An unfettered supply of cheap labour hurts enterprise in the long run
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Written by Ng E-Jay
25 February 2013
After the Worker’s Party launched its own population policy paper, entitled “A Dynamic Population for a Sustainable Singapore“, some businesses were up in arms, decrying the paper as stifling and destructive.
The WP had proposed setting a population target of between 5.6 million and 5.8 million, lower than the government’s white paper which proposed an eventual population size of 6.5 million to 6.9 million by the year 2030.
The WP suggested that this could be achieved by increasing the Labour Force Participation Rate via social investments, limiting the annual resident workforce growth rate to just one percent, freezing the foreign workforce growth rate, and settling for GDP growth of between 1.5 and 2.5 percent in the next decade, which is lower than what has been proposed by the government.
The Singapore Business Federation (SBF) immediately attacked WP’s proposals, saying that they were detrimental to businesses, and that it is too risky to bet that improvements in the Labour Force Participation Rate will offset the need for more foreign workers in some domestically oriented sectors such as construction where demand is growing.
The Association of Small and Medium Enterprises (ASME) said that it views WP’s policy paper as another blow to the local SME community, and that businesses were already facing a severe manpower crunch from the government’s tightening of foreign influx. The association said the construction industry, the F&B industry and others in the service sector simply cannot recruit enough Singaporeans.
In my view, the fear-mongering by the SBF, the ASME, as well as other businesses are symptomatic of years of poorly conceived and poorly implemented government policies that have encouraged businesses to rely solely on cheap labour to fuel profit growth, rather than focus on innovation, productivity, and moving up the value chain.
Before the government ramped up the import of foreign labour in the 1990s and in the past decade, Singapore businesses had no trouble finding locals to fill job positions in the service sector and in low-skilled manufacturing. Even in the construction sector, the government was already importing enough unskilled foreign labour to satisfy industry requirements.
What has happened over the past couple of decades is that as the government opened the floodgates to cheap foreign labour, businesses in Singapore starting to rely more heavily on them, pushing down wages often below international norms in order to deliver better profits.
Globalization and the government’s pro-foreigner initiatives allowed companies to cut costs by lowering wages rather than by improving on operational processes and engaging in productivity enhancement.
Over time, businesses that would ordinarily have folded up due to incompetent management or poor business models managed to survive. On the surface, one might think that the survival of these companies means that Singaporean jobs have been saved, but such an analysis is too superficial. The survival of these unproductive companies instead made it harder for new, better companies with superior business models to take root. The economy became crowded with companies with inferior business models because these companies could rely on the government’s import of cheap labour to survive artificially.
Hence, an unfettered supply of cheap labour hurts enterprise in the long run, because it does not permit the creative process of capitalism to weed out the weaker companies and encourage the growth of stronger companies.
Despite the so-called labour crunch, some local businesses still prefer to hire foreigners over locals because foreigners do not have to be paid employers’ CPF, and foreign males do not have NS reservist liabilities.
Businesses also do not need to spend so much on medical benefits for foreign workers. Medical costs and insurance coverage increase dramatically after the age of 40 and is one of the reasons why Singaporeans after the age of 40 find themselves highly discriminated against in the workplace.
It is also highly ironic that on one hand, businesses claim that Singaporeans do not want to work in certain industries such as the service sector, and on the other hand, we have some managers and CEOs stepping forward to denounce Singaporean workers as lacking in attitude or motivation compared to foreigners.
It is extremely easy for business managers to discriminate against Singaporeans during job interviews, and then claim to the government that they have to hire foreigners because locals do not want to do their jobs. I believe to some extent, this is what has occurred.
It is common for the government to argue that the labour crunch is real, and is definitely not something made up by businesses and corporations, because government statistics show that employment is at an all time high.
What the government has neglected to consider, however, is the issue of structural unemployment.
Structural unemployment occurs when highly qualified people have no choice but to take up jobs that do not make use of their abilities or talents, like Ph.D. holders becoming taxi drivers, or engineers and scientists starting blogshops rather than contributing to industry.
Structural unemployment does not show up in the employment figures because the people who have had to take up jobs far below their abilities are still counted as being employed.
The high employment rate therefore is highly misleading. It obscures the fact that for a large segment of the population, their talents and abilities are not utilized to the fullest. It is a tragic waste, because if properly harnessed, these talents and abilities could add much value to Singapore’s economy.
Structural unemployment has taken root in Singapore because of decades of poor government policies relating to labour and manpower which has resulted in discrimination against older Singaporean workers and the preference for hiring younger and cheaper foreigners.