Foreign Labour in Singapore –Rationale, Dependence and Policies

1. Foreign Labour in Singapore –Rationale, Dependence and Policies Dr CHIA SiowYue Singapore Institute of International Affairs World Bank Videoconference 16 February 2012

2. Rationale and Dependence (1) • Many reasons for Singapore’s policy on immigration and foreign labour. • 1st, to maintain and expand population size: Think tank (IPS) study shows with base year 2005, TFR declining to 1.24 and with zero migration, population size will peak in 2020 (resident population 3.68 million) and decline thereafter. • Why the concern over declining numbers? ---Loss of economies of scale in manufacturing & services; loss of economic dynamism; demographic onus and labour shortage • 2nd, to improve the population age structure – Singapore is in transition from demographic bonus to demographic onus with declining proportion of working age and rising proportion of elderly. • IPS study shows the ratio of working age to elderly will decline without further in-migration from 7.7 in 2010 to 2.5 by 2030 and 1.7 by 2050. The declining ratio can be offset by extending the retirement age, but aggravated by rising life expectancy. • Ageing population increases social spending on healthcare and elderly care

3. T1: Population and Labour Force- Actual and Projections

4. Rationale and Dependence (2) • 3rd, to grow the labour supply and skills, so as not to constrain economic growth and economic restructuring (Table T2) • Measures to increase supply of labour include => increase LFPR of females and elderly; inflow of foreign labour • Measures to increase supply of skills include => further expansion of post-secondary and tertiary education ; expansion of training facilities and programmes to upgrade those already in the labour market; inflow of foreign “talents”. • Measures to reduce demand for labour include => upgrade economic structure away from labour intensive activities; pressure businesses to adopt labour-saving operations and improve productivity performance • 4th, to increase GDP and per capita GDP • Important to grow the per capita GDP of citizens as well as overall GDP growth

5. T2: Resident and Non-resident Labour Force

6. Rationale and Dependence (3) • 5th, to act as buffer during business cycles • The “foreign tap” can be turned on in times of boom and off in times of recession But practice of “labour hoarding” by businesses and “minimal retrenchment” by NTUC. • Measures that are not carefully calibrated could result in perception that foreigners are taking away jobs from citizens during a recession • 6th, to contain rising wage cost for businesses • Large inflow of low-skilled workers kept the lid on wages of low-skilled citizens. Worker levy helped narrowing the gap between the reservation wage of citizens and the reservation wage of foreign workers • Introduction of the Workfare Income Supplement (WIS) indicates that the wages paid to low-skilled citizens is below a living wage. The WIS is seen as a substitute for a minimum wage. • Singapore no longer competitive in low-wage activities and should accelerate economic upgrading. Longer term solution to improve innovation and R&D and upgrade the education, skills and productivity of citizens.

7. Rationale and Dependence (4) • 7th, to fill vacancies in low-wage unpleasant jobs • Singaporeans are better educated and low-skilled Singaporeans are shrinking in supply. With rising affluence and tight labour market, even low-skilled Singaporeans are shunning perceived 3D occupations (dreary, dirty and dangerous), such as household maids, cleaning labourers, construction workers, retail salesmen • Table 3 shows foreign labour concentrated in manufacturing, construction sector, and community/personal services. Sectoral dependencies on foreign labour are highest in construction followed by manufacturing and services. Foreign labour needed to maintain level of construction activity and construction costs; slowdown the relocation of manufacturing to cheaper labour locations; maintain Singapore’s much lauded garden city and clean streets; foreign maids maintain quality of life of Singaporean households and the working careers of married women.

8. T3: Sectoral Distribution of Resident and Foreign Labour 2008

9. T4: Foreign Labour and Singapore Stakeholder Interests

10. Population and Manpower Management Government Agencies • National Population and Talent Division in the Prime Minister’s Office has the following responsibilities --- population augmentation; supporting marriage and parenthood; talent attraction and retention; immigration, naturalisation and integration of newcomers; and engaging overseas Singaporeans. • Immigration and Checkpoint Authority of Singapore --- issues visas and permits for entry into Singapore • Ministry of Manpower • Responsible for employment practices; skills, training and development; foreign manpower; workplace safety and health. • Conducts annual labour force surveys and collects data on the labour market. • Reviews and coordinates the overall manpower planning framework • Administers the foreign workforce policy, including movement of natural persons in FTAs

11. Foreign Labour Management Policies (1) • Singapore has a more open foreign labour policy than most Asian countries. Foreign labour forms 1/3 of the labour force, more than most countries in the region. In most countries (including labour-sending ones), there are restrictive visa requirements, citizen employment is protected by legislation against “alien” workers and restrictive Mode 4 entry of foreign service suppliers. • Singapore’s policies divided into 4 periods • From 1970s – severe labour shortage, large inflows from Malaysia and extended to non-traditional sources, work permits and worker levies introduced, inflows of FDWs allowed • From early 1980s -- attempt to limit inflows failed. Comprehensive levy system and dependency ceilings introduced • From 1990s -- booms and recessions saw policy relaxation and tightening respectively • From 2009 onwards – tightening due to recession and social limits

12. Foreign Labour Management Policies (2) • Policies divided into 3 categories of foreign labour --- professionals and skilled workers; unskilled and semi-skilled workers; and illegal and irregular workers • Policy instruments used • Quantitative -- work permits, employment passes and dependency ceilings • Price -- worker levies • Qualitative – skills and educational requirements • Others -- geographical, gender and age preferences • Policies toward professionals and skilled labour --- generally “welcoming” through employment passes; active recruitment of “foreign talent”; prospects of permanent residence and citizenship. • Policies toward low-skilled labour --- managing their numbers through work permits, worker levies, and dependency ceilings --- no permanent residence or citizenship. • Illegal workers --- strict penalties including for employers and others who harbour them

13. Management of Foreign Skilled/Professionals • Open door policy because of shortage of skills in relation to requirements of MNCs and building a knowledge-based economy • Active recruitment of “foreign talent” through overseas missions, websites and specialised agencies, fellowships and scholarships offered • Type of employment passes catering to different professionals and skill types (Table 5) • Covers mainly professional, managerial, executive and technical occupations • Acceptable educational and training qualifications and work experience • No quantitative limits imposed, except for S Pass • Salary differentiation for different types of Passes • Contracts of 1-5 years, renewable • Allowed to bring in family and dependents • Eligible to apply for Permanent Residence and after 2-6 years apply for Citizenship. No dual citizenship allowed

14. T5: Employment Passes for Professionals/Skilled

15. Management of Foreign Unskilled and Semi-skilled (1) • Strict controls over inflows of unskilled/semi-skilled labour exercised through work permits, work levies, dependency ceilings, skills qualifications and age restrictions • Employment of Foreign Workers Act specifies responsibilities and obligations of employers • Work permits for those earning not more than S$1800 per month: To control numbers of unskilled/semi-skilled workers • R1 pass for semi-skilled, R2 pass for unskilled (Table 6) • Tied to specific employer, renewable 2-year permits; not allowed to bring family • Worker levy: to narrow the gap between reservation wage of citizens and wage demands of foreign workers. Amount of levy has been fine-tuned over the years to meet changing labour market conditions. Worker levy varies with sector, skills and dependency ratios

16. Management of Foreign Unskilled and Semi-skilled (2) • Dependency ceiling: This refers to the proportion of foreign workers a firm can employ in relation to its total workforce. The objective is to control the preference of employers for lower-wage and more compliant foreign workers over citizen workers. • The dependency ceiling is sector specific (except for household maids) and firm-specific and can range from 10% to 80%. The worker levy rises with a firm’s dependency ceiling, that is, employers have to pay a penalty for hiring a higher proportion of foreign workers. Across sectors, the dependency ceiling is highest for the construction sector, and reflects the difficulty of recruiting citizen construction workers. The dependency ceiling has been adjusted over the years according to changing labour market conditions • Man-year entitlement (MYE) for construction sector: Number of foreign workers permitted in a construction project is determined by the MYE formula – for example, if MYE entitlement is 100 man-years, the contractor can have 100 men on 1-year contract, or 50 men on 2-year contract

17. Management of Foreign Unskilled and Semi-skilled (3) • Skills qualifications: • R1 work permits issued to those with relevant qualifications and subject to lower worker levy; R2 work permits issued to the unskilled • Skills upgrading available for the foreign unskilled workers • Skills qualifications have also been introduced for foreign domestic maids • Age restrictions --- All foreign workers must conform to Employment Act minimum age of 16 years for employment • Geographic preference --- preference for foreign workers from Malaysia as well as those similar to Singapore’s major ethnic groups (Chinese, South Asians, Malays).

18. T6: Worker Levy, Dependency Ceiling for Unskilled/Semi-skilled Workers

19. Management of Illegal Foreign Labour • Strict controls and relatively successful implementation due to: • Concerns over national security and public safety, human trafficking, and social disorders. Information and education of the Singapore public of the risks of employing and harbouring illegal migrant workers • Well patrolled borders, small land area and relative absence of rural informal sectors in which illegal migrants can seek refuge and employment • Transparent and efficient implementation of immigration laws and regulations and work permit requirements and processes. Strict and efficient law enforcement and relative lack of corruption of enforcement agencies • Severe penalties for law breakers (fines and imprisonment) for illegal foreign workers as well as errant employers, errant landlords and all those who harbour the illegal migrants.

20. New Foreign Labour Policies to Manage Citizen Concerns (1) • Singaporeans, due to history and population mix, are less xenophobic than citizens of many Asian countries. However, the large influx of foreigners in the last decade, particularly in 2006-2009 unsettled many citizens. The discontent became more vocal when white-collar Singaporeans were retrenched in 2008-2009 and unable to find alternative employment. The unemployment rate among citizens and PRs rose to 5.9% in 2009. • Coupled with rising housing prices, and perceived crowding out by foreigners of public spaces and public services such as bus and MRT transportation, healthcare facilities and education facilities, the social discontent grew as manifested in the print media and social networks.

21. New Foreign Labour Policies to Manage Citizen Concerns (2) • Government responses were perceived as not adequate: • In August 2009 the Prime Minister tried to assuage the citizenry by declaring the government would slow the inflow of foreigners and cap it at 30% of the workforce. • The Economic Strategies Committee report released in Feb 2010 stressed the need for Singapore to pursue increased productivity and reduce dependence on foreign labour through gradual increases in the worker levy. • The Finance Minister in the Feb 2010 Budget announced a gradual increase in the foreign worker levy spread out over 3 years, between July 2010 and July 2012, to give firms time to restructure their operations. • The government had to ensure its citizenry that they have priority over foreigners and various government fees and costs were restructured to reflect preferential treatment for citizens.

22. New Foreign Labour Policies to Manage Citizen Concerns (3) • In the May 2011 General Elections, citizen unhappiness over various issues, including foreign workers, led the ruling party, the PAP, to lose some crucial seats and popular votes. The PAP government responded, inter alia, by promising to cap the foreign worker intake and improving citizens’ access to public housing, transportation, healthcare and tertiary education • Government policies aim to reduce longer-term dependence on foreign labour through: • Accelerate economic restructuring to raise productivity performance and reduce the dependence on low-skilled foreign labour • Accelerate education and training to increase the citizen pool of skilled and professionals • Re-design low-paying manual jobs to improve their productivity, ability to pay higher wages, and better working conditions. Low wage earners also receive income supplements under the Work Improvement Scheme

23. Policy Challenge – Capping the Numbers and Ensuring the Quality of Foreign Workers • Is it feasible to cap foreign workers (high-skilled and low-skilled) at 1/3 of the total workforce? • Would require that foreign labour grow only at the same rate as citizen labour. Since the tightening of foreign labour inflow, employers have been complaining of labour shortages and higher worker levies and lobbying for a policy relaxation. • Currently, low-skilled far outnumber high-skilled foreign workers. This ratio would have to change drastically in favour of high-skilled. Would economic restructuring and job-upgrading be able to proceed fast enough? Would accelerated economic restructuring penalise local SMEs in manufacturing and services unduly vis-à-vis foreign MNCs? • How would the Singaporean public react to a deterioration in services with shortages in foreign service workers? • Foreign professionals, managers and innovators will command a rising premium in the world market. Will Singapore remain an attractive destination for such foreigners? Will the diaspora return to PRC, Taiwan, ASEAN and India as these countries develop and offer better economic and employment opportunities?

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