Singapore's labour outlook: The challenges ahead

Singapore's movement into a knowledge-based, high-productivity economy, coupled with an ageing population and low birth rates, has raised many questions about the future of its labour force. In this May Day special story, HRM examines the key workforce issues that will impact HR's talent agenda

Amidst much debate and controversy, the White Paper on Population was passed by the Parliament of Singapore in February this year. Issued by the National Population and Talent Division, it is considered a roadmap for Singapore’s population policies and has a resounding impact on the workforce that HR has to be aware of.

The Paper starts off maintaining that Singapore’s aim is to build a sustainable population with a strong Singaporean core. However, to stay competitive and create “good” jobs for Singaporeans, the country will need “a significant number of foreign workers to complement the Singaporean core in the workforce”.

Businesses in Singapore will need a diverse workforce with the “full range of skills, backgrounds and experiences, who can kick-start high value-added emerging sectors, and understand regional and international markets”. Despite the need for foreigners, the Paper goes on to explain that Singapore cannot allow an unlimited number of foreign workers as too many of them will also depress wages and reduce the incentive for firms to upgrade workers and raise productivity.

As Singaporeans become more educated, the Paper predicts that there will be a significant upgrading of the Singaporean workforce towards professional, managerial, executive and technical (PMET) jobs.

By 2030, the number of Singaporeans in PMET jobs is expected to rise by nearly 50% to about 1.25 million, compared to 850,000 now. The number in non-PMET jobs is expected to fall by over 20% to 650,000, compared to 850,000 today. Up to two-thirds of Singaporeans will hold PMET jobs in 2030, compared to about half today.

Singapore’s workforce growth will continue to slow to about one to two per cent per year, half of the 3.3% per year over the past 30 years. The only sustainable way to grow the economy and raise real wages will therefore be to increase productivity, the Paper finds. The aim is to achieve two to three per cent productivity growth per year, which is admittedly an “ambitious stretch target”.

White Paper draws strong response

The reactions of Singapore’s labour unions and chambers of commerce came fast and furious. Nine national chambers of commerce wrote to Acting Minister for Manpower Tan Chuan-Jin to voice their concerns about the curbing of foreign workers in Singapore.

“Our members are concerned with the revision of government policies pertaining to the employment of foreign workers in Singapore and the resultant impact on the operations of foreign and local companies and the overall economy,” the letter, signed off by Australian Chamber of Commerce president Graham Lee, stated.

“Singapore’s openness to foreign labour has enabled it to attract, retain and absorb the best of foreign talent, providing it with a clear competitive advantage over its neighbours,” said the letter.

The nine chambers and their members expressed a desire to hire candidates with the necessary skills, knowledge and experience. They also want to be able to tap on a larger labour workforce outside Singapore.

The letter makes two suggestions. Firstly, younger foreign workers need to be brought in to drive productivity and innovation in Singapore so that restrictive labour policies don’t lead to inflationary wages and raise business costs.

Also, with fewer Singaporeans looking for non-PMET positions, there will be a need to have more foreign workers in sectors such as service, construction, and manufacturing, if not standards could slip.

Likewise, the Singapore National Employers Federation (SNEF) says that without additional foreign workers to support economic growth, the country could lose the dynamism and vibrancy in its economy. The additional foreign workers would also provide a buffer in the workforce during a recession, stated the SNEF in its report.

According to the Association of Small and Medium-sized Enterprises (ASME), the Government’s decision to slow down the inflow of both foreign labour and foreign talent has made it difficult for SMEs in Singapore to hire foreign workers. Not only that, it has become equally challenging when renewing the passes of existing well-trained foreign workers.

The ASME questioned if the public outcry over the abundance of lower-skilled foreign workers, including construction workers and cleaners, was more targeted at foreign talent taking PMET jobs away from Singaporeans, and putting greater downward pressure on the salaries and job security of older PMETs.

The real problem may not be the lower-skilled foreign workers that the Government is limiting – it may be the masses of foreign professionals depressing wages across the board for local PMETs, said ASME.

Impact of Budget 2013

The annual Budget Speech is always closely watched by businesses, as it involves the planned government revenue and financial projections for the upcoming financial year. With so much at stake, it is crucial that HR is aware of the latest developments so that it can add value as a strategic partner.

This year’s Budget announcement showed the Government’s continued tough stance on the issue of foreign workers with a key takeway for businesses: get fit or get out.

“The Government is sending a clear message that it is focusing on those industries where Singapore is, and can be, competitive. It is not offering sweeteners to defray costs. This is a Darwinian budget for businesses in Singapore. ” says Adrian Ball, Head of Tax Services, Ernst & Young.

Most analysts believe small businesses will feel the biggest impact from the Budget, with lowered foreign worker dependency ratios and more stringent work pass criteria.

“We did not expect the Government to further tighten the foreign manpower policy so comprehensively only a year after the last Budget,” says Ho Meng Kit, CEO, Singapore Business Federation. “This clearly demonstrates the strong resolve of the Government to wean companies in less productive sectors off their reliance on foreign manpower.”

The increase in foreign worker levies and the increase in qualifying salaries for S Pass holders will have an immediate impact on business costs, especially for sectors like manufacturing. The Singapore Manufacturing Federation (SMF) said it would face challenges in attracting and retaining workers in this sector. In addition, the pace of transformation would also be a challenge to manufacturers.

Other aspects of the Budget were better received.

SBF’s Ho said that the Budget contains measures to help companies which are prepared to restructure, raise their productivity, and employ locals. “In fact, the Government is generous in providing substantial support for employers who make the effort to hire Singaporeans,” he says.

Likewise, the SMF also concurs with the Government over the need for greater productivity and innovation. “There is a need for manufacturers to achieve greater innovation and productivity in order to stay competitive and to achieve long-term sustainable growth,” says George Huang, President, SMF.

The Transition Support Package was also praised by analysts. (See Budget Highlights)

“The Three-Year Transition Support Scheme is very well designed,” says Gan Kwee Lian, Partner, Tax, KPMG. “It helps both employers and Singaporean employees concurrently. The 40% co-funding by the government will allow employers to be more willing to increase the basic wages of low and middle income groups.”

One suggestion on how SMEs can cope with the Budget is to set up a quasi-governmental ‘Task Force’ to help build a dynamic and re-energised SME scene.

Coping with the constraints

Companies are looking at new and innovative ways to overcome the challenges posed by the tighter foreign worker quotas.

In addition, with low unemployment rates in Singapore, there are more jobs available than potential candidates and it is imperative that companies start looking at ways to create value for their workforce, Steven Chan, General Manager, Crowne Plaza Changi Airport tells HRM.

The hotel has implemented a cross-training programme to ease the strain caused by the labour crunch. Under the programme, employees are trained in various job scopes. This enables them to be cross-deployed in the areas which require a boost in manpower at certain times. “An example of this would be training staff members working in our bar to be cross-deployed in our restaurant and lounges which require more manpower during peak periods,” Chan says.

Employees who participate in cross-training are given a bonus by the hotel. The training, which is endorsed by the Ministry of Manpower and the Singapore Tourism Board, can last between six and 12 months.

Other companies, such as Apex-Pal which owns Sakae Sushi, are encouraging casual workers to enter the workforce. It offers shorter shifts of as little as two hours and also customises its duty rosters around employees’ schedules. This makes such jobs attractive for housewives and retirees. “We also provide a convenient location near to their homes and our restaurants are largely located around MRT stations,” says Gregg Lewis, Branding and Communications Manager at Sakae Holdings. “Recognising that this pool of people may not have had experience in the food and beverage industry, we offer full day trainings to equip them with the skills necessary for them to carry out their tasks in the shortest time,” he adds.

The $170-million WorkPro programme, launched by the Singapore Workforce Development Agency and the Ministry of Manpower in April this year, is another initiative to attract more women, mature workers, and the economically inactive back into the workforce.

WorkPro provides funding support for employers to redesign jobs, improve workplace practices, and implement work-life measures. It also provides incentives to encourage employers to recruit or retain local workers, or to place their employees on flexible working arrangements.

“WorkPro will help employers create more progressive and work-life friendly workplaces. This will make it easier for working women to strike a balance between work and family, as well as create more flexible jobs for women who want to return to work,” the Acting Manpower Minister Tan Chuan-Jin has said.

Technology can also be an enabler in raising productivity. Sakae Sushi was one of the first companies to use Radio Frequency Identification technology to track the freshness of sushi on conveyor belts at its outlets. This resulted in an estimated 20% increase in productivity. It also enables manpower resources to be channelled to core operations, allowing employees to provide a better customer service experience.

The minimum wage argument

There have been repeated calls for a minimum wage by some Members of Parliament in Singapore, especially in view of how the system has worked in countries like the US and Hong Kong.

Inderjit Singh, Member of Parliament for Ang Mo Kio GRC told HRM that he is an advocate of the idea, as costs in Singapore have gone up “too quickly” with wages lagging behind for the lower income Singaporeans. “I don’t see costs coming down drastically so the best way forward to give every Singaporean a decent standard of living is to give them a reasonable wage. What the exact amount should be can be worked out by experts – by determining what is the minimum living wage required for Singapore’s cost structures.”

During his speech to Parliament on the issue, Singh suggested a five-year Government-supported minimum wage system where the Government helps companies pay for part of that minimum wage, its contributions declining to zero after five years. “This gives companies time to adjust to the minimum wage without overly burdening them with the requirement of paying higher wages as legislated by government.”

However, Singapore labour chief Lim Swee Sway rejected calls for a minimum. He told Parliament that initiatives such as the Workfare Income Supplement, Workfare Training Support and a progressive wage system, would be more effective and better overall than a minimum wage.

Some companies are also cautious about the business impact of a minimum wage. “It is unlikely that a minimum-wage model would help alleviate manpower challenges as it will inevitably push up operating costs on the whole,” says Chan of Crowne Plaza Changi Airport. “At the end of the day, by implementing a minimum-wage model, we will still be faced with the same situation of Singaporeans continuing to look for jobs they see value in,” he says.

According to Chan, it is more important for the industry to develop a better understanding of the mindsets of Singaporeans and work on creating valuable jobs with room for them to grow.

Others also feel that a minimum wage would dampen Singapore’s competitiveness. However Singh disagrees. “ I believe it will work in Singapore simply because the old arguments that companies will relocate and will stick to just the basic minimum when they pay workers are no longer valid in a developed economy with a tight labour market and a country which (would) remain attractive even as we implement a minimum wage system.”

According to Singh, Singapore’s low tax, good infrastructure, great business connectivity and stability with transparency in business systems would far outweigh any negative impact on employers. “I feel companies will not just relocate because we have a reasonable minimum living wage as a guideline.”

Too many PMETs in the future?

Amongst the key proposals presented in the 2013 Population White Paper, was that by 2030, two thirds of the Singaporean workforce will be holding professional, managerial, executive and technical jobs (PMETs) as compared to about 50% of the occupational profile today.

In the March 2013 parliamentary budget debate, Tan Chuan-Jin, summarised that frustration against skilled foreign labour could take three forms. These were employers unfairly hiring their own kind; employers who overlooked Singaporeans for foreigners in undue haste; and qualified foreigners who were willing to work at lower wages than local fresh graduates and mid-level PMETs.

The series of recently announced labour market reform measures by the Ministry of Manpower have been viewed as courageous steps in the right direction for this group of people. However, some critics have noted that blue-collar workers seem to have been forgotten.

While the ideal situation would see working Singaporeans distributed evenly across both sectors, to ensure that there is no hollowing out of the blue-collar workforce should foreign workers suddenly pack up and leave, this is not the case today.

At the recent annual Kent Ridge Ministerial Forum, Deputy Prime Minister Tharman Shanmugaratnam made the call for everyone – employers, workers and customers – to treat ‘ordinary’ jobs, such as food and beverage service, with respect. “We cannot just be a society of real estate agents, insurance agents, bankers and office workers. The most advanced societies don’t run that way,” he said.

Tharman, who is also Finance and Manpower Minister,alluded to other developed cities in the world, such as New York, Tokyo and Zurich, where jobs at the lower rung of the economy were embraced by all.

Economics professor Linda Lim from the University of Michigan concurs. “Singapore is too fixated on producing PMET jobs, and this could lead to negative consequences for the country, she tells HRM.

She adds that in rich countries, toilet cleaners and bus drivers are locals. “They are well-paid, they are respected, and everyone treats them as equals,” she says. “The Singapore Government starts out by having a hierarchy defined by academic achievement, then saying some are better and deserve higher pay than others.”

Lim says that all work is worthwhile, and the market should decide the wage rate. “So long as ‘low-skilled’ jobs are low paid, considered of low status, and associated with poor foreigners, Singaporeans will not do them,” she says. “Having high wages for the so-called low-skilled will help a lot. You cannot be a First World country with Third World wages.”

She agrees with the Government’s plan to limit the number of low-skilled foreign labour. “No other rich country in the world is so dependent on low-skilled foreign labour,” she says.

One way around this issue would be to change the perception of non-white collar jobs, rebranding and redesigning them to raise skills levels and wages. In this light, some 100,000 Singaporean workers will get a job boost in the next two to three years with the National Trades Union Congress’s (NTUC) help.

Since June last year, the NTUC has rolled out training and job redesign plans that it calls ‘progressive wage models’ to systematically lift the pay of workers in sectors such as cleaning, transport and childcare.

The labour movement’s secretary-general, Lim Swee Say, said the model is “not just a wage ladder” but also a four-in-one plan that raises workers’ productivity, skills and job prospects.

For instance, about half of all cleaners employed under Government contracts, currently earn basic wages of at least $1,000 per month. With training, improved skills and bigger job scopes, these cleaners will be able to earn more (see picture below).

A Singaporeans First Policy?

Some critics have said that Singaporeans are being sidelined by expatrates for high-skilled jobs, which gives rise to the question: Should Singapore adopt a ‘Singaporeans First’ hiring policy?

Firms that HRM spoke to say that they already consider local candidates first in the recruitment process. “As well as making business sense, recruiting local talent also helps to control hiring costs,” says Norton of PageGroup.

Gwen Lim, Manager – HR Division, Robert Walters Singapore, agrees. “When employers are looking to hire, they should have exhausted the local talent pool first before looking externally,” she explains.

As many international companies continue to set-up and expand here, local establishments will need an adequate talent pool to select from so as to ensure that the best talent is chosen for the role.

“It would be detrimental if companies and hiring managers were unable to hire from overseas when they really needed to,” says Hall of Kelly Services. “When it is not possible to hire locally or a niche skill set is required the process of hiring a foreign executive should be straightforward and transparent.”

While Lim from Robert Walters, is completely for the idea of looking after local talent, she says Singapore also needs to keep in mind the foreigners who have contributed to the country’s success and made Singapore their home.

“While we are a developed nation, our employment workforce for high-skilled jobs is still maturing and there are still certain areas where we will benefit from having more experienced foreign talent assume leadership positions, as long as there is a local succession plan in place to groom local talent for the future,” she says.

 

A national jobs index?

One recommendation by ASME in response to the foreign worker restrictions is the setting up of a National Jobs Index. The index will assign a score to different jobs according to different levels of acceptability by Singaporeans and degrees of importance to the national agenda. Jobs that Singaporeans shun but are necessary to the national economy – such as construction workers – will be rated higher. According to the ASME, the National Jobs Index will facilitate a statistical and objective gauge of whether this policy objective is met.

 

2013 Budget highlights

•        Further Dependency Ratio Ceiling (DRC) cuts for selected sectors with continued significant growth in foreign worker numbers. Sectors affected include services and marine.

•        Foreign worker levies will also be raised over the next two years .The levy will be sharper for firms most dependent on foreign workers. The Government will also increase levies for less skilled Work Permit Holders by S$150 between July 2013 and July 2014.

•        The qualification criteria for all S- Passes will also be tightened. From July, the minimum S- Pass qualifying monthly salary will be S$2,200, up from S$2,000. The Government will introduce a tiered salary system based on age and qualifications, such that older and more experienced S- Pass applicants will need to qualify at higher salaries.

•        For Employment Passes, the eligibility requirements will continue to be tightened, especially for Q1 pass holders.

•        Three-Year Transition Support Package, with consists of two components that impact HR: the Wage Credit Scheme (WCS) and the Productivity and Innovation Credit (PIC) bonus.

•        WCS: the Government will co-fund 40% of wage increases for Singaporean employees over the next three years, applicable for those earning up to S$4,000 monthly. The scheme will cost the Government about S$3.6 billion over three years.

•        PIC bonus: Aims to boost productivity. Businesses that invest a minimum of S$5,000 per year of assessment will receive a dollar-for-dollar matching cash bonus, of up to S$15,000 over the three years of assessment. The PIC bonus is expected to cost S$450 million over three years.

•        Low income workers will also have their CPF employer contribution rates restored to the same level as higher income workers of the same age, starting January 2014.

 

Impact of foreign worker quotas

Facing growing public opposition to the relatively liberal immigration policies, the Singapore Government has announced a slew of measures to limit the influx of foreign workers over the past year. These aim to ensure companies give fair consideration to Singaporeans, who should form the ‘core’ of the workforce.

“With this in place, it will mean that local talent is protected but companies should still have the flexibility to hire highly-skilled foreign professionals should they require,” says Mark Hall, Vice President, Country General Manager, Kelly Services Singapore.

These recent policy changes have indeed added pressure to HR and hiring managers. Although Robert Walters Singapore primarily recruits mid-to-senior management roles, its clients hire across all levels of seniority.

“Companies now have to think of creative ways to attract and retain the blue-collar employee pool which typically see a higher turnover rate as well as a more voluminous headcount,” says Gwen Lim, Manager – HR Division, Robert Walters Singapore.

“Organisations need to review and rethink their recruitment channels and consider their total workforce strategy. By doing so, they can assess which job functions have available candidate pools in both the local pool and foreign market workforce so as to ensure they do not exceed the set quotas.”

Andrew Norton, Regional Managing Director – Southeast Asia, PageGroup says the recruitment firm has had to turn down many applications from overseas candidates and direct them to other markets where possible.

“These policy changes also mean Singapore misses out on available talent,” says Norton. “Some roles in the country are now more difficult to fill due to skill shortages. Time-to-hire is also longer as the talent pool is limited.”

 

Foreign workers: Quotas and Restrictions

The following factors will determine the amount of levy to be paid:

•        Worker’s qualification

•        Dependency Ceiling (for selected sectors only)

 

Table 1 - Foreign Worker Levies applicable to Work Permit holders

Sector

Dependency Ceiling Segmentation

Worker category

Levy rate ($)

Monthly

*Daily

Manufacturing

Workers will be further assigned to different tiers within the company Dependency
Ceiling limits.

 

Employers in this sector are entitled to skilled levy rates for their foreign workers, up to 50% of the total workforce

Basic Tier / Tier 1: Up to 25% of the total workforce

Skilled

230

7.57

Unskilled

330

10.85

Tier 2: Above 25% to 50% of the total workforce

Skilled

330

10.85

Unskilled

430

14.14

Tier 3: Above 50% to 60% of the total workforce

Skilled

500

16.44

Unskilled

Services

Workers will be further assigned to different tiers within the company Dependency Ceiling limits.

 

Employers in this sector are entitled to skilled levy rates for their foreign workers, up to 25% of the total workforce

Basic Tier / Tier 1: Up to 15% of the total workforce

Skilled

270

8.88

Unskilled

370

12.17

Tier 2: Above 15% to 25% of the total workforce

Skilled

380

12.50

Unskilled

480

15.79

Tier 3: Above 25% to 45% of the total workforce

Skilled

550

18.09

Unskilled

Construction

Employers pay the foreign worker levy according to the qualification of these workers.

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