Singapore’s Crackdown on Foreign Workers

March 9, 2015

Since 2012, the Singaporean government has introduced new legislation aimed at reducing the number of work permits issued to foreign workers and expanding employment opportunities for domestic workers.

 

Worker Crackdown Part of a Long-Term Development Strategy

 

According to the Organisation of Economic Co-operation and Development, the Singaporean government has introduced the new regulations as part of its goal of building 'a high-skilled, innovative economy and distinctive global city by 2020.'

 

While the high-level strategy seems clear, the underlying motivating factors and goals are less so. Looking at recent research and comment, the driving forces behind the policies break down as follows: 

 

  • Shoring up political support: Chun Han Wong of the Wall Street Journal states that, ‘Many citizens blame the influx of workers for overcrowding, soaring home prices and depressed low-end pay. The governing People's Action Party has lost support in part due to past policies that have boosted the number of foreign residents in Singapore. It has lost two by-elections since its vote share fell to a historic low in the 2011 general election.’

 

  • Phasing out low-value added industries: Singapore’s previous policy of liberalising its foreign worker and immigration policy boosted the supply of low-wage foreign workers and encouraged businesses to invest in low-value added sectors such as textiles and primary manufacturing. By cutting off the supply of cheap labour, the Singaporean government hopes to push business investment away toward higher-value added industries, such as TMT, aeronautics and biosciences.

 

  • Raising real wages in skilled sectors: Limiting the supply of foreign workers raises wage levels in skilled sectors, such as technology and business services, and gives domestic workers a stronger financial incentive to enter new, fast-developing industries. 

 

  • Driving investment in domestic human capital: Government initiatives, such as the Workfare Training Support and Continuing Education and Training scheme, aim to give incentives to employers to send their workforce for skill development by subsiding course fees and giving bonuses for course completions. 

 

  • Promoting small-to-medium sized (SME) business investment: the Singaporean government is offering a range of incentives and inducements to drive SME investment, including rebates on research & development expenditure (R&D), tax deductions on patent applications and registrations and spending allowances on IT equipment. Clearly, the focus is on the higher end business sector, as the government attempts to shift the structure of the country’s industrial base. 

 

Upward Wage Pressure in Short-Term

 

In the short-term, the government’s attitude will impact wages and result in higher labor costs for corporates in Singapore. Also, it may prove to be difficult for businesses to transition and upgrade, since these moves require adjustment periods and a steady, available source of human capital to support operations. 

 

Singapore's Advantage: Commitment to Long-Term Strategy Gives Clarity to Corporate Investors

 

Looking longer-term, Singapore’s approach will most likely support its quest to establish itself as a world class hub location. It is already well-regarded as a business base, receiving high scores in World Bank appraisals of its business environment and logistics and infrastructure facilities. Moreover, it has a clear strategy which is comparatively unencumbered by the political opacity and potential for unrest that affects Hong Kong, its main regional rival. 

 

Singapore: A Microcosm of Long-Term APAC Development Trends

 

From a regional perspective, the trends playing out in Singapore speak to larger, more abstract themes that can be expected to drive the region over the next 20 years, such as the shift toward high-value added manufacturing, the stripping out of low-end industry, a more circumspect attitude to foreign labor, growing incomes amongst the domestic labor force, maintaining Asia-Pacific as an investment hotspot and increasingly competing with the developed world.

 

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