Why falling skilled job imports could be a blessing

By Richard Hartung, TODAY, 17 Mar 2014

Bringing fewer new skilled jobs into Singapore, as the Economic Development Board (EDB) expects will happen this year, would usually seem like bad news. Counterintuitive as it may seem, however, the forecast may actually be good news and help put Singapore on the right track.

In its investment outlook for this year, the EDB said that while there will be a steady flow of investment this year, the amount of foreign direct investment (FDI) will continue to be lower than a couple years ago and will bring in fewer skilled jobs. This direction is a switch from previous goals, as the EDB had previously focused on bringing in investment that also brings in skilled jobs and, in 2011, proudly proclaimed that it set new records for the number of skilled jobs created. With labour in such short supply, however, the focus seems to have implicitly changed to boosting productivity.

Indeed, the EDB’s forecast shows that the FDI that does come in will create significantly higher gross domestic product per new skilled job. While data from last year showed the average GDP generated per new skilled job was about S$565,000, the EDB is forecasting an increase of up to 50 per cent this year, with GDP of between S$625,000 and S$850,000 per new skilled job. While the average increase in GDP per job may be lower if all workers are factored in, since there may well be new less-skilled jobs as well, higher output from the skilled jobs that are more attractive for Singaporeans to move into is good news.

That level of GDP per worker will, however, be likely to vary widely between sectors. Last year, new investments in biomedical manufacturing created about S$1.3 million in GDP per skilled job and in engineering and environmental services it created S$1.1 million per skilled job. Meanwhile the highly touted infocommunications and media sector created only S$500,000 in GDP per skilled job, education created S$400,000 per skilled job and logistics created a measly S$243,000 per skilled job. While targets by sector for this year are not available, those disparities seem likely to persist.

HOW COMPANIES CAN COMPETE

As Singapore continues to focus on productivity, after having managed zero improvement last year, creating fewer skilled jobs while boosting GDP even more may be a model for the rest of the economy. At the same time, it means that companies here are going to need to up their game to compete, through tactics such as using technology to increase automation and training workers to give them the skills they need.

The chemicals and electronics sectors are cases in point. Lamenting job losses in the sectors, the National Trades Union Congress (NTUC) said in its 2014 Outlook that retrenchment in the unionised sector last year came primarily from the electronics, chemical and precision industries as companies relocated operations out of Singapore or shut down facilities, with production and manual workers as well as technicians suffering the bulk of the lay-offs, with more lay-offs expected this year.

Even though FDI in chemicals declined from about S$6.7 billion in 2012 to about S$2.5 billion last year, while investment in electronics dropped from S$6.2 billion to S$3.3 billion, the skilled jobs that do come into these sectors resulted in about S$1.4 million more in GDP apiece — among the highest of any sector. Companies that create this high a level of output will probably have the wherewithal to pay their employees more, which may well increase competition with local companies for the very workers who will drive growth the most. It also means that local as well as foreign companies are likely to need workers with far better capabilities.

EMBRACING CHANGE AND IMPROVING PRODUCTIVITY

The budget this year reinforced this focus on improving productivity, though without alluding to the impact of foreign companies directly. Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said in his budget speech that “we must adapt to the permanent reality of a tight labour market and transform every sector of the economy to achieve higher productivity and skills”, including major efforts to increase the use of technology by small and medium enterprises and to change social norms.

However, even though more companies than before are applying for grants for productivity improvements, companies still do not seem to be absorbing the full message. For example, while the Ministry of Manpower Labour Force Survey showed that more workers are being trained, training per worker dropped dramatically from 17 days in 2010 to about 12 days last year.

What needs to happen, however, are those mindset changes by companies and workers as well as the unions, which Mr Shanmugaratnam suggests are essential. Rather than simply lamenting their fate, lower-skilled workers will need to embrace the concept of lifelong learning if they want to develop the skills that enable them to keep their jobs. Unions can help by developing more innovative ways to help them develop the skills they need. And along with putting in more technology, companies will need to use process changes and other tactics to improve their productivity.

While companies with lower levels of productivity may bemoan the greater competition from the foreign companies that are bringing in higher output per worker, the shift by the EDB can actually be good news overall for Singapore. Faster growth in GDP with fewer new skilled workers means there can still be plenty of economic growth for Singaporeans while giving them better jobs, reducing the dependence on foreigners and lowering the rate of increase in the total population.

Rather than simply complaining, the best tack for companies and their workers that want to compete effectively may be to embrace change and learn from these new competitors as well as make changes needed to jumpstart productivity growth.


Richard Hartung is a consultant who has lived in Singapore since 1992.