May Day Rally 2012: The foreign worker debate

A question of need and opportunities

This is an edited excerpt of the May Day Rally speech by Prime Minister Lee Hsien Loong on May 1.

The Straits Times, 3 May 2012

WE WILL be debating the immigration and foreign worker issues this year.

Today, I'd just like to focus on one angle concerning the foreign workers, and that is the economic angle. The way employers look at this is different from the way the workers look at this.

Two views on immigration

THE employers' attitude is: We can't find enough workers in Singapore, especially workers who will stay on the job. So, better to bring in some foreign workers to seize opportunities than let the business go somewhere else. At least you keep the jobs, the business is in Singapore and you keep some jobs here.

The workers see it differently: That the foreign workers add to competition, and if we have too many foreigners, wages get reduced and they may even take away some of the jobs which Singaporeans can do. So, better we have fewer foreign workers and let our wages go up.

If you ask me which to believe, I would say both arguments have their merits, but each one is only valid up to a point. You need a mix of local and foreign workers to man the companies. But if you set up a new company and only create jobs for foreigners, then we must ask if this is really the best place for the company to come to. What's the point?

On the other hand, if you want the company to come and you insist that all the jobs are reserved for locals and they can't hire foreigners, and you don't have enough Singaporean workers or the right type, then I think the jobs will disappear.

The integrated resorts (IRs) stayed in Singapore. We've created 30,000, 40,000 jobs in the two IRs - many for Singaporeans but not all. If we had told the IRs - come here, but you just hire Singaporeans - I don't think you would have got the IRs and I don't think those Singaporeans would have got the jobs, which have pushed up demand for hotel workers, and enabled wages to go up significantly in the hotel and other food and beverage (F&B) sectors, and which have put the pressure on the hotels to upgrade.

The reality is: We need a mix, companies need a mix and we must strike the right balance.

I met union leaders last week. Without exception, in every sector - manufacturing, electronics, F&B, or services - all told me they were looking for people. We are creating opportunities more than we have bodies to fill.

Last year, we created 120,000 jobs, but there were only 32,000 Singaporeans to fill them - one in four. Our unemployment is already so low and many of the rank-and-file workers are already working overtime to meet demand. So we have to top up with foreign workers to lower cost and to enable us to seize that opportunity when the business is good. Then the new companies can start, create new, better jobs for Singaporeans. And then we can give the company a chance to build a Singaporean core.

A Singaporean core

ONE unionist asked me how many foreign workers we need. I said there's no magic number. It depends on the opportunities. In a good year, you want to allow a few more to come in. In a slow year, we can tighten, we can let some of them go off. But it also depends on our own needs. If you want to build more Housing Board flats and MRT lines, you need more foreign workers. You want to have more hospitals and nursing homes - it's unavoidable - you need extra nurses, allied health professionals, even doctors from wherever you can find who can serve us well. But in total, we have to slow the inflow of foreign workers significantly in the coming years, because we just can't keep on bringing in 80,000 more foreign workers a year. There's just not the space and it's not sustainable to keep on going up and up and up. So we have tightened up - not freeze and reduce, but just slow down the increase. Companies are already feeling the squeeze. We give them the incentive to upgrade their productivity, and also to develop a Singaporean core in their companies, people who will form the long-term skills, with the long-term loyalty and capability for the company and for Singapore.

While we must obviously be open to the world, let me be quite clear: Singaporeans will always be our priority. This is the purpose of all our policies, including those on foreign workers or talent. We are trying to seek the maximum advantage for Singapore, and Singaporeans.

The second major strategy we need to succeed in is to grow our economy sustainably and share the fruits of growth with all Singaporeans. Economic growth is still very important to us to provide jobs for each one of you to support your families, to bring up your children.

Growth is going to slow down because of our constraints - not enough land and labour. We need to work twice as smart to get growth through higher productivity. It means we have to restructure our industries, grow new industries, add new value and phase out the industries which are no longer viable. We have to accept this turnover. Even when we are prospering every quarter, a few thousand workers will be retrenched, but many more jobs will be created.



Productivity: from TV to chips

TAKE the electronics industry. We have been in electronics a long time but the type of electronics has changed over the years. We used to assemble basic electronic products - TV sets, VCRs, PCs. These are CRT TV tubes, we don't see them in the shops any more. We used to make them - low-end electronics.

Over the last 20 years, we restructured. We focused on semiconductors - the brains that tick inside the machines. Now we produce high-end electronics. We have the biometric passport: 80 per cent of the chips inside the passport used around the world are made in Singapore.

It's a big transformation. Over two decades, we lost 37,000 jobs but we created nearly 30,000 new jobs - higher skilled, better pay. Productivity went up five times per worker. Contribution to gross domestic product (GDP) increased more than three times for the industry. Workers' wages also went up.

How does this happen on the ground? It means they have to work company by company, worker by worker. Companies have to take the lead, make productivity and skills upgrading a priority, work with unions and workers and share the gains with workers. The workers have to do their part - to upgrade, learn new skills, and contribute their ideas to improve performance because they know when something is wasteful, they know we can save on some procedure and do it better. If you can engage the workers and get them enthused about it, it will make a big difference. Productivity improvements must be bottom-up as well as top down.

The third thing we must do is to translate growth to higher wages and better lives. Our ultimate aim is to improve lives for all, especially average Singaporeans and those with lower incomes. Median incomes have gone up 13 per cent even after you allowed for inflation over the last five years since 2006, and our goal is to keep real wages going up. We are tightening on the foreign workers and I think this will help to push wages up. But to sustain the higher wages beyond the first push, not just for two or three years but for 10 years and longer, we need to improve productivity, we need to upgrade skills.

We talk about 30 per cent wage growth in a decade. That's a very ambitious target. To get that, you must get the same productivity growth at least. And if you break it down, that means every year I need to make 2.7 per cent productivity growth, 2.7 per cent year by year, 10 years, compounded, I can make 30 per cent and then we can raise workers' wages. That becomes a very big number, it's a very challenging target - 2.7 per cent.

How do we compare that with Singapore since 2000? In the last 12 years, 1.7 per cent per year - almost one-third there.

Most developed countries have done 1 per cent to 2 per cent. So when we say we want 30 per cent wage growth in 10 years, we are talking about stretch targets for Singapore, not easy, but we should set an ambitious goal and try our best to achieve it.

For low-wage workers, we must make a special effort. It's not just steadily raising everybody up but focusing particularly on the low-wage workers because they're the ones most affected by competition, inflation, they're struggling to compete and facing a predicament which many low-wage workers face all over the world.

Unfortunately, there's no easy solution for this. Professor Lim Chong Yah recently proposed pushing up low-wage worker wages quickly - 50 per cent in three years - 50, 50, 50, bang, done, done. I appreciate his good intentions, I share his concern over this group of workers but I do not agree with his drastic approach because the only realistic way to move is step by step, with wages and productivity going up in tandem as fast as we can, as fast as is possible.

In the early 1980s, we did have one period when we zoomed up and pushed wages up very rapidly, wages were restructured, but even then, we ran into problems. 1979, 1980, Singapore was a developing economy. We were growing very rapidly - 8 per cent to 10 per cent per year. Our only competition were little dragons (South Korea, Hong Kong, Taiwan). China and India were not on the scene and we actually had held down our wages because the National Wages Council (NWC) had been very cautious, we didn't want to price ourselves out, we held ourselves down as the economy got better. And so there was the possibility of us letting go and catching up, especially with the MNCs like Philips, HP, Texas Instruments coming in, creating thousands of jobs. We had room to raise the wages quite sharply but even then, we overdid it.

Wages shot up, productivity didn't improve and we lost competitiveness. So in 1985, when the weather changed, when the conditions turned difficult, we plunged into a very deep recession. We were scared. The older unionists will remember, in fact, will never forget. We had to cut wages and cut CPF by 15 percentage points so that the economy could recover.

Today, we are in a different situation. The NWC doesn't dictate the wages; it's globalisation, it's technology, it's competition. Export companies are facing much tougher external competition. Job by job, they compete against factories in China, India, Vietnam, everywhere, and unionist Francis Lim told me: 'They bid for every job, even against other factories in the same MNC.' If you are 5 per cent out of line, the job goes somewhere else and you don't get that order. Companies cannot easily afford a 5 per cent cost increase unless they make productivity increases.

Small and medium-sized enterprises (SMEs) are most affected when the wages go up because they employ many low-wage workers. More companies are not very profitable. If wages go up, (the increased costs) have to be passed on to their consumers, adding to inflation for all of us, or the companies have to retrench their workers and have to close.

They need time to upgrade their productivity, which is why we are tightening the foreign worker policy gradually to give them time to adjust and to help them to adjust so they do better for their workers. We must do this gradually. If we do it too sharply without a corresponding improvement in productivity, we will make things worse.