Blog: Singapore's tightened work pass requirements: will these really work?

Compensation & Benefits

Singapore's tightened work pass requirements: will these really work?

Given that the Ministry of Manpower is already putting the brakes on discriminatory hiring practices, are the new minimum salary requirements for work pass holders just a win-more strategy?
Singapore's tightened work pass requirements: will these really work?

At first glance, the Singapore government's tightening of work pass requirements looks rather like a political sop. Singapore's Budget 2022 introduces the highly unpopular measure of increasing the goods and services tax (GST), which will go from the current 7% to 8% next year and finally 9% in 2024, if no further increases are implemented. Meanwhile, foreign talent has been a source of grumbling at the ground level for a number of years.

In the Budget statement on 18 February, Minister for Finance Lawrence Wong announced that the minimum salary requirements for issuing work passes to mid- and high-skilled employees (S-Pass and E-Pass respectively) will be hiked by S$500, and employment levies increased. These requirements were last raised in 2020, with the E-Pass minimum salary raised from $3,600 to $3,900 in May, and then again to $4,500 in September in acknowledgement of how difficult the job market became that year - although the timing did again appear more than a little political given that Singapore held its elections in July 2020.

Populist moves aside, however, the issue of imported talent is a perpetually contentious one in Singapore for good reason. The local talent pool is small - just under 2.4 million at the end of December 2021 - and only so many graduates enter the workforce each year. Certain sectors, particularly finance and banking, have also tended to soak up large numbers of skilled local workers, leaving others such as engineering scrambling for talent. In particular, companies that are expanding their operations sometimes may not be able to do so without hiring from abroad. 

At the same time, Singapore's internationally-friendly employment policies have in the past genuinely put local workers at a disadvantage - often because employers were able to benefit from the strong Sing dollar to hire foreign talent at much cheaper rates than locals. Previously, that led to a systematic depressing of wages and even the squeezing out of local employees in some companies. That eventually prodded the Ministry of Manpower into introducing the Fair Consideration Framework in 2014: a set of requirements for employers to at least consider local applicants before bringing in a foreign alternative.

Do the latest changes really benefit anyone?

The hiking of the work pass requirements may actually have a benefit beyond protectionism. The issue of employers not giving fair consideration to local applicants has become less problematic since 2014. The Ministry of Manpower maintains a watchlist of companies suspected of discriminating against locals, and regularly revokes the work pass privileges of recalcitrant employers. In this context, the increased salary requirement is something of a "win-more" strategy - pushing on a situation that is already improving.

Instead, the hike forces employers to revise their salary budgets upward and creates a higher benchmark for paying both foreign and local workers. Wage growth in Singapore has been stagnant for multiple years, with pay increases, even in the financial services and tech sectors, among the lowest in the APAC region even though inflation has steadily increased (driven mainly by the property sector). In particular, pay in the lower-wage sectors has stagnated to the point where the government has had to step in to push a progressive wage model.

On the other hand, businesses, particularly in sectors with narrow profit margins, are already predicting a higher wage bill that will be passed on to consumers. The F&B sector, where companies regularly report difficulty hiring local workers due to the generally lower pay, lack of career advancement, and working conditions, is one such. It's doubtful whether companies will take the easy but expensive route of paying foreign talent more, or put in the hard work of making themselves more attractive to locals.

In the best case scenario, higher minimum salary requirements for work pass holders would shift the bar such that local employees also see higher wages, and/or push companies to create a nicer employment proposition that attracts more workers. In the worst case scenario? Nothing changes, except that the government collects a slightly larger amount of revenue from companies that hire foreign talent.

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Topics: Compensation & Benefits

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