Economic

Restructuring
Dr. Sng Hui Ying
  A structural change in the economy
 Agriculture to manufacturing to service
 Lower value-added activities to higher
What is value-added activities
Economic  Labour intensive activities to capital and
Restructuring? technology intensive activities
 Can we accelerate economic
restructuring?
First Economic
Restructuring
1979-1981
  Mr. Deng Xiaoping had just started China’s
Open Door Policy (改革开放)
 To reform the rigid command economy
 To trade
 To welcome foreign direct investment
What had  Singapore in 1979?
happened in  Labour-intensive economic activities of low
value-added and low technological level
1979?  Overcautious wage restraint policy between
1975 – 1978 resulted in low productivity
growth and large scale of importation of
foreign workers
 Could Singapore compete with China in a
much more competitive world?
  “Thousands and thousands of Singapore
workers were working as car-park
attendants, lift operators, petrol kiosk
operators, porters, messenger boys and
Singapore in coolies. There were then only single-decker
buses, with ubiquitous bus ticket sellers and
1979 bus ticket inspectors.”
 What would be the future of these very-
low paying workers in an increasingly
affluent Singapore?
  A very attractive place for foreign direct
investment
 Labour market was tight with
Singapore in unemployment rate of 3.5%
1979  Labour shortages hampered the entry of
new and better industries
 How can the replacement of industries be
accelerated?
  Aims:
 To restructure the economy to higher
technological level through higher
productivity and better wages
 Adoption of a wage policy which will
Economic encourage more productive use of labour
through increasing mechanization
Restructuring
(1979 – 1981)
 Buzzwords:
 Use one worker instead of two
 Substitution of capital for labour
 Mechanization, computerization and
robotization
 1. Substantially raise wage costs at 20% per
year
 Limit to 3 years (1979 – 81)
 Possible effect on unemployment
 Training and re-training necessary
Two Key  Possible effect on inflation
Strategies in  Mopped up by CPF
Economic  Mopped up by SDF
Restructuring
2. Set up the Skills Development Fund (SDF)
 Training and re-training of workers
 Substitution of capital for labour
 Raising productivity of labour
  1979 (increase in wage costs of about 20%)
 Wage increase guidelines of $32 + 7%
NWC’s  Additional 4% in rate of CPF contribution to
Recommen- be paid by employers only (from 16.5% to
20.5%)
dations
 2% of monthly wage for employee earning
$750 and below to be paid into SDF
  1980 (increase in wage costs of about 19%)
 Wage increase guidelines of $33 + 7.5% for
average performers
 Additional 3% for above average performers
 Additional 2% of monthly wage of employee
earning $750 and below to be paid into SDF
NWC’s  Additional 1.5% of in rate of CPF contribution to
Recommen- be paid by employees only (from 16.5% to 18%)

dations  1981 (increase in wage costs of 14-18%)

 Wage increase guidelines of $32 + (6% to 10%
range)
 Additional 2% for meritorious performers
 Employees’ CPF contribution to increase from
18% to 22% (government’s initiative, not NWC’s
recommendation)
  Formed in Nov 1979
 4% “cess” on wages below $750 (started with 2%
in 1979)
 A compulsory payment without quid pro quo
 Benefits not related to payment
Skills  A training fund paid for by employers to finance
Development training programmes and to subsidize
mechanization cost
Fund (SDF)  Conversion of “liquid cash to solid human
capital”
 Collection of Fund undertaken by MOF,
disbursement of Fund managed by SDF Advisory
Council which was a tripartite structure with 12
members
 (1) Training Grant Scheme
 Objective: To provide financial incentives to firms
to train and re-train their employees
 Subsidize training programmes that are directly
relevant to the skills development requirements
Skills of organizations
 All employers who contribute to SDF are eligible
Development to apply; applications from individuals are not
Fund – considered
 Inclusive of all employees
3-pronged  Organizations that took the initiative to train
approach and re-train their employees benefited from the
scheme
 Subsidy of 30%, 50%, 70% of agreed training
cost
 Co-payment to ensure that Fund is properly
used
 (2) Interest Grant for Mechanization Scheme
 Objective: To provide financial incentives to firms
to undertake mechanization that is capable of
Skills achieving savings in labour usage, increase in
productivity, or introduction of more skilled
Development operation
Fund –  Grant of half of the interest cost of the loan on
hire purchase of machinery and equipment
3-pronged subjected to a maximum of 7%
approach  Companies to get loans from banks or finance
companies
 SDF officers to certify authenticity
 SDF Advisory Council to approve
 (3) Development Consultancy Scheme
Skills  Objective: To provide adequate financial
incentive to local companies to engage in
Development short-term consultants to study and advise
Fund – on the upgrading of any facet of business
operation
3-pronged  Subsidy of 30%, 50%, 70% of allowable
approach costs of engaging experts; not the costs of
implementation
  Employers to initiate action in all three
programmes
 Very small firms at disadvantage
Economic  Most successful: manufacturing, transportation,
government
Restructuring
 Least successful: domestic sector and retail
1979 - 1981
 Favorable conditions:
 Further inflow of foreign investments
anticipated
 Tripartite support for restructuring
 Year Take-home Gross Wage Gross Wage
pay (nominal) (real)
(real)
1976 6.6 4.7 6.6
1977 3.5 7.2 4.0
1978 -0.3 6.3 1.2
1979 3.8 11.1 6.7
Growth Rate
1980 3.3 14.9 6.0
of Wages (%) 1981 1.8 14.1 5.3
1982 7.6 16.1 11.8
1983 6.9 10.0 8.7
1984 5.1 10.6 8.0

Note: Gross wage includes both employer’s and employee’s CPF

contributions.
Economic
Restructuring since
2010
  Set up in May 2009, recommendations on new
growth strategies submitted and accepted in Jan
2010
 Issue of low productivity growth raised
 Low average annual productivity growth of 1
Economic percent in 2000s
 Productivity accounted for only one-fifth of
Strategies economic growth; expansion of workforce
Committee accounted for the rest
 Main sources of weak productivity growth:
(ESC) restaurants and real estate services, and
construction.
 Overall manufacturing productivity grew at
about 1.4 percent, although performance varied
widely within the sector. Electronics,
pharmaceuticals, and transport engineering
industries registered strong productivity growth
Cross-
country
Productivity
Comparison
  Target: To achieve a productivity growth of 2 to 3
percent per year in the 2010s
 More than double the 1 percent growth rate
achieved over the previous ten years
 To account for two-thirds of GDP growth

 Labour force projected to grow much slowly in

Target of the 2010s
Productivity  Resident labour force grew by 3 percent per year
in the 2000s; expected to grow only half as fast
Growth in the 2010s
 Need to moderate the growth of foreign labour
to avoid running against physical and social limit

 Productivity growth of 2 to 3 percent + slower

growth in labour force = GDP growth of 3 to 5
percent
Key Strategy 1. Encourage enterprise innovation and investments in
1: Growing technology and training

through 2. Upskill people at all levels

Skills and 3. Strengthen support for low-wage workers

Innovation 4. Manage of foreign

Management worker
of foreign dependence
workers dependence
Management  “If access to labour is too easy, companies will
of foreign have little incentive to invest in productivity
improvements, which will affect our efforts to
workers upgrade the skills and wages of lower-income
dependence Singaporean workers.”
 1600

1400

1200

1000

Management
of Foreign
('000)

800

Workers 600
623

Dependence 400

200

0
1991 1993 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Non-resident Labour Force

28
 1600
Tightening of foreign
1400
workers inflow

1200

1,012
1000

Management 62%

of Foreign
('000)

800

Workers 600
623

Dependence 400

200

0
1991 1993 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Non-resident Labour Force

29
 Employment
Professionals
Pass (EP)
Foreign
Workforce in Foreign
Workforce
Mid-level skilled
workers
S Pass (SP)

Singapore
Semi-skilled or Work Permit
unskilled workers (WP)

Most affected by the

tightening of foreign
worker policy

30
 Other Work
Employment
Passes
Pass (EP)
3%
14%

Foreign S Pass
14%

Workers in Work Permit

(Others) Work Permit
Singapore 49% (FDW)
20%
(Dec 2020)

31
  Foreign worker levy
 Pricing mechanism to regulate the number of
foreign workers in Singapore
 Vary by sectors (e.g. construction, manufacturing,
marine shipyard, process, service), skill levels, and
share of foreign workers in total workforce
Foreign
 Dependency ratio ceiling
Worker  Maximum permitted ratio of foreign workers to
Policies total workforce that a company is allowed to hire
 E.g. DRC of 60%: A local workforce of 100 would
allow the firm to hire a maximum of 150 foreign
workers; 150/250 = 0.6
 DRC for manufacturing used to be 65%: A local
workforce of 100 would allow the firm to hire a
maximum of 185 workers; 185/285 = 0.62

32
Tightening of  Policy measures:
 Foreign Worker Levies were progressively raised
Foreign from 2010.
Workers  Dependency Ratio Ceiling were progressively
lowered from 2012.
Inflow Since  Eligibility criteria for Employment Pass (EP) and
2010 S Pass holders raised.
  Monthly FWL of manufacturing sector
In 2010 Unskilled Skilled
Basic Tier: Up to 40% of total $240 $150
workforce
Changes to Tier 2: Above 40% to 55% of total
workforce
$280 $150

Foreign Tier 3: Above 55% to 65% of total $450 $450

Worker workforce

Policies In 2022 Basic Higher

Skilled Skilled
Basic Tier: Up to 25% of total workforce $370 $250
Tier 2: Above 25% to 50% of total $470 $350
workforce
Tier 3: Above 50% to 60% of total $650 $550
workforce

34
  The tightening of foreign workers inflow resulted
in labour shortage and wage increases for local
workers
 “Transition support package”
 FY2013 Budget for period 2013–15
Government  Extensions and new measures were announced
in FY2015 and FY2019 Budgets
Financial
 Wage Credit Scheme
Support  Government to co-fund 40% of wage increase of
Singaporean employees over the period 2013 –
2015
 Twice extended till 2020 with reduced co-
funding of wage increase

 Corporate Income Tax Rebate

  Productivity and Innovation Credit (PIC) and PIC
Bonus
 PIC scheme provides tax deductions/allowances
and cash payout for investment in innovation
and productivity improvements
 PIC Bonus: additional cash bonus
Government  PIC scheme expired in YA 2018

Financial  Productivity Solutions Grant (wef April 2018)

Support  Encourage adoption of pre-scoped, off-the-shelf
technologies
 Funding support for up to 70% of qualifying costs

 Tax Deduction for Research and Development

 Tax deduction for qualifying expenses incurred
on R&D done in Singapore raised from 150% to
250%.; takes effect from YA 2019 to YA 2025
The End