Unemployment Trends in Singapore- Labour Market Analysis

Singapore, officially the Republic of Singapore sometimes referred to as the Lion City, the Garden City or the Little Red Dot, is a sovereign city-state in Southeast Asia. Singapore is a global commerce, finance and transport hub. It’s standings include the most “technology-ready” nation (WEF), top International-meetings city (UIA), city with “best investment potential” (BERI), second-most competitive country, third-largest foreign exchange market, third-largest financial centre, third-largest oil refining and trading centre and the second-busiest container port. The country has also been identified as a tax haven. Singapore ranks 5th on the UN Human Development Index and the 3rd highest GDP per capita. It is ranked highly in education, healthcare, life expectancy, quality of life, personal safety, and housing. Singapore has a highly developed market economy. Singapore is the second-largest foreign investor in India. It is the 14th largest exporter and the 15th largest importer

Unemployment trends in Singapore.

Singapore traditionally has one of the lowest unemployment rates among developed countries. The unemployment rate did not exceed 4% from 2005 to 2014, hitting highs of 3.1% in 2005 and 3% during the 2009 global financial crisis; it fell to 1.8% in the first quarter of 2015 in the world. Singapore’s seasonally adjusted unemployment rate stood at 2.2 percent in the June quarter of 2017, the same as in the prior two quarters, preliminary estimates showed. The jobless growth rate remained at its highest level since the December quarter 2010. In the three months to June, the jobless rate fell for residents (3.1 percent from 3.2 percent in the March quarter) and citizens (3.3 percent from 3.5 percent). Some 3,500 workers were laid off, lower than the first quarter (4,000) and a year ago (4,800). The decrease over the quarter was broad-based across industries. Total employment fell 7,800, lower than a decline in the preceding quarter (9,400), but a reversal from the growth a year ago (2,100). Unemployment Rate in Singapore averaged 2.45 percent from 1986 until 2017, reaching an all-time high of 6 percent in the first quarter of 1986 and a record low of 1.40 percent in the second quarter of 1990. Singapore’s seasonally adjusted unemployment rate edged up to 2.3 percent in the first quarter of 2017 from 2.2 percent in the fourth quarter 2016. It was the highest jobless rate since the December quarter 2009. Employment continued to grow in sectors such as community, social and personal services, and financial and insurance services.

Types of Unemployment

Singapore has experienced three main types of unemployment namely frictional, cyclical and structural unemployment:-

         Frictional unemployment is transitional unemployment due to people moving between jobs: Many are unemployed for a short time while searching for jobs. Imperfect information in the labour market may make frictional unemployment worse if the jobless are unaware of the available employment opportunities. This type of unemployment is common in all countries inclusive of Singapore.

          Cyclical unemployment is involuntary unemployment due to a lack of aggregate demand for goods and services. This is also known as Keynesian “demand deficient” unemployment and is associated with the transition of the economy through the business cycle. When there is an economic recession we expect to see a rising level of unemployment because of plant closures and worker layoffs. This is due to a fall in demand leading to a contraction in output across many industries. Singapore is a small and open economy and highly dependent on trade – trade (X+M) is almost 4 times of GDP. Singapore is affected significantly by external demand especially in the US, rather than by domestic demand as the domestic market is small. Singapore being traded dependent saw rising cyclical unemployment during the global economic crisis of 2008 as well as during 2011 where its major trading partner the USA faced terrorist attacks. This reduced trade with Singapore due to the contraction of the US economy.

             Structural unemployment occurs due to the structural changes within an economy. This type of unemployment occurs when there is a mismatch of skills due to the changing structure of the economy. Automation can cause structural unemployment as people are made unemployed because of capital-labour substitution (which reduces the demand for labour). Singapore’s loss in competitiveness in the manufacturing industries due to competition from low-cost emerging countries that have entered world market for investments and trade has changed Singapore’s economic structure permanently and Structural unemployment in Singapore is common as the country moves from industry to industry due to its changing comparative advantage. As the country moves from the secondary to the tertiary sector, labour finds itself with a mismatch between their skills and the requirements of the new job. The most problematic of Singapore’s unemployment would be cyclical unemployment due to Singapore being trade-dependent’ solutions that the government dishes out are usually temporary as it is unable to address the root causes of the problem.

Singapore’s main policy measures towards unemployment are:-

1.) Manage foreign worker dependency by increasing the productivity of local Workforce

As a small city-state with no natural resources, Singapore has long been careful in managing its human capital, seeing such management as an important source of competitiveness and strength for the economy. Emphasis on education has helped contribute to Singapore’s stronger record in human capital development than other countries in the region. A major force shaping the human capital landscape in the aggressive pursuit of the global city vision has transformed not only the physical look of the city-state but also its business environment and production structure. Together with these changes, the composition of the labour force has also been significantly altered – both in terms of the local-foreign mix and the mix between workers in “old” and “new” industries. While the open-door labour policy brought in a large number of highly skilled, high wage foreign workers, it has also led to a huge influx of low-skilled, low-wage foreign workers. Whereas the former could potentially expand the economy’s range of skill sets and raise its productivity level Singapore has been the increased presence of foreign workers. Recognising the possible adverse impact that the liberal foreign worker and immigration policy might have on the human capital profile and the productivity growth in the economy, the Singapore government began to review and make adjustments to the policy from early 2011.3 In the meantime, it continues to find ways to upgrade the skills of the local workforce and raise its productivity.

2.) Sustain SME growth through fostering entrepreneurial environment

Singapore has traditionally relied on multinational corporations (MNCs) and the large government-linked companies (GLCs) as the main drivers for economic growth. Most economic policy measures in the past were geared towards facilitating the operations of the MNCs and the GLCs, especially those of the former. In contrast, much less attention was given to promoting the growth of SMEs. As a result, SMEs in Singapore have not been able to play as significant a role in innovation and productivity growth as their counterparts in other countries. He enhanced the contribution of the SMEs reflects changes both in policy orientation and in the economic environment, as well as the impact of specific government policies. As international competition for foreign direct investment heightened in recent years, there has been increased recognition among policy makers of the need to build up Singapore’s indigenous production capabilities.  The gradual rise of the SMEs unfolded against the background of policies the government had redesigned in its quest to transform Singapore into a global city. The focus of policy shifted from attracting and serving the needs of MNCs to attracting a critical mass of creative foreign workers who were able to help develop and grow new, innovation-driven industries. Singapore has made significant progress in promoting the growth of SMEs in recent years. Much of the impetus appears to have come from the government. Even the expansion of the domestic market was a result of the strategic shift in its growth approach. To its credit, the government has tried to keep the interventions at the macro level and to preserve as much of the market mechanism as possible. However, questions remain over the long-term sustainability of such a government-driven approach. It is not clear.

3.) Enhance the innovation capabilities of local enterprises

Over the years, Singapore has been trying to build a comprehensive R&D ecosystem comprising public sector research bodies (e.g. A*STAR), academic research institutes and corporate R&D laboratories. R&D is not, however, an end in itself. It is considered a driver of economic growth and it is important that enterprises create value from R&D investment and the intellectual properties generated. Traditionally large (domestic and foreign) corporations which enjoy strong government backing carry out the bulk of innovation and commercialisation activities in Singapore. R&D spending by the business enterprise in Singapore still lags behind levels in other R&D-intensive nations such as the OECD member countries, particularly Japan. However, over time, as innovation culture becomes more pervasive, SMEs and large enterprises in Singapore might be expected to play an increasingly larger role in R&D and innovation activities.

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