Labour in Singapore’s post-COVID-19 economy

Academic Views, Coronavirus / Tuesday, June 2nd, 2020

Economists Pang Eng Fong and Linda Lim (emeritus professors of strategy at the Lee Kong Chian School of Business, Singapore Management University, and the Stephen M. Ross School of Business, University of Michigan, respectively) discuss the implications of the COVID-19 crisis for the position of migrant labour in Singapore’s economic model. Samantha Teresa, SMU BBA 2020, provided research assistance.

Labour in Singapore’s economic model

The COVID-19 outbreak in foreign worker dormitories has shone a spotlight on Singapore’s longstanding economic growth model.  In this century, especially, this model has relied heavily on transient foreign labour at all levels of the labour force. Since 2015, foreigners have accounted for 37.6 percent of total employment, with Work Permit holders (71.2 percent of all foreign workers) accounting for 26.8 percent, and construction and foreign domestic workers for 14.8 percent, of the total (Ministry of Manpower, 2020a).

As economic analysis predicts, this high dependence on low-skilled foreign workers has contributed to excessive labour-intensity and low productivity growth, particularly in shipbuilding and non-tradable services like construction, retail and hospitality. Paradoxically, persistent low productivity, and diminishing returns, have reinforced Singapore’s “extensive growth model”, requiring even more foreign labour as GDP growth slows (Pang and Lim, 2015).  In 2019, foreign employment grew by 3 percent, compared with 1.2 percent for local employment.  The numbers of Employment Pass holders increased by 4.3 percent, S-Pass holders by 2.3 percent, and Work Permit holders increased by 2.7 percent. The last category includes foreign construction workers, who increased by 4.6 percent (Ministry of Manpower, 2020b). Real GDP grew by 0.7 percent and value-added per worker (productivity) fell by 0.7 percent (Department of Statistics, 2020).

Professor Chan Heng Chee, Chair of the Lee Kuan Yew Centre for Innovative Cities at the Singapore University of Technology and Design, has noted that “it is almost certain that the current economic model—one that relies heavily on migrant workers for growth and development—will be rethought. The promotion of technology to increase productivity, long advocated by the government, will be stepped up with a greater urgency to reduce the reliance on manpower for productivity.” (Chan, 2020) 

The impact on labour of the post-COVID-19 economy

The long-term economic impact of COVID-19 is uncertain, but demand for labour will likely not rebound quickly. In a recent survey of small businesses in the US (NBER, 2020), 79 percent cited lack of demand as an important problem, while 57 percent cited employee health and 35 percent supply chain disruptions. This situation will not disappear completely, even after vaccines and treatments are developed and the ‘fear factor’ is diminished.

COVID-19 and the measures it has occasioned, such as the Circuit Breaker, will have a long-lasting impact on commercial activity and consumer demand. (Photo: Teo You Yenn)

First, in the short term, Singapore’s overall economy will slow, reducing demand for labour. In the business sector, uncertainty, slower growth and caution will restrain new investment. Among consumers, spending on discretionary activities like restaurants, bars, spas, gyms, travel and entertainment in crowded venues (like cinemas, theaters, casinos, theme parks, sports stadiums and even shopping centres) will fall. 

Second, new technology and technology-enabled changes in business operations will reduce demand for labour in certain sectors and occupations. To reduce the risk of human-to-human COVID-19 transmission, and to save on costs like facility rentals and business travel, certain developments will become more widespread. These include accelerated automation, permanent shifts to remote working and business meetings, the consolidation of manufacturing supply chains in fewer locations and the dispersal of business services employees (consultants, engineers, software programmers, designers, marketers, financiers, trainers) to more locations.

Following the 2007-09 financial crisis, automation accelerated in the US. An April 2020 survey by KPMG found that 67 percent of US tech workers feared losing their jobs to digitalisation and AI, compared with 44 percent of non-tech workers (Loten, 2020).  Tech firms are also most likely to allow employees to work from home permanently. This will have knock-on effects on demand for office and factory space, public transportation, hotels, restaurants and bars, leading to “declines in big-city office rent, closures of urban retailers and reductions in service employment in cities” (Torry, 2020). In Singapore, all of these economic activities depend heavily on foreign labour.

The authors suggest that increased use of remote working will affect demand for office space and associated economic activity. (Photo: Wikimedia/Entropy1963)

Third, there will likely be a “de-densification” of cities due to pandemic adjustments, leading to “reverse urbanization” (UN Habitat, 2020;  Hui and Png, 2020). This will reduce demand for both residential and commercial property, its construction and maintenance.

Fourth, post-COVID-19 adjustments will intensify existing trends torward de-globalisation (Lim, 2019; Economist, 2020, May 14; Hannon and Woo, 2020). Lower cross-border trade, investment and people flows, together with the national and regional consolidation of supply chains, and reductions in international travel, tourism, education, aviation, shipping and MICE (meetings, incentives, conferences, exhibitions) activities, will dampen demand for labour in these sectors, which in Singapore employ large numbers of foreigners.

Fifth, the positive environmental effect of global shutdowns and negative economic growth–such as the 17 percent reduction in global emissions experienced in April (Quéré et al., 2020), with its attendant health benefits and cost savings—will increase political and social pressure on countries to more drastically reduce pollution through energy-saving policies and technologies (Economist, 2020, May 21). Singapore is a relatively high-emissions country (World Bank, 2015), in part because of an industrial structure heavily reliant on energy-intensive petroleum refining, chemicals, electronics and data centres. COVID-19 is already accelerating worldwide innovation in and adoption of renewable energy, which will further depress Singapore’s large fossil-fuel industry and ancillary services.

Jurong Island is home to a substantial presence of petrochemical industry—a sector which the authors contend will be depressed by a worldwide move toward renewable energy. (Photo: William Cho)

Though most governments’ COVID-19 policy responses, including Singapore’s, have focused on enabling businesses/employers to retain workers in existing jobs, not all jobs can or should be saved.  The NBER 2020 study (above) found that only 38 percent of small businesses surveyed believed they would remain open if the crisis lasted six months, but the differences between industries was stark.  More than 50 percent of banking/finance and professional services firms expected to survive, compared to only 33 percent of non-grocery retailers, 27 percent of tourism/lodging operators, 22 percent of personal services, and 15 percent of restaurant/bar/catering services.  Singapore is more heavily dependent on the latter sectors than the US—all employing large numbers of low-paid foreign workers—and they are bound to shrink post-COVID-19.

The public health impact of the COVID-19 experience

Even as demand for foreign labour in Singapore falls, the cost of employing low-wage foreign workers will increase. Their dormitories need to be restructured, for example, to be less dense, with employers and final consumers rather than taxpayers bearing the increased cost.

Safer work protocols will also be needed, such as transport to worksites that allows for social distancing, less crowding and staggered shifts on worksites, personal protective equipment, and frequent disinfecting. These will also increase costs, reducing margins and thus the incentive to hire in affected sectors, while simultaneously increasing the incentive to invest in automation and more modern methods of production, yielding higher productivity.  The negative (health) externalities of housing workers in crowded dormitories will in the future be internalised for employers, in contrast to the socialisation of their private costs in the current pandemic.

Unsafe transport protocols are among the many practices concerning workers in Singapore that need to be rethought. (Photo: Maks Karochkin)

From an economic perspective, foreign workers’ health also impacts the whole society. For example, in Singapore the COVID-19 outbreak in this group required a longer period of economic shutdown, causing travel barriers to be imposed by other countries, and exacting a reputational cost which may discourage visitors–despite the comparatively limited and well-controlled transmission outside the dormitories.

The social impact of the COVID-19 experience

In most countries, COVID-19 and responses to it have revealed—and intensified—existing but often ignored social inequities. Lower-income workers are more exposed to health risks because of dense working and living conditions, weaker initial health status and less access to paid sick leave and good health care. They are frequently employed in low-paid “essential services” such as food stores and markets, healthcare, transportation, sanitation and utilities. Moreover, they face greater economic risk from shutdowns, as they are often unable to work remotely, and employed in occupations requiring close personal contact, which will likely be shut down the longest. In addition, school closures cause greater lost educational attainment and school-provided services to children in low-income families. Higher-income professionals are more able to work from home and support their children’s online school education, and so may not suffer any interruption in employment or income (Yeung, 2020; Ng and Ng, 2020).

That sectoral differences widen inequality are illustrated by differential unemployment rates in Seattle, Washington. This global port city was the first place in the US to be hit by COVID-19 in January 2020, and it is the home base of major tech companies Microsoft and Amazon, which are enjoying jumps in revenue and profits.  Nevertheless, in April and May, 11 percent of workers in Seattle’s information sector (originally 6 percent of the city’s workforce) filed for unemployment compensation, as did 14 percent of professional and business services workers (originally 37 percent). This contrasts with 48 percent for workers in leisure and hospitality (9 percent of employment) and 37 percent for those in manufacturing (8 percent) (Mackrael and Tangel, 2020).

Workers in different sectors in Seattle, Washington, USA have filed for unemployment compensation at starkly different rates, revealing the class-differentiated impact of COVID-19. (Photo: Wikimedia/Communistsquared)  

In Singapore, compared to other high-income countries, there is higher income inequality, and wages form a lower share of national income. This is partly because low-wage workers’ wages are depressed by the policy-driven large influx of low-wage transient foreign workers (Ministry of Manpower, 2020). Unlike in other rich countries—or even independent Singapore in its first three decades, when most foreign labour came from Malaysia—such bulk contract labour cannot earn rights to long-term residence. It is not assimilated into the domestic labour supply or society, inhabiting instead a “parallel universe” in one of the world’s densest cities. They are thus not a long-term solution to Singapore’s demographic challenge and labour shortage. Neither are middle- and higher-income transient “foreign talent” and expatriates (of any nationality), who occupy the same residential and work spaces as citizens and permanent immigrants, and whose numbers will also decline with slower growth/lower demand, technology-enabled changes in business operations, and increased de-globalisation.

The global COVID-19 experience to date suggests that mass observance of safety protocols is more consistent and achievable voluntarily where social cohesion is strong.Hong Kong, Taiwan, Japan and South Korea have been reasonably successful in containing the virus without tight lockdowns like China’s, or Singapore’s “Circuit Breaker” (Lee, 2020). None depends heavily on segregated foreign labour like Singapore does, suggesting that an integrated labour market and society may pay some dividends in pandemic containment.

Behavioural and policy changes

The COVID-19 and shutdown experience has induced behavioural changes at the individual level, some of which will persist.

“Cocooning” is one such change which will reduce demand for many businesses that cater to people’s lives outside the home, such as restaurants, shopping and entertainment venues, and transport (Accenture, 2020).  In cities like Singapore, and Las Vegas, gleaming hotels, malls and casinos risk becoming white elephants, while small businesses close due to lack of customers, even as prices fall. This excess capacity in turn portends a fall in commercial rentals and property values—including for residential rental properties catering to foreigners—discouraging further development and thus reducing the need to build properties, staff shops and maintain apartments. Infrastructure projects may also be on the chopping block.

Resorts World Sentosa. What happens to casinos and hotels in a post-COVID-19 world? (Photo: William Cho)

Recent experience has also inculcated a sense of social responsibility among some local communities and broader national societies, both in terms of collective efforts at changed behaviour to contain the virus, and volunteer efforts to support health care and other essential workers, and help those adversely affected by the shutdown, like vulnerable seniors. Post-COVID-19, such “social solidarity” could and should propel public policy to deal with the structural issues that increase citizens’ vulnerability to pandemics. 

Reservations about Singapore’s high dependence on foreign labour stretch back to the 1970s (e.g. Pang and Lim, 1981). Every economic setback since then has prompted calls for a more searching look at the costs and benefits of an over-reliance on cheap foreign labour, which distorts factor prices and resource allocation, resulting in economic inefficiency and inequality, without enabling higher growth. Sustained First World competitiveness and living standards are built not on Third World labour standards and wages, but on capital, skills, innovation, entrepreneurship and ideas—as proposed by numerous government committees since the Strategic Economic Plan of 1991 (Ministry of Trade and Industry, 1991).

But repeated backtracking in response to short-run difficulties has over time evolved a large and diverse group of stakeholders that resists structural policy changes (Ong, 2020). The challenge, post COVID-19, is whether there is political will to rethink the foreign labour dilemma more broadly, beyond the narrow commercial interests of higher costs and lower profits for employers, property developers and other businesses, and dormitory operators (Lim M.Z., 2020). As COVID-19 is increasingly expected to become endemic, with a good possibility of other pandemics to follow, this is no longer a problem amenable to short-run fixes that merely kick the can down the road.

From a societal perspective, higher wages for lower-skilled workers need not mean higher costs for consumers, if productivity increases sufficiently through capital-labour substitution and operational improvements. Other high-income countries routinely use more efficient mechanised rather than manual processes in, for example, construction, cleaning and rubbish removal. In such countries, COVID-19 is already spreading innovations such as the use of drones and robots for deliveries, cleaning, warehouse and store stocking, even some restaurant, hospital and eldercare functions.

Any cost increases for society as a whole will be dampened by deflation from weakened demand. They would also be least partly offset by the lesser need for tax revenues to subsidise low-income citizens through welfare payments/social transfers, by better distribution, and by positive externalities such as reduced risk, increased national and social security, and improved public health status and environmental conditions.

Beyond this, the social solidarity fostered by COVID-19 should make Singaporeans more accepting of the fact that “We are all in this together”, and “We are all affected by the condition of the least endowed among us”. Thus, rethinking the role of foreign labour—or, more accurately, the persistence of a labour-intensive growth model in a labour-scarce, capital-rich country–is a challenge that needs to be considered with the engagement of a broad and diverse group of Singaporeans, not just government and business actors. As the rest of the world innovates to manage the “new normal” of a very different post-COVID-19 future, Singapore must not be left behind by clinging to old ways of doing things. A sizeable, if diminished and reconfigured, foreign workforce will remain part of our economy. With our abundant resources, administrative efficiency, and a more cohesive and engaged civil society, we can pioneer novel approaches in public policy, business practice, and individual and collective action that are socially efficient, fair, inclusive, and able to ensure a First World quality of life for all in a sustainably green environment. 

Cite as: Pang Eng Fong and Linda Lim, “Labour in Singapore’s post-COVID-19 economy,” Academia.SG. June 2, 2020.


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