The document discusses Singapore's reliance on foreign workers for economic growth and the issues that have arisen from a rapid influx of foreign labor. It notes that while foreign workers have helped spur growth, their large numbers have also lowered productivity growth, increased income inequality, and caused social strains. The government has begun tightening foreign worker policies to reduce reliance and encourage productivity, but slower growth may still result unless productivity increases significantly. The optimal strategy is debated, as Singapore still requires foreign talent but must address challenges to social cohesion.

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í Does Singapore need foreign
workers and immigrants for
economic 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 growth
theory explains that the more fac-
tors of labour and capital are add-
ed, the faster the economy ex-
pands. The efficiency of labour is
determined by its productivity.
The higher the productivity, the
faster the growth.
By adding foreign workers to
the local labour force, Singapore’s
economy can grow even faster
than its potential might have al-
lowed – likened by some to ster-
oids that enhance performance.
Singapore has used levies and
quotas to manage the foreign
worker inflow, while making sure
the economy did not overheat.
For most of its history, this has
worked.
But in the last 10 years, the
foreign workforce has increased
much faster than anticipated.
The foreign labour force ex-
panded from 605,000 in 2003 to
1.19 million people at the end of
last year.
The Government has explained
that it allowed more foreign work-
ers to enter Singapore to ride on a
strong wave of growth after its
economy suffered a period of
weak growth at the century’s
start.
In 2000, the dot.com bubble
burst in the United States, and
not too long after, the Sars crisis
followed in 2003. The economy
stabilised and grew after that.
Prime Minister Lee Hsien
Loong explained in 2006: “When
the conditions are good and the
sun is shining, we should go for it,
as fast as we can, as much as we
can.”
But there are drawbacks to
using large numbers of foreign
workers 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 over
the past decade, falling
from an average of 2.5 per
cent between 1995 and
2000.
It creates a vicious cir-
cle: Cheap foreign workers
depress wages for some
jobs, fewer locals are will-
ing to do the work, and
companies are forced to de-
pend on foreigners.
A second effect is that
wages at the bottom have
stagnated.
The median monthly
household income grew
1.8 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 over
the same period.
A third effect is rising income
inequality. As wages at the bot-
tom fall, wages at the top are
pushed up by the very top earners
who include locals, as well as for-
eigners and immigrants. Result: a
widening income gulf in between.
The top fifth of employed
households earned 12.9 times that
of the bottom fifth last year.
The rapid influx of foreigners
in the last decade has also led to
unhappiness over crowded trans-
port and public spaces, clashes
over the location of foreign work-
er dormitories, and strong de-
mand for housing driving prices
to record highs.
This has sparked debate on
whether Singapore should go for
slower growth so it does not need
so many foreign workers.
Tweaking numbers
THE prevailing thought has been
to pursue productivity, and to re-
duce the reliance on foreign la-
bour.
The Government has acted to
slow the inflow of foreigners, to
raise wages at the bottom and to
boost productivity.
By July next year, the levies for
foreign workers are set to increase
to between $300 and $600 for
those in construction and ser-
vices, and $250 to $550 for those
in the manufacturing sector.
Dependency ratio ceilings,
which determine how many for-
eigners a company can employ for
every Singaporean, have also been
reduced across the board.
At the higher income end,
S-Pass and employment pass crite-
ria have been raised, making it
tougher for companies to bring in
foreign professionals.
Permanent residency and citi-
zenship are also being given out in
smaller numbers than before.
The Government has acted on
the social aspects as well.
It has recently raised the in-
come requirements for foreigners
who want to sponsor their family
members to live in Singapore.
But is it too much, too soon?
Or not enough?
Some foreigners are growing
wary of Singapore turning “an-
ti-foreigner”, despite
wanting to remain
open.
Singapore
firms have been
in a tizzy
over the
tighten-
ing of
the
tap,
with
many small and medium-size
firms warning that the costlier lev-
ies and difficulty in finding Singa-
porean workers may force them to
shut down.
During the restructuring,
economists say unemployment
will probably rise.
And PM Lee has said: “Because
it’s not as if you send away all the
foreign workers or keep out all the
foreign workers, then we live in
paradise. There is a price, and it’s
quite a high price to pay. As we
try to manage the population in
Singapore, we are going to also ac-
cept a lower growth rate.”
With fewer foreign workers, la-
bour inputs are reduced, leading
to slower growth.
But slower economic growth
can lead to higher wages, econo-
mists say, if it is driven by produc-
tivity increases.
A more productive worker can
do the job of more workers, and
should therefore be paid a higher
wage for doing more with his
time. This would help to raise wag-
es at the bottom, and reduce the
need for foreign labour.
As Economic Society of Singa-
pore vice-president Yeoh Lam
Keong has argued: “We should
grow at our potential where la-
bour force growth is restrained
to a low rate estimated to be
around 0.5 per cent to 1 per
cent, that both enables incen-
tivisation of productivity
growth and does not lead to
an overcrowded population.”
Based on 2 per cent to 3
per cent productivity
growth a year, and popula-
tion growth of not more
than 1 per cent, Singa-
pore’s optimal growth rate
is around 2 per cent to 4
per cent, he said. This is
lower than the 3 per cent
to 5 per cent the Govern-
ment has previously esti-
mated.
But raising productivi-
ty is no easy feat. Busi-
nesses will have to
change their attitudes
after being reliant on
foreign labour.
Some employers
may hope that the
Government will re-
open the tap for
temporary relief.
But there is no in-
dication it will
do so.
Singapore-
ans too will
have to adjust
their life-
styles with
fewer foreign workers.
They will have to take
up jobs now filled by large
numbers of foreign work-
ers, such as construction
workers, 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 of
goods and services will surely
rise. How will Singaporeans ad-
just and adapt?
And at the top end of the skills
spectrum, other countries are
competing for the same pool of
foreigners that Singapore may re-
linquish.
Australia recently tweaked its
immigration policy to boost the
economy and woo workers to jobs
shunned by its citizens. A new
visa category is being created to
give permanent residency to
wealthy migrants who invest at
least A$5 million (S$6.5 million) in
the country.
Singapore is feeling the stress-
es and strains of a decade of
growth assisted by the steroid of a
large pool of foreign workers.
The conversation on foreign
workers and immigration has cer-
tainly changed, but Singaporeans
should be wary of the tide turning
too much against foreigners.
Singapore does not have the lo-
cal population needed to drive the
fast growth of the past. Growth
can therefore come from produc-
tivity, or foreign workers, or both.
Unless productivity increases
dramatically, or the birth rate ris-
es sharply, Singapore will contin-
ue to need foreign workers, even
if it is in smaller numbers.
chanckr@sph.com.sg
By ROBIN CHAN
POLITICAL CORRESPONDENT
Think you
know it all?
This primer is the ninth instalment of a 12-part
series in the Opinion pages, in the lead-up to
The Straits Times-Ministry of Education
National Current Affairs Quiz.
PRIMER
Foreigners still needed for growth
WHAT DRIVES GROWTH?
ST GRAPHICS
1,200
1,000
800
600
400
200
0
2001 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 economic
growth, but also caused strains in the economy
Source: MINISTRY OF MANPOWER
-3
0
3
6
9
12
15
4.9%
1,157,000 foreign workers1,157,000 foreign workers
Financial crisis
A30 OOPPIINNIIOONN F R I D A Y , J U L Y 2 0 , 2 0 1 2