Government of Singapore : SPEECH BY MR S ISWARAN, MINISTER, PRIME MINISTER'S OFFICE & SECOND MINISTER FOR HOME AFFAIRS & SECOND MINISTER FOR TRADE & INDUSTRY, AT THE 6TH MTI ECONOMIC DIALOGUE, 29 AUGUST 2013, 6:00 PM AT NTU HSS AUDITORIUM

SPEECH BY MR S ISWARAN, MINISTER, PRIME MINISTER'S OFFICE & SECOND MINISTER FOR HOME AFFAIRS & SECOND MINISTER FOR TRADE & INDUSTRY, AT THE 6TH MTI ECONOMIC DIALOGUE, 29 AUGUST 2013, 6:00 PM AT NTU HSS AUDITORIUM

Professor Euston Quah, Head, Economics Division, Nanyang Technological University

Faculty and Students from NTU, NUS, SMU and Junior Colleges

Ladies and Gentlemen

1. I am pleased to join you this evening at the sixth MTI Economic Dialogue.  We view it as an important opportunity to discuss economic issues of the day with students.  It is also an opportunity for us to recognise university students who have produced outstanding pieces of independent research, and done well in their study of economics.

2. Let me start by congratulating this year's thesis prize winners.   Lin Yumin, Wu Pei Yun and Yap Chai Teng from NTU computed a measure of welfare across Chinese prefectures. They found that while the eastern prefectures had higher welfare levels, western prefectures experienced higher welfare growth rates between 2005 and 2010.

3. MaBing from NUS studied the effects of taxes on an economy.  He found that capital-income taxes had a negative effect on long-run economic growth, while labour-income and consumption taxes did not.  Furthermore, in the short run, consumption taxes tend to outperform income taxes with respect to both economic growth and individual welfare.

4. Leung Weiwen examined the factors that affected scientific research in a country.  He found that the amount of scientific capital and labour in a country would affect its research quantity, whereas the levels of corruption, democracy and openness to ideas in the country would affect its research quality. 

5. I would also like congratulate the economics book prize winners, Dang Thi Quynh Trang from NTU, Zhang Sanqian from NUS and Sharon Chan Zi Yin from SMU.

Economist Service Scholarship

6. We are also presenting Economist Service scholarships to three outstanding students who have demonstrated a keen aptitude and interest to serve in the public sector as professional economists.  I would like to congratulate Foo Yi Hui, who will be pursuing her studies at the University of Pennsylvania; Koh Wen Jie, who plans to further his education at a university in the UK after his National Service; and Alex Loo Yun Chai, who will be studying at the Singapore Management University.  We wish them all the best in their studies.

Challenges in Global Labour Markets

7. Today, I would like to share with you some perspectives on challenges in labour markets around the world.  What are some of these challenges and trends, and what do they portend for our economy and workforce?

8. In particular, I would like to highlight three issues in global labour markets which will be of relevance to us well into the future.

Youth Unemployment and Ageing Workforce  

9. The first relates to rising youth unemployment alongside an ageing workforce in developed economies.  Today, Europe faces a severe youth unemployment problem.  Across the European Union, almost a quarter of all youths under the age of 25 are unemployed.  The situation is even more dire in Greece and Spain where more than half of their youths are jobless.  Even among those who can find a job, many are "underemployed" - not fully utilising their skills and working in low-paying temporary or part-time jobs.  

10. In part, this situation has arisen because of the protracted recession in European economies. But there are other structural factors such as a mismatch of skills - where the skills acquired by the youth do not have currency in the labour market.

11. Analysts have observed that even if Europe's employment situation improves, the impact of the currentyouth unemployment may persist and continue to be felt many years down the road.  Young people who begintheir careers without work are more likely to have lower wages, and are more vulnerable to joblessness later in life, especially as they would have missed out on the training and experience that are important to young workers. In other words, this is a problem with a long tail.

12. At the other end of the age spectrum, many developed economies also have to deal with the challenges of an ageing population and workforce.  Some studies have found that an ageing workforce tends to be associated with lower levels of productivity and innovation in an economy.  To mitigate this impact, some firms in the developed economies have restructured jobs and redesigned work processes so that they are more suitable for older workers.  Others have adopted elderly-friendly technology and assistive tools in the workplaces.  For instance, BMW has fitted the production line in its car plant in Dingolfing, Germany, with assistive tools, such as mobile tool trolleys, stools and robots, to ease the physical demands of the job on older workers.  This has reduced absenteeism and raised the productivity of the production line.  (In Japan, to help older workers upgrade their skills and remain relevant, the government funds courses for them, and encourages them to audit college courses and participate in continuing education programmes.)

Impact of Technological Advancements

13. The second trend pertains to the impact of technological changes on the nature of jobs and their skills requirements.  Technological advancements are constantly changing the way we work, and rendering some jobs obsolete.  There are two modalities to this.

14. First, smart algorithms are increasingly replacing some middle-skilled, white-collared jobs that require basic analysis.  For example, pattern-recognition software can do the work of, and has started to replace, entry-level lawyers.  Rather than having a lawyer sieve through massive amounts of legal documents manually, such work can now be automated.  According to a New York Times article, in 1978 it cost US$2.2 million to manually examine six million documents.  Today, the same number of documents can be examined by machines in a fraction of the time for a fraction of the cost.

15. The competition for such jobs is not just from sophisticated software and machines, but also workers in other countries.  Online outsourcing platforms help firms find skilled service workers over the internet, for tasks such as programming and proofreading.  For example, Freelancer.com, a global outsourcing platform, connects more than four million employers and freelancers across 234 countries worldwide.  Projects posted on the platform are estimated to be worth more than US$1 billion in value.

16. These trends tend to affect middle-skilled jobs more, as they are generally more routine or procedural in nature and, therefore, can be more easily automated or outsourced. In the United States and other developed countries, the hollowing out of middle-skilled jobs has led to the phenomenon of job polarisation.  Between 1983 and 2012, the share of employment in middle-skilled occupations in the United States fell by 14 percentage points, from 59 per cent to 45 per cent, while employment shares of both low-skilled and high-skilled occupations increased.  High-skilled jobs remain in demand as they typically require abstract analytical abilities, and are harder for computers to replace.  At the other end, lower-skilled but high-touch jobs, such as security personnel or drivers, requiring personal interactions and situational adaptability, are less easily mechanised.

17. Second, new technologies can suddenly and rapidly render old processes and jobs obsolete.  An example is the emergence of new production technologies such as 3D printing.  Compared to conventional manufacturing where materials are cut, moulded and bent into final products, 3D printers construct products by adding successive layers of materials.  This allows the products to be customised with little costs, reducing the benefits brought about by economies of scale.  Entire business models may change as companies shift from selling products to providing blueprints and customised designs.  In the face of this and other new production technologies, manufacturing jobs of the future may require an entirely different set of engineering and design skills. 

18. The services sector will also see substantial changes.  Already, we have seen how online retail businesses are challenging brick-and-mortar stores by changing the way consumers shop, and saving on rental and other overhead costs.  Big-name retailers such as Woolworths have folded in recent years due to online competition, while many others are seeking ways to offer a hybrid of online and physical retail experiences to attract customers.

Rising Income Inequality

19. The third trend is the rise in income inequality.  Many of the new technologies discussed earlier are skill-biased.  Even as they replace some routine tasks, they also open up new opportunities for higher-skilled workers.  The premium for skills rises with technological advancements.  On the other hand, the less-skilled workers who are displaced may not be able to seize the new opportunities brought about by technological changes.  With increasing globalisation, they may also be subject to competition from workers in other countries.  These forces will exert downward pressure on their wages.  

20. As a result of technological advancements and globalisation, income inequality has increased in many countries around the world.  Between 1995 and 2010, the Gini coefficient - a measure of income inequality - increased from 0.36 to 0.38 in the US.  Over the same period, the Gini in OECD member states rose from 0.30 to 0.32.  This trend is exacerbated in cities. In response to rising income inequality, governments have endeavoured to narrow the income gap through measures such as establishing a minimum wage, and enhancing transfers to those with less.

21. Why should this outcome matter if these asymmetric rewards are tied to ability? There are two reasons - one pragmatic and the other one of principle. No economic structure can be sustainable in the long run if the gap between the haves and have-nots widens continually and sharpens social divisions. More importantly, it is a basic compact in a democratic society that we owe a duty of care to our fellow citizens, especially those who are not able to fend for themselves.   

Implications for Singapore

22. What do these trends mean for Singapore?  Europe's situation is a cautionary tale of what might happen if we are not able to create enough of the right type of jobs for future generations of Singaporeans.  Our challenge is that much greater because younger Singaporeans are becoming better educated with a commensurate rise in the type of jobs they aspire towards.

23. Today, 70 per cent of our citizens aged 25 to 29 have at least a diploma qualification, compared to less than 30 per cent among those aged 45-49.  This profile will continue to improve, with the Government expanding university places to cater to the increasing demand for university education.  By 2020, 40 per cent of each Singaporean cohort will receive university education.  Many Singaporeans are also upgrading themselves through post-diploma qualifications or part-time undergraduate studies. In all, we estimate that two-thirds of Singaporeans will have the educational qualifications to hold PMET jobs by 2030, compared to about half today. In absolute terms, their numbers will increase from 850,000 today to 1.25 million in 2030.We will therefore need to transform the economy to create jobs that are suitable for an increasingly educated Singaporean workforce.  If we fail to do so, our educated workers may also end up being underemployed or unemployed. Moreover, given our ageing population, we will increasingly also need to learn from other countries on how to adapt work processes and better tap on older Singaporeans as a valuable resource in the workforce.

24. However, rapid technological advancements will make our task of creating better jobs for both young and older Singaporeans more challenging, especially since they have the potential to render entire industries and jobs obsolete.  Indeed, while we can try to anticipate and prepare for linear movements and step changes, even if they come rapidly, we cannot predict disruptive forces. 

25. What are the implications of this new operating environment for the Government, businesses and workers.  First, the Government will need to have a nimble and diversified economic strategy. On the one hand, we must deepen our capabilities in sectors where we have a comparative advantage. On the other, we must be quick to identify and adapt to potential new high value-added and high growth industries that will create good jobs for Singaporeans. This might seem paradoxical but, in essence, these efforts are not mutually exclusive. 

26. We cannot know with certainty which industries will be winners 20 years down the road.  Nor will we know for certain whether the jobs we create now will be hollowed out in the future because of technological advancements or offshoring.  As such, our core strategy must be to build broad and deep capabilities in areas of comparative advantage within our economy that will help diversify our base of industries and the variety of jobs we can offer today. (We should develop a range of high value-added activities in Singapore, from biomedical sciences to high-end financial services.) In doing so, we will be well-placed to capitalise on opportunities, not just in any of the adjacent sectors but also in new sectors that leverage of the same basic capabilities. 

27. Hence, the Government will continue to invest heavily to help Singaporeans to develop such capabilities and seize opportunities in these new growth areas, and to remain relevant and employable throughout their careers.  In the longer term, having a diversity of Singaporean and global talent will help companies here compete for businesses on a global platform and understand the needs of global clients.

28. Second, businesses will need to stay adaptive to the changing economic landscape. As resource constraints and technological advances favour more productive and innovative companies, businesses and entire industries must be willing to restructure, make better use of technology, and tap on new growth opportunities to remain competitive.

29. Let me go back to the retail industry as an example. In the face of fierce online competition, some brick-and-mortar shops overseas have responded to the challenge by providing fast home delivery services from their extensive store networks. For instance, Tesco's subsidiary in Korea, Homeplus, puts up posters of their products in train stations. Commuters are encouraged to scan the posters with their mobile phones to order the products, which will then be delivered to their homes.  Like these companies overseas, companies in the retail and other clusters in Singapore will need to think of innovative solutions, while leveraging their existing strengths, to keep pace with competition.

30. Third, Singaporeans will need to be flexible and continually upgrade their skills. Given how rapidly new technologies and ideas will be introduced in the future, what we learn in school today may become less relevant, and even obsolete, mid-way through our careers.  Workers must therefore be willing to continually upgrade by tapping on our Continuing Education and Training (CET) infrastructure, and the variety of schemes offered by the Government like the Skills Training for Excellence Programme (STEP). 

31. Importantly too, we need to change our view of "skills". We should not think of skills as being tied to a particular type of job. Rather, future jobs will require a broad range of capabilities and skills. For example, a human resource officer will not only need to have skills on talent attraction and management. The officer may also need some data analysis and even programming skills to tap on HR analytics, to identify trends and challenges in the workplace. In an uncertain future where jobs are constantly evolving, every Singaporean worker should strive to develop a range of capabilities - both technical and generic - in school and subsequently throughout his or her career. Only by doing so will we become more versatile in responding to changes in the jobs market.

Quality and Inclusive Growth

32. The Government is committed to bring about quality growth that will benefit all Singaporeans in the years ahead. However, despite our best efforts, some Singaporeans may still fall behind. Similar to other developed economies, our income inequality has risen over the years.  Between 2002 and 2012, our Gini coefficient increased from 0.45 to 0.48 before taking government transfers into account.

33.    To help lower-income Singaporeans, the Government has introduced several important and fundamental schemes.  An example is the Workfare Income Supplement scheme which supplements the income and CPF savings of low-wage workers. The scheme was further enhanced this year, with larger payouts for older workers.  We also heavily subsidise healthcare, housing, education and training for the lower income.  Indeed, if government transfers and taxes are taken into account, our Gini coefficient will fall from 0.48 to 0.46.  The Government must and will continue to seek ways to ensure that our economy remains inclusive, even as we restructure.

Conclusions

34.    Let me sum up. Competition for jobs is keen and technological advancements are relentless. Our economy needs to remain dynamic and open to ensure that there will continue to be good jobs for Singaporeans. To thrive in this environment, we must nurture deep capabilities in our businesses and workers so that we can maintain our current competitive edge even as we gird ourselves for disruptive change. Against this backdrop, the Government is committed to fostering inclusive and quality growth that can create good jobs for Singaporeans and everyone has a share in the fruits of this growth.

Thank you.