companies to become more efficient instead of counting on cheap employees.

Monday’s announcement came on the heels of a government move Friday to curb rising property prices, another source of unease among Singaporean citizens. Aside from tightening rules for home-loan borrowers, the government introduced a seller’s stamp duty on all residential properties and residential land bought and sold within a year.

The Singaporean budget otherwise was notable for avoiding big hand-outs and stimulus such as loan guarantees or credit support to companies, focusing instead on long-term targets, including improving productivity by 2% to 3% a year over the next decade, compared with the 1% rate of the past decade.

In January 2009, Singapore announced a S$20.5 billion stimulus package to keep the export-dependent economy from falling deep into recession. The economy contracted 2% last year, much less than the 9% contraction the government initially estimated when it presented the stimulus.

“Budget 2010, therefore, looks beyond the immediate rebound in the economy,” Finance Minister Tharman Shanmugaratnam said. “It focuses on building up the capabilities we need for a phase shift in our economy over the next decade, with growth being based on the quality of our efforts rather than the ever-expanding use of manpower and other resources.”

He said the government will give tax benefits to companies that invest in skills and innovation, and will invest S$5.5 billion over the next five years to raise worker productivity.The budget deficit for the year beginning April 1 is estimated to be about S$3 billion, Mr. Tharman told Parliament in his fiscal 2010 budget speech.

http://online.wsj.com/article/SB10001424052748703494404575081302941575436.html?mod=WSJ_latestheadlines