Background Of Foreign Labour in Singapore Since the day Singapore gained independence, the growth of the economy had been advancing tremendous over the past four decades. The influx of foreign labour has been playing an important role towards the Singapore economy. Even up to today, Singapore, itself with scarce resources, could only rely on human resource to sustain the economy growth. With a tightening labour market and a low unemployment rate, this gradual increase in foreign labour had been making up for the shortfall in local human resource (see Figure 1).
Sources: Migration Information; complied from Rahman (for 1970 and 1980) and Singapore Department of Statistics (for 1990 to 2010). In the recent years with the increasing number of foreign labour, local labour had to face stiff competition against foreign labour for employment. Government further intensifies the competition by introducing policies and incentives to attract more foreign labour. However, this influx of foreign labour remains essential towards Singapore economy. Definition of the theory of demand and supply
The theory of demand in labour defined the quantities of labour employers are willing and able to hire at different rate in the given time period. In general, demand has a downward relationship between price and quantity (see figure 2). The law of demand states that the higher the price, the lower the demand. That is to say, the quantity of labour demanded will be dependent on its wage rate. D1, D2 and D3 are points on the demand curve. Each point on the curve reflects direct correlation between labour quantity demanded and price.
The demand relationship curve illustrates the negative relationship between wages rate and labour quantity demanded. The higher the wages rate, the lower the labour quantity demanded, and the lower the price the more will be in the demand. The theory of supply in labour defined as the willingness and ability work specific amounts of time at different wage rates in a given period. In general, supply has an upward relationship between price and quantity (See figure 3). The basic law of supply is that price increases along with the quantity supplied.
In general, the greater the wage rate, the more willing one is to go to work. S1, S2 and S3 are points on the supply curve. Each point on the curve reflects direct correlation between labour quantity and wages rate. The higher the wages rate, the higher the labour quantity. Definition of Elasticity In order to identify factors that affect elasticity, we would have to understand the meaning of elasticity. Elasticity is the degree to which a demand or supply curve reacts to a change in price is the curve’s elasticity. The elasticity of the supply or demand curves is determined by using an equation; of change in quantity Elasticity = ————————————- % of change in price The diagram below shows two labour demand curves with different elasticity. The diagram below shows two labour supply curves with different elasticity. Application of Microeconomics Concepts on Foreign Labour in Singapore In the application of microeconomics concepts, I would use diagrams illustrate the changes in demand and supply from the increasing foreign labour trends in Singapore. We would then further analyse the case for foreign labour in Singapore from the diagrams.
Theory of Supply In a normal market supply of labour, when wage rates rise, not only do existing workers offer to work longer hours but other workers are drawn into the labour market. It is not the case when there is an increase in foreign labour. Foreign labour is viewed primarily as cheaper economic stop-gaps; it has certain effect in the supply of labour. With foreign labour willing to work longer hours at a lower wage rates, it would increase the supply curve. The diagram below would purely show the difference between the local and the foreign labour in a low-wage job.
The difference is that foreign labour not only accept lower wage rate, they are even willing to work longer hours. This fact put local labour into a disadvantaged position, which leaves the local labour no choice but to face such competition. Theory of Demand The demand of labour is dependent on its wage rate. Labour demand is a derived demand that hiring of labour would aid the employer’s revenue and hence profit. With lower wage rate, we would see an increase in employment. However, employers often turn to low paid foreign labour, resulting in a decrease in local employment.
It is an instinct for all business to employ labour with lowest wages. This is the reason why there is always an increasing demand for foreign labour. The diagram below would illustrate the demand for local and foreign labour based on only wage rate. It shows the same amount of employee hired at a difference wage rate. In this scenario, it shows that there would be a higher demand for the foreign labour. In order to ensure that local labour is not at a disadvantaged, Singapore government introduced policies to balance the demand.
With policies such as foreign levies, the wage rate for the demand would then be competitive. However, foreign labour would continue to be a substitute to the local workforce and not the other way round. The diagram below would illustrate the demand for local and foreign labour based on wage rate and the inclusion of foreign labour levy. Factors that affect elasticity of demand and supply In general, there are four factors that influence the demand and supply of elasticity. * Time * Availability of substitutes * Proportion labour cost to total cost * Price elasticity of demand for good and service
Everyone often equate money with time. Hence the longer the time period for adjustment, the easier it is to substitute the demand for labour. However, in the short term, employer may have little or no choice but to employ the same number of workers even if wage rates increase rapidly. Therefore, we can conclude that the demand for labour will be more elastic when there is more time for the firm to look for substitute. Sometimes, even given longer time period, employers are unable to hire substitute. It shows that the harder it is to substitute labour, the more inelastic the demand for labour.
This is often related to profession occupation which has barriers to entry for new labour. Likewise, the easier it is, the more elastic it would be. There is no barrier to entry for new labour, which means that there is definitely available labour employable. When the cost of wages represents a small proportion of the total cost, an increase in wage cost does not really matter. It would be inelastic as the demand for labour will not much change much. However, when the cost of wages represents a big proportion of the total cost, an increase in wage cost will definitely affect the number of labour employed.
It would be elastic as there will be a reduction in demand for labour. When the price of product is inelastic, then the increase in wages could be passed on to the customer with minimal effect on the demand, then the rise in wage would not make a big difference. The elasticity in price of product would be in-line with the elasticity for the demand of labour. In general, elasticity of demand varies with the occupation, likewise in Singapore. The more skilled the job is, the more inelastic the demand would be. In the rapid growth of Singapore economy, we have to rely foreign labour on the increasing demand in all aspects be it skilled or not.
The diagrams below will further illustrate how foreign labour aid towards the increasing demand in the aspects of skilled and unskilled. In the diagram below, the red line shows the increase in demand and elasticity for unskilled labour. However, the increase in demand may not represent a good sign. Reason being, with increasing population in Singapore and the influx of foreign labour, it not only creates more competition, it also causes local labour to face higher chance of being unemployed. In the diagram below, the red line shows the increase in demand and elasticity for skilled labour. The increase here differs from the previous diagram.
Reason being, there is a barrier of entry in skilled labour, to just rely on local labour may not be sufficient to meet the increasing demand. Therefore, Singapore government has to attract foreign labour to meet such demand. It may cause some competition but the point is the foreign labour would help to make-up for the shortfall of demand. Problems created by foreign labour in Singapore With declining salaries and ever-increasing competition in the workforce, it has made it difficult for Singaporeans to find jobs. The local wages in the market have been decreasing due to cheaper foreign labour.
It pressures local Singaporeans to compete with cheaper foreign labour for the same job unfairly. In the growing population in Singapore along with the growing percentage in foreign labour shows a clear decrease percentage in employment for the local labour. Yet, Singapore government continued to attract foreign labour. However, in the recent years, Singapore government instill foreign levy to draw the difference in wages of local and foreign labour closer. The foreign levy only increase the wage cost to hire foreign labour, then firms will merely pass the increased costs to the consumer.
The problem does not only revolve around the cheap labour, it further relates to other factors such as inflation and living standards in Singapore. With a constant inflation in the Singapore economy, the salary isn’t increasing to match inflation and the high living standards in Singapore. What more would be foreign labour is supporting their families in countries with much cheaper and lower standards of living, while the Singaporeans having to face the expensive and high standards of living. Singapore government has been trying to solve many issues with regards to foreign labour.
It is to maintain a balanced workforce between the local and foreign labour, where it makes a win-win situation for the local employment and Singapore economy growth. Suggestions on what Singapore government can do Issue on creating local employment With decreasing employment, a possible solution towards creation of more local employment would be revising the quota balance between local and foreign labour in all firms. In this manner, the revised quota balance would then limit the employment of foreign labour and thus it would increase the local employment percentage. Raising the GDP of Singapore
Gross domestic product (GDP) can be determined in three ways; output approach, income approach and expenditure approach. In order to achieve higher GDP growth without having to increase the number of foreign labour, my suggestion would be to increase productivity of the local labour. Therefore, Singapore government should look into enforcing compulsory training schemes and job redesign programs in businesses to increase the productivity of the local labour. Managing issues pertaining to foreign labour policy Singapore government had introduced its immigration policy, which intended to control the influx of foreign labour.
There are two key elements in the policy; foreign levy and “dependency ceiling” which aid the government in regulating the flow of foreign labour. Foreign levy may seem to work, however such levy will not affect anything as the levy would be pass on to the consumer. Government should consider changing the foreign levy element factor. Instead of firms paying foreign levy, government should enforce something like upgrading policy. For example, for every foreign labour hired, the company has to send a certain number of local labour of the same position for upgrading/training. In this manner, it would help to increase productivity.