by Tan Shih Ming
SINGAPORE, Oct. 31 (Xinhua) -- As the Singapore government weighs various options on how to navigate the city-state in the years ahead, there are signs that whatever path the government takes would have serious social and economic repercussions.
In January next year, the Singapore parliament will vote on a population policy that would determine how open Singapore's doors would be to foreign workers.
The city-state had in the past few months conducted rounds of small and large public forums constituting a national conversation about growth and the population policy.
The objective of the national conversation is to forge some consensus on how Singapore should move ahead, particularly on immigration and foreign labor policies, and balance the trade-off between aging demographics and social costs from a growing foreign population.
With headline inflation rebounding 4.7 percent on-year in September from 3.9 percent on-year in August, well above the market consensus of 4.3 percent, and the inflationary bias widely expected for a while due to the policy of restricting foreign labor inflows, the public discussions about the future is timely for Singapore.
Unfortunately, it is also widely understood that any decision will be a difficult one since all options on the table come with costs.
On the one hand, stricter immigration and foreign worker policies are intended to improve the quality of life for citizens, with less congestion and competition for housing, and a more protected job market. But the costs will be lower potential growth, a less dynamic job market, and higher wage-cost inflation.
A Bank of America-Merrill Lynch research said the shift to a stricter labor policies will also lead to lower tax revenue growth which could in turn limit social spending, even as needs from an aging population grow. Property, which counts for slightly more than half of household wealth, will likely be impacted if tightening is too abrupt, impairing life savings of Singaporean residents.
The American bank research estimated that employment growth would have an additional 150,000 jobs under liberal policies versus the estimated additional 115,000 jobs in 2012 under a stricter one. Jobs foregone because of stricter labor policy is about 35,800. Negative impact on gross domestic product growth is about 1.3 percentage points.
On the contrary, gross domestic product growth under a more liberal policy would have come in at about 3 percent this year, if the government accommodated the labor needs of companies, versus the 1.7 percent growth average over the first three quarters this year.
However, the return to liberal policy is very unlikely going forward as the last election of the city-state has already indicated that the liberal labor policy is proven unpopular among many local residents who believed that foreigners had taken away jobs and jacked up property prices.
The ruling government is clearly aware that the adoption of same labor policies as in the past decade could be politically disastrous in the next election.
Restructuring towards a more productivity-driven growth model in response to tighter labor policies has been disappointing so far, said the Bank of America-Merrill Lynch.
Productivity growth was zero last year and negative this year, despite government initiatives and funding. Higher foreign worker levies and stricter quotas have not spurred productivity.
One reason is that companies are unwilling to spend on technology and equipment, given both global and policy uncertainty. Another reason is that greater protection of the labor market has shielded competition, thereby reducing the incentive for workers to increase productivity. Job hopping and wage increases, rather than productivity gains, may instead be the outcome of a stricter foreign worker policy.
With sluggish manufacturing job creation and intensifying wage cost inflation, the new policies concerning population and labor announced early next year in the city-state will be watched closely by many.
Indeed, Singapore is approaching a crossroad of development in which any path taken will determine if its current economic losses could be narrowed and if its longer-term social objectives could be met.
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