In this featured commentary, SIIA Senior Research Fellow Chia Siow Yue and SIIA Research Intern Ng Pei Yi discuss the pressing issue of foreign labour in Singapore.
This article was originally featured in TODAY (Singapore) newspaper on 24 Oct 2011.
Foreign workers are a controversial yet essential factor in the Singapore economy. The recent General Election revealed resentment among voters over the perceived crowding-out of public spaces and services by foreigners. From a reverse perspective, there has been long-standing criticism that Singapore must do more to protect foreign workers from mistreatment.
The Government has given numerous assurances to Singaporeans that the influx of foreigners will be increasingly controlled and limited. Most recently, the Ministry of Manpower's Addendum to the President's Parliamentary Address affirmed this.
Businesses report that work permits are harder to obtain and anecdotes suggest that getting permanent residence too has become more difficult. On the supply side, there are clear signs that the traditional labour-sending countries are tightening up flows. Many other labour-receiving cities seek to attract both higher- and lower-skilled workers.
In view of both national concerns and trends from abroad, Singapore's foreign worker policies may need a relook. What would be the economic consequences? Will Singapore remain an open society that welcomes foreigners?
Amid the controversies, some realities need to be reinforced. The possible answers relate not simply to the number but also to the pace, productivity and protection of foreign workers.
An ongoing study, supported by the International Development Research Centre, found that in the last decade, particularly from 2006 to 2009, the country's non-resident labour force rose very sharply with a double-digit annual percentage growth. The high point was 21.5 per cent.
The provision of public amenities in transport and housing did not keep pace. It was this real gap in amenities that unsettled many Singaporeans, rather than a mental xenophobia. The Government's response has correctly been to speed up the upgrading of those amenities.
Another promise made by Manpower Minister Tharman Shanmugaratnam was to cap the overall share of foreigners in the workforce at no higher than one-third over the long term. This may have been a political necessity in view of voter sentiment. Keeping that promise may, however, prove more difficult as this could have a negative impact on the overall economy as well as businesses that rely most on foreign workers.
Economic growth requires higher inputs of factors of production, of which labour is a key component. The Singapore workforce is constrained in terms of numbers, especially among the young. Among older Singaporeans, their low level of formal education is a huge constraint. The reality is that Singapore needs foreign workers.
This brings about a second critical question, not of numbers but of the skill, value and productivity of foreign workers. Currently, only 20 per cent of foreign labour in Singapore is in higher-skilled, better-paid jobs. Most are in jobs that are low-skilled and lowly paid, doing the dirty, dangerous and demeaning jobs ("3D" jobs) that most Singaporeans shun.
The challenge of productivity is not an issue that applies solely to Singaporeans. Given that our economy needs foreigners but our society wants to limit their number, the productivity of foreign workers must be addressed.
The Economic Strategies Committee report has recognised the need for higher productivity as a measure to reduce reliance on foreign labour. A key policy instrument that the Government has deployed is the increase in foreign worker levies. The intention is to push employers to get their existing local staff to work efficiently, upgrade their skills and to rely more on technology and innovation. This is the right goal, but there can be unintended ramifications when applied across the board.
Companies need to watch their wage bills especially given inflation and reduced global economic prospects ahead. Consequently, when levies increase, a common response is to decrease the pay offered to foreign workers. Lower wages, however, can lead to a failure to attract better-qualified foreign workers, and result in a negative cycle.
Conversely, if foreign workers can be made more productive, then the quantity can be eased. As such, if the political imperative is to have fewer foreign workers, this should be in tandem with efforts to help foreign workers to be better-skilled and more productive. A simple step forward could be to extend the current skills-upgrading programmes to also include foreign workers.
This is seldom considered today because foreign workers are viewed primarily as cheaper economic stop-gaps. A more inclusionary approach has to be taken. Singapore must recognise that foreign workers are legitimate stakeholders to begin to address their productivity and attract the higher-skilled. This will aid in driving the redesign of 3D jobs.
This is timely given that the available foreign supply of low-skilled labour from Asia is very likely to shrink as these labour-surplus countries are undergoing demographic transitions. Focusing on increasing productivity can also trigger measures that better value and protect these workers.
At present, discussion about foreign workers is circumscribed by sentiment and centres on issues of quantity - what is too much and which sectors will get them. Looking at the pace at which foreign labour is introduced as well as their productivity and protection can take us beyond a numbers game. Singaporeans need to move beyond denying their need for foreign workers and instead begin to figure out how best to manage them and ensure they can create value for the economy.