Article: Decoding Singapore’s foreign labor cuts and talent shortage

Talent Management

Decoding Singapore’s foreign labor cuts and talent shortage

With the focus on improving employment and enabling companies to adopt new technologies, Singapore has decided to tighten its labor markets and cut down the quota of foreign workers in the services sector.
Decoding Singapore’s foreign labor cuts and talent shortage

Singapore today is a relatively small economy than other ASEAN member states like Indonesia and Thailand. But that’s not to make the relevance of the small country any less. Singapore also happens to be one of the most developed and nuanced economies in the region that boasts a constant high growth rate across decades and today has positioned itself quite suitably in the globalised market. It has access to developed and mature markets of the west while remains a preferred destination of investments from its Asian counterparts. In addition to economic growth, the country also features significantly high in the Human Development Index.

Owing to the small size of the country, Singapore has traditionally depended upon foreign workers to fill in necessary talent gaps in the economy. It was done to ensure that nascent and growing domestic industries have access to the right talent they needed to grow. When it comes to talent coming in and filling in spaces that help support such sustained economic performance, the country has had to look outside to meet its need. Due to its nature of businesses and access to local talent, Singapore has traditionally depended on foreign workers coming in and taking up jobs in the country. This, in turn, has helped governments over the years to create policies and initiatives that enable many to keep their skills up to date while companies today successfully attract a diverse cohort of employees. In time this focus has resulted in Singapore becoming one of the most attractive talent destinations of the world.

It was a little surprise when a recently released report earlier this year measuring talent competitiveness reflected this shift in Singaporean economy. In a report by Insead that sought to measure the Global Talent Competitiveness Index across various nations, put Singapore as the second best nation in attracting and developing talent while ensuring diverse hiring provides the necessary competitive edge. Within the Asia-Pacific region, the country topped the list. The study produced in partnership with The Adecco Group and Tata Communications, the GTCI is an annual benchmarking report that measures the ability of 119 countries to compete for talent.

Influence of global protectionist policies

But over the years this focus has shifted. With its rising working population, the country has begun prioritising domestic job needs over allowing foreign workers to come in and be part of the formal economy in the country. This also falls in line with a noticeable global shift towards protectionist economic policies that are aimed to boost regional job growth and curtail the inflow of foreign talent who otherwise would fill up many high skilled job vacancies, often leaving low-skilled, vulnerable jobs in their wake for the domestic working population. This aim was most recently further realised when the Singapore government passed a mandate to industries to curb the hiring of foreign workers. Addressed specifically for the services sector, the move puts a cap on hiring foreign workers in the sector. The present percentage of foreign workers in any service industry company is 40 percent. This has reportedly been now pulled down to 38 percent for 2020 and goes down to 35 percent by 2021. In addition, the quota for S Pass workers - mid-skilled foreigners paid at least $2,300 a month - will drop from 15 percent to 13 percent on Jan 1 next year, and to 10 percent on Jan 1, 2021. The previous instance of such quota reductions for the sector was noted in 2013.

Announced recently as a part of Singapore’s annual budget, the government expressed its intent to bring more of its working population into the economic fold more clear. The implementation of the policy would come in two phases, the first cap coming into effect from Jan 1, 2020, and the second from Jan 1, 2021.

This move creates several changes in an economy which currently depends heavily on foreign labour. As a small city-state with a total population of just 5.6 million including foreigners, Singaporean industries have heavily relied on overseas workers who accounted for 1.37 million in 2018. In addition to cutting foreign workers within Singaporean service companies, the government envisions this move as an important step to push companies to adopt new technologies.

Upskilling the local workforce

Experts and market analysts have remarked the short run labor implication of the move. Many have pointed out that such a move makes labor mobility sluggish and prevents service companies from hiring the best talent. It is also reported that such a move that cut low-cost labor could saddle companies with higher labor costs that they cannot afford.

In a period where quarterly government survey of business sentiment in the services sector in January showed that 16 percent of companies believed that business conditions would deteriorate in the next six months, the largest number in two years, such a move could mean that business and HR professionals will have to meet their talent demand in a more constrained economy.

Economists at Citigroup also said that the lower quota of foreign service workers would have the effect of pushing wages, and as a consequence company costs, higher. “The implied reduction in labor supply in the services sector could maintain upward pressure on services wage growth…This measure is likely to contribute to an upstream cost factor in the medium term.”

Although this move paves the way for more local talent getting hired, many remain sceptical whether the working population is skilled enough to bear the additional burden that comes with removing dependence on foreign qualified talent. With this in mind, Singapore is actively expanding the use of technology to plug the chronic talent shortage as Finance Minister Heng Swee Keat also announced the government planned to extend the Automation Support Package (ASP) by two years in an effort to help firms deploy robotics and IoT technologies amongst other initiatives to upskill the local workforce.

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Topics: Talent Management, #GlobalPerspective

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