Foreign workforce in Singapore, a Boon or a Bane to the Economy?
Updated: Nov 21, 2019
Foreign workforce in Singapore, a Boon or a Bane to the Economy? by: Chen Xin Yong
At the turn of the century, Singapore’s Gross Domestic Product (GDP) has been escalating almost exponentially, from US$89bn in 2001 to nearly US$300bn in 2015.
With such phenomenal growth, more resources are required to sustain the economy, especially human resource since Singapore has no self-sustaining capabilities. However, the country has been experiencing a declining birth rate after the baby boom period in the 1960s.
The incongruity between GDP and birth rate results in a shortage of manpower in the workforce, therefore non-resident foreign workers (NRFWs) are required to overcome the constraints of labour supply.
The ease of immigration process and various policies to attract foreigners led to an influx of immigrants, particularly between 2006-2008.
On hindsight, the huge inflow of NRFWs meant that Singaporeans would face stiffer job competition as well as exacerbate the income inequality, but upon closer look, NRFWs actually helps to facilitate economic restructuring and contain wage and labour costs.
A bane to the economy
Over the past two decades, the inflow of foreigners working in Singapore has led to non-residents gradually forming a larger proportion of the workforce, constituting nearly 38% of the total labour force as of 2014.
With so many foreigners in the workforce, it is unsurprising that Singaporeans bear resentment towards them as job competition stiffens. To curb with the growing unhappiness amongst Singaporeans, the government imposed curbs on immigration and in 2013, introduced the Fair Consideration Framework (FCF) which requires all employers to fairly consider Singaporeans for job vacancies.
Besides job competition, foreign workers and talents also drive income inequality further apart. Low skilled jobs mainly comprise of foreign workers that comes from developing or under-developed countries, such as India, Bangladesh, Sri Lanka and Philippines and they are paid lower than their Singaporean counterparts. As a result, employers would rather seek for foreigners to perform these low skilled jobs over Singaporeans as the cost of employment is much lower.
On the contrary, high skilled foreign talents, coming from developed countries and regions such as Japan, Western Europe and North America are being paid expatriate salaries which reflect their remuneration in their home countries. This results in a spill-over effect on local employees and professionals in MNCs and other companies as the wages for high skilled jobs would be greater.
Although foreign workforce is not the sole reason for the rise in the Gini coefficient in Singapore, from 0.448 in 2011 to 0.458 in 2016, , but considering that they form a large part of the workforce, it is fair to assume they are partially responsible for the increasing income inequality in Singapore.
A boon to the economy
Much to the dismay of the detractors of foreigners working in Singapore, empirical evidence and statistics have shown that foreign workforce brings about more pros than cons.
In fact, a recent study by Thangavelu, Head of Economics Unit, Ministry of Manpower, concluded that moderating non-resident foreign workers at 40% of the workforce with high capital intensity produces positive output growth. (Thangavelu).
What the foreign workforce brings to the table is firstly, facilitating Singapore’s economic restructuring process. With the launch of initiatives supporting the movement towards a Smart Nation and the Industry Transformation Maps, which aims to change the way companies and employees work, job displacement would be inevitable as Singaporean workers undergo skills upgrading and training. As such, foreign workers are required to augment the skills in short supply.
Secondly, foreign workers, especially the low skilled workers are crucial in maintaining Singapore’s sustainability because with over 15,510 graduates in 2015, a 0.9% increase from previous year, more Singaporeans with degree or equivalent attainment are shunning away from menial jobs such as clerks, cashiers, hawkers and other low skilled occupations. Wage expectations and job satisfaction are factors to be considered when they seek for a job.
Unfortunately, these menial jobs are crucial in running of companies and businesses, and should not be underestimated, hence to keep operations running smoothly, these companies would seek for foreign workers as replacements.
Lastly, foreign workers help to keep wages and cost low for companies. As mentioned in the previous paragraph, low skilled foreign workers come from underdeveloped countries, and with a lower wage expectation, the cost of hiring for the employers would be lower.
Although it conflicts with job opportunities for Singaporeans, government policies such as foreign employee quota, and foreign worker levy ensures that this conflict of interest is kept at minimal impact. Besides, this helps Singapore maintain its competitiveness within the region as higher costs of operation would drive firms to outsource their production to neighbouring countries.
Therefore, foreign workforce would be beneficial to Singapore’s economy.
To say that foreign workforce stifles job opportunities for Singaporeans and creates income inequality is a microscopic view, because foreign workforce has been part of Singapore’s economy since 1980s, and the reason for the influx of foreigners is to curb with the replacement rate in the workforce.
Looking at foreign workforce in a bigger picture, they facilitate Singapore towards a knowledge based economy, and the low labour costs helps companies retain their business within the country.
All of which is for a common goal, to maintain economic growth in Singapore, hence, foreign workforce is more a boon than a bane to the economy.
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