Benjamin Mak and Thng Yi Ren - Economic Society of Singapore

"A New Nation of Immigrants Challenges
and Opportunities Posed by Singapore's
Population Growth”.
Authors: Benjamin Mak Jia Ming & Thng
Yiren
School: Raffles Institution (Junior College)/
Mowbray Camp
Category: Pre-University
Date of submission: 31 May 2011
1

Executive Summary
Population growth is a long-standing concern in Singapore with its dwindling birth rate, and
immigration has been viewed as one of the most crucial ways for Singapore to sustain a dynamic
workforce and economy. This essay supports the broad thesis that immigration adds to both the
quality and quantity of Singapore‟s growth. However, we suggest that immigration must be
complemented by a parallel improvement in Singaporean labour and capital in order to prevent its
benefits from being overshadowed by the increasingly negative sentiments Singaporeans have
expressed towards immigrants. Furthermore, we argue that Singapore‟s immigration policy must
continue to be selective to ensure that the right talents are attracted in the appropriate quantity such
that the net benefit brought by any single immigrant should not be outweighed by the costs this
immigrant may impose on the rest of society.
When combined with a drive to promote labour productivity and mobility among lesseducated
Singaporeans, an Export-Import bank to fuel local business expansion overseas and
initiatives to support the optimal distribution of top talents across the public and private sector, we
argue that immigration-led population growth can lead to a win-win situation rather than mutual
antagonism between immigrants and Singaporeans.
Nevertheless, this essay acknowledges a strong non-economic dimension to immigration
because it poses a fresh challenge to our national character, immigrant nation as we may be.
Economically speaking, immigration has contributed to wage depression for lower-income earners
and increased competition in the labour market especially for inexperienced graduates. This essay
acknowledges that such challenges cannot be overcome fully unless immigration is eliminated, but
suggests that they can be sufficiently mitigated with the adoption of the aforementioned policy
recommendations. Ultimately though, the question of immigration is not one of absolutes: it is one
of balancing economic goals against social needs in charting Singapore‟s destiny.
Word count: 300
2

Introduction
‘The most superficial student of Roman history must be struck by the extraordinary degree in which
the fortunes of the republic were affected by the presence of foreigners, under different names, on
her soil.’
Henry James Summer Maine
As Singapore recovers from the 2008 financial meltdown, we are again confronted with the
challenge of immigration, a demographic trend that has buttressed our economic growth but raised
fresh questions about our national identity. With sustained effort to develop Singaporean enterprises
and talent however, this essay confutes the canard that immigration and socio-economic well-being
are mutually exclusive over the long run.
Perceived challenges from immigration
Singaporeans often view immigrants as threats to their well-being. This was made starkly clear in
the angry petition from residents of Serangoon Gardens in 2008 against the construction of a new
foreign workers‟ dormitory near their homes 1 .
Although there is strong empirical evidence that immigrants add value to Singapore‟s economy,
immigration is often associated with concentrated benefits and diffuse costs 2 . While businesses and
the government reap rewards from immigration through cheaper labour and higher taxes, the burden
of accepting immigrants here is placed upon society, making it difficult for ordinary Singaporeans
to see how they benefit personally from immigration.
Following the watershed 2011 elections, the government has emphasised the need to review policies
across the board. While this is broadly accurate, there remain two myths surrounding immigration
that must be dispelled to clarify the true significance of immigration for Singapore‟s economy.
1 See Forss (2008)
2 Olson (1965)
3

Myth 1: Foreigners Spur Inflation
Foreigners are often accused of promoting demand-pull inflation, driving the prices of housing and
other necessities up. Proponents of this view cite the fact that in the first half of 2010, foreign
purchases accounted for about 25% of the total residential property sales transactions 3 .
Insofar as the primary housing market Singaporeans are concerned with is Housing Development
Board (HDB) housing however, such arguments are groundless. Under HDB policy, only
Singaporean Citizens or Permanent Residents can buy Build-to-Order (BTO) Flats or resale flats.
Since the bulk of foreign purchases are concentrated in private property, they cannot be held
responsible for the recent public housing bubble.
Similarly, attributing overall inflation primarily to foreigners is mistaken, due to the confluence of
exogenous factors including seasonal variations and oil price shocks depicted below 4 .
Chart 1
This diagram illustrates the contributors to inflation in Singapore in early 2011.
3 See Global Property Guide (2010).
4 Monetary Authority of Singapore (2011)
4

Myth 2: Foreigners steal Singaporean jobs
Since foreigners took up 48% of the total number of new jobs created between 1998 and 2008 5 ,
many argue that Singaporeans are squeezed out of the job market at both the top and bottom tiers of
employment by foreign talent and foreign workers, suggesting that Singaporeans are uncompetitive
in terms of skills and wages respectively.
Under close scrutiny though, this view is unfounded. In both middle- and top-tiered jobs, Finance
Minister Tharman Shanmuguratnam reported that 80% of managerial positions are now held by
Singaporeans in a Channelnewsasia political forum aired on 2 April 2011. Furthermore, when firms
hire foreigners at the Integrated Resorts while suitable local talent is being sourced for and trained
for example, Singaporeans will eventually benefit from enhanced employment opportunities.
Immigration: the real concerns
‘Wealth is not his that has it, but his that enjoys it’
Benjamin Franklin
Nevertheless, there are genuine challenges for Singapore‟s economy upon deeper examination of
immigration-led population growth. First, most immigrants were employed in lower-skilled jobs 6 ,
precipitating wage depression for lower-income Singaporeans, with real median monthly incomes
of the bottom 20% of employed residents by income being static from 1996 to 2009 7 . Though we
cannot isolate the individual contributions of the multifarious factors contributing to wage
depression, including „new technologies, the decline in manufacturing jobs, drop in unionization,
globalization and recessions‟ 8 , this is worrying because most of our lower-income workers tend also
to be part of the rapidly ageing segment of our society. It is also striking that the educational level
of unemployed Singaporeans has risen steadily over time. Whereas managers, professionals and
technicians formed just 7.6% of unemployed residents in 1976, this figure nearly quadrupled to
30.3% by 2003 9 . Inasmuch as population growth has raised Singapore‟s wealth, it remains doubtful
as to whether most Singaporeans feel this.
5 See Hui, Weng Tat. “Rethinking Singapore's Social Safety Nets .” 2010. Civil Service College, Singapore. p.1
6 Ibid., p. 2.
7 See Hui (2004).
8 See Henderson (2011).
9 See Hui (2004), p. 82
5

Immigrants: An Enduring Vista of Hope
Having foreign workers, talents etc in Singapore is not new. We have always been open to those
who come to our shores to seek a living or to make this place home.
Tan Chuan-Jin,
Minister of State for Manpower and National Development
Though Singapore‟s economy now focuses on services and high-technology research, it remains
constrained by geography and demography. Thus, the main benefit presented by Singapore‟s
immigration-led population growth arises from its ability to promote a dynamic economy.
Indeed, Singapore has excelled in attracting talented immigrants to lead new engines of growth,
most notably in the biomedical sector where such luminaries as Professor Sir David Lane oversaw
the recruitment of top cancer researchers Neal Copeland and Nancy Jenkins as Executive Director
of the Institute of Molecular and Cell Biology in 2006 10 . Economically speaking, immigration has
left an indelible imprint in Singapore‟s success. From 2000 to 2010, foreigners contributed around
40% of our GDP measured in terms of domestic output 11 and comprised 40% of our labour force in
2006 12 .
Such success can be attributed to Singapore‟s selective immigration policy which ensures „an
increased inflow of middle aged, high- and medium-skilled immigrants‟ based on careful
assessments of the „net public gain of a marginal immigrant‟ 13 . Hence, Singapore should merely
fine-tune its immigration policy if necessary to continue gaining maximal benefit from new
immigrants, rather than seek fundamental changes.
10 Agency for Science, Technology & Research (2009)
11 See Lim & Lee (2010), p. 146.
12 Ibid., p. 145.
13 See Storesletten (2000).
6

Strategies for the long run
Perhaps the fact that Mr Tharman Shanmugaratnam now coordinates both economic and social
policies highlights the dualist approach needed to exploit the opportunities and arrest the challenges
of immigration.
Having shown how Singapore has largely succeeded in exploiting the opportunities created by
immigration-led population growth, it is the challenges posed by immigrants that form the
predominant concern of our suggestions. We clarify that it is not the eventual elimination of
immigration that is desired, but reduced dependency on immigrants to facilitate the development of
autonomous capacity within the Singapore economy.
Blue Collar: Costlier but better
Though populist measures like minimum wages may temporarily alleviate the plight of jobless
Singaporeans, they sidestep the underlying problem of raising labour mobility and productivity
here. Furthermore, empirical studies of Western European welfare systems show that such measures
„diminish the incentives to look for jobs‟. 14
Consequently, the way ahead for less-educated Singaporeans is to enhance their labour mobility and
productivity through schemes like the Skills Package and Upgrading for Resilience (SPUR)
programme. Strong governmental support is required since „employers are not keen to provide
training‟ 15 to workers which requires a huge investment of time and resources and may not be
recouped if the worker moves to another firm. Such a productivity drive is necessary despite
Singapore‟s success having been fuelled by total factor accumulation 16 , because our ability to
generate growth from this has diminished over the long run. Indeed, some has gone so far as to argue
that immigration has „put a lid on productivity gains, as manufacturers rely on cheap imported labour
instead of making their businesses more efficient‟, as seen in Chart 2. 17
14 See Doudejins et al (1998).
15 See Chew & Chew (1995).
16 See Krugman (1994).
17 See Barta & Wright (2010).
7

Chart 2
This diagram shows a time-series correlation between rising immigration and labour productivity in
Singapore.
By fuelling growth through productivity while still promoting selective immigration, we can
simultaneously improve the quantity and quality of factors of production, pushing Singapore‟s
production possibilities frontier (PPF) outward, as seen in Chart 3. The outward shift of our PPF is
likely to be significant because productivity increases in Europe have led to growth that is almost
equal to that produced by factor accumulation in the past, as shown in Chart 4.
Chart 3
This graph shows the change in Singapore‟s PPF with selective immigration and higher productivity.
8

Chart 4
This illustrates the extent of growth originating from factor accumulation and productivity gains witnessed in
European businesses 18 .
With greater labour mobility and productivity, Singapore companies will be well-placed to develop
external wings reliant on the expertise of Singaporean labour and capital to succeed. The
Government should support such efforts if it is serious about raising Singapore‟s growth in terms of
Gross National Product which includes Net Factor Income from Abroad 19 , rather than merely in
terms of GDP which has necessitated ever-increasing immigration.
Although schemes like the “Loan Insurance Scheme (LIS)” 20 already help some firms get trade
financing, the introduction of Singapore‟s own export-import (Ex-Im) bank would do much to
further this goal. As an independent institution, it would facilitate „cross border financing‟ 21 and
ease credit transfer for daily transactions for all firms. This is far more systematised compared to
the status quo, where there are lags between the firm‟s application for and receipt of funding.
While the Government now opposes an Ex-Im bank because of „insufficient economies of scale‟ 22 ,
this is outweighed by the structural advantages it possesses. Centrally, it is an „umbrella
18 Saari (2006).
19 A focus on GNP growth has already been made strongly by Singapore‟s Prime Minister Lee Hsien Loong since early
2010. See Popatlal (2010).
20 See Huang (2010).
21 Ibid.,
22 See Huang (2011).
9

organisation‟ supporting SMEs which are not served by existing financing schemes 23 or private
institutions during booms and recessions. Hence, even as immigrants are attracted to our shores by
our success, we extend our success beyond our shores
Widening the talent pool for Singapore
Since independence, Singapore has invested heavily in human capital, with tertiary education being
regarded as a „consumption good as well as an investment. 24 . Many students seek higher education,
with high job expectations which unfortunately do not square with reality because the supply of
„managerial jobs in maturing economies, [including Singapore] are levelling off‟ 25 . While fresh
graduates may have good theoretical grounding and some occupational training, firms remain
hesitant about employing inexperienced graduates.
Hence, the gap between demand and supply of experienced professionals is currently filled by
immigrants. This could be addressed by adapting elements of the „French model of the elite
administration‟ 26 to Singapore, a point alluded to by former Civil Service Head Ngiam Tong Dow.
Under this system, top government scholars are offered secondment opportunities in both public
and private companies which can extend beyond a year. This facilitates distribution of talent under
the banner of Singapore, reducing destructive competition between the Civil Service and private
sector. Since scholars at statutory boards like the Infocomm Development Authority are already
offered 6-month stints at firms like M1, our recommendation is merely an extension to, and not a
major shift from, the status quo. To buffer against brain drain which has harmed countries like the
Philippines, companies included within this scheme must be locally registered.
23 See Lee (2010).
24 See Chew & Chew (1995).
25 Ibid.,
26 See Ngiam & Tay (2006).
10

Final thoughts
Immigration looks set to remains a key growth driver in Singapore given our ageing population and
demand for talented cosmopolitan individuals. While Singaporeans increasingly blame inflation and
competition on immigrants, this essay has demonstrated that such claims are generally unfounded.
Even if they were justified, they can be mitigated by developing autonomous capacity in our
economy. Hence, the question of Singapore‟s population growth is not as much an economic
problem as it is a socio-cultural conundrum.
Going forward, further research on the socio-economic impact of immigration in Singapore is
needed to clarify misperceptions Singaporeans hold on this issue. However, even this is unlikely to
eliminate the inherent fear humans have of the foreign. Perhaps it is only when we can truly
appreciate our immigrant past that we will embrace our immigrant future. As Søren Kierkegaard
once mused, „Life must be understood backwards, but it must be lived forward.‟
Word count: 2000
11

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