The economic growth that once seemed easy won't occur unless productivity boots up
Last year, when SG50 was the talk of the town, Singapore crossed another major milestone - one that few noticed but which has serious implications for the city state's future economic growth.
That second milestone involved the number of working age citizens, which peaked last year and is on the way down, assuming birth rates remain at 2013 levels and there is no immigration from 2014 onwards.
Immigration helps to prevent the decline. If Singapore adds on a net basis 30,000 citizens and permanent residents each year from 2005, the resident labour force will grow by 10 per cent between last year and 2050.
Still, there is no getting around the ageing of the citizen workforce as the baby-boomer generation moves into retirement age because the new cohorts joining the workforce are far smaller in size. That means more Singaporean workers will leave the workforce than join it.
The trend is not unusual. As countries develop, birth rates fall as the share of women working rises, people marry later and desire smaller families.
Population growth eventually stagnates and can decline.
But that demographic transition is taking place particularly fast here.
"We have less time to adapt to the situation than some other countries have had," says SIM University (UniSIM) economist Walter Theseira.
In just six years' time, Singapore is expected to move out of its demographic "sweet spot" - the period when the shares of the population below age 15 and above 65 are below 30 per cent and 15 per cent respectively - according to UOB economist Francis Tan. "Generally, countries during this 'sweet' period will experience high GDP growth because a large percentage of their resident population is of working age," he says.
In other words, Singapore's stellar record of economic growth can no longer be taken for granted. That's because the nation's labour force growth - one of the two main drivers of economic growth - is slowing to a crawl.
So intent is Manpower Minister Lim Swee Say on explaining the challenge, he has come up with a series of simple equations to get it across. The first is 4 + 0 = 4, that is, workforce growth of 4 per cent plus productivity growth of zero equals 4 per cent GDP growth. That held for the years 2011 to 2014, when the workforce grew by 4 per cent a year on average. But by 2020, that will slow to 1 per cent a year if measures to moderate the inflow of foreign manpower remain in place. Unless Singapore can make a breakthrough in productivity growth, that will lead to a near-stagnant economy as "1 plus zero equals 1", Mr Lim said during the debate on his ministry's budget in April this year.
To achieve what Mr Lim considers a good outcome of 3 per cent economic growth, productivity must grow at 2 per cent, a stretch target given that it shrank by 0.1 per cent last year.
On GDP growth, the Ministry of Trade and Industry said it expects GDP growth of 2 to 4 per cent per year for the rest of the decade.
"GDP growth will increasingly be driven by productivity growth as workforce growth slows, especially towards the end of the decade. However, there is greater likelihood of growth averaging towards the lower end of the 2 to 4 per cent range, in view of the downside risks posed by the external environment.
"If external demand conditions remain uncertain and sluggish, business expansion plans, investment decisions and demand for workers may each be adversely affected. Under such circumstances, both workforce and productivity growth may be dampened over the short-to-medium term."
Fast Forward series
With Singapore firmly focused on the Future Economy, The Straits Times' series, Fast Forward: Disruption and the Singapore Economy, helps you make sense of the big shifts that will shake up entire sectors, reshape jobs and change lives. Every Saturday for 12 weeks, the paper's journalists will examine a disruptive force, its likely impact on the economy and how soon that will be felt: from robotics, 3D printing and smart buildings to dire demographic trends, the global skills revolution and the Asean growth story.
Next week, find out more about the big shifts in what, where, when and how people learn.
Already, employers worry that if birth rates and immigration do not rise, the tight labour market will only get tighter. "Employers may not be able to meet their manpower demands with residents... potentially impacting business growth," says Singapore National Employers Federation executive director Koh Juan Kiat.
While an oversupply of jobs may sound like good news for job hunters, the labour shortfall could put off multinational companies and cause them to turn to other countries in the region with a ready supply of younger and cheaper workers.
If firms move out and there is an outflow of both jobs and investments, job seekers will take longer to find jobs because businesses will make some positions redundant. "With slower growth, the average Singaporean may have to be prepared for greater competition for jobs, not less," warns UniSIM economist and Nominated MP Randolph Tan.
The changes in Singapore's demographic composition and education profile are driving a major structural shift in the economy. What further complicates matters is that this shift is taking place even as the economy comes up against rapid technological change and globalisation that it needs to adapt to in order to remain competitive, as Manpower Minister Mr Lim observed in an interview with The Straits Times this week.
"The growth rate of our local workforce will slow down. At the same time, the transition of our Singapore workforce will also speed up, in terms of education, skills, expectations, and aspiration... At the same time, on the economy side, we have to force the pace of transition so that we can remain competitive, and then thirdly, to keep the two in sync to minimise the mismatch."
That means the types of industries that Singapore attracts will have to change, and that in turn means workers will need a new mix of skillsets to do the new kinds of jobs.
DBS economist Irvin Seah says these changes will "shape the profile of multinational companies coming to Singapore". He expects them to be capital-intensive and low in labour intensity, like those in the pharmaceutical cluster.
At the same time, jobs which have tended to be filled by older workers who cannot find other options, such as taxi-driving, could also become obsolete in a few decades when driverless vehicles hit the roads.
So it is crucial that workers are prepared to move through different professions and pick up new skills.
The Manpower Minister wants workers to get set for a future in which "we will talk about lifelong career conversion because we have to keep changing not just from job to job, but also from profession to profession". "So what's the most important skill? It's to make our workers reskillable," he says.
WORK LIVES LENGTHEN
The scale of this demographic disruption and its implications for people's work lives and retirement dreams is best reflectd in the often heated and emotional debates on retirement age and incomes.
One important and smart way to top up Singapore's workforce and keep the economic engine whirring is to encourage seniors to extend their working lives. That also gives them the option to stay engaged and productive for longer, and salt away more savings for their retirement years - which will lengthen as life expectancies rise.
Deputy Prime Minister Tharman Shanmugaratnam is the latest in a string of political leaders to broach the idea of how people's and businesses' ideas about retirement need to change, radically. During a dialogue at the World Cities Summit last week, he said the retirement age, which stands at 62, will have to go "at some point".
It is critical, he said, that employers view older workers as assets to be continually invested in, rather than just as add-ons because younger workers are hard to come by in a tight labour market.
"Older folks are an asset. They have wisdom, experience and they also learn on the job. We have to make this (integrating older workers) part and parcel of the workplace... We have not done it very well in Singapore so far and we have to do much better in this realm," said Mr Tharman, who is also Coordinating Minister for Economic and Social Policies.
He was responding to a question from Ambassador-at-large Tommy Koh, who at age 78 still works full-time and asked the DPM if the Government could abolish compulsory retirement. Their exchange sparked fierce debate online, with some agreeing with Mr Tharman's statement while others worried that it would mean they would not be able to access their Central Provident Fund (CPF) savings.
The relevant numbers for retirement are:
• Retirement age of 62, which legally protects workers from being dismissed earlier than that because of their age. It also gives employers some flexibility to re-negotiate terms of contract beyond that point.
• Re-employment age which will rise from 65 to 67 next year. Employers are required by law to offer eligible workers re-employment up to this age, or give the workers one-off payments if they cannot be rehired. After that age, workers can keep working if the employer is agreeable.
• CPF payout eligibility age which is set at 65 for those born in 1954 and after. CPF members have the option to start receiving monthly payouts under the CPF Life scheme from this age. If they choose to defer the start of the payouts, the monthly sum increases for every year of deferral, up to the age of 70.
Mr Lim looks forward to the day when employers and workers, by mutual consent, will agree that there is no longer a need for either a statutory retirement or re-employment age.
"Our immediate step now will be to raise the re-employment age to 67 by next year. Then beyond that, whether we should raise our re-employment age or we should find a new way of forging this consensus without the need for retirement age, I think it's something that the tripartite partners will work (on) together," he says.
Before such a consensus can be forged, misinformation about and biases against older workers need to be cleared up.
With improvements in healthcare and education levels, older workers today are able to work in better jobs than in the past. "We should not assume that they can only take on low-value, low-impact jobs," says UniSIM's Dr Theseira.
As to whether ageing itself has a negative impact on productivity, "the jury is still out", says National University of Singapore's Professor Paul Cheung. "Ageing itself does not necessarily diminish the capability of the workforce," adds Singapore's former chief statistician who was also director of the United Nations Statistics Division.
There have been several academic studies on the link between age, productivity and wages using data mostly from European countries. Academics Jan C. van Ours and Lenny Stoeldraijer, for example, found that the age effect on the gap between productivity gains and wage costs at high ages is small, while noting that other studies found no evidence of an age-related pay-productivity gap.
On the ground, workers and employers are already adjusting to the realities of an ageing workforce.
Mr Ng Kee Hong, 76, started a new job two years ago as a gardener at wholesale florist Ji Mei Flower on Joan Road. He is one of five employees over age 62, out of about 80 staff in total.
He wants to continue working because it would be boring staying at home all the time. "It's easier to pass the time," he says. He used to run a small business but stopped after his eyesight deteriorated and he could no longer drive.
He starts work at 8am, waters plants and arranges them so they look attractive and are easy for customers to find. After his shift ends at 1pm, he goes home to rest in nearby Ang Mo Kio, where he lives with his wife and daughter. Asked about whether he finds the job strenuous at his age, he says: "When we like the job, it's not tiring."
KEY RETIREMENT NUMBERS
Retirement age, which legally protects workers from being dismissed earlier than that because of their age.
Re-employment age from next year, rising from 65.
CPF payout eligibility age for those born in 1954 and after.
Job redesign lies behind this happy arrangement. Business manager Mok Keng Houng explains that one job was split in two so that Mr Ng can work half-day. Supervisors at Ji Mei also have the flexibility to arrange different reporting times, lunch hours and rest times for staff.
Such changes are becoming necessary as demographic trends that have been years in the making - and the resulting labour crunch - become a reality. As Mr Mok put it, "We do not go out (of our way) to hire senior workers... Our policy is to take the best fit out of the lot on condition that the shortlisted candidate meets the job requirements."
On the policy level, the Government has rolled out one programme after another.
Companies that want to redesign their jobs for older workers can have their projects funded by WorkPro grants, rolled out three years ago and enhanced this month.
Training and job placement initiatives such as the Career Support Programme and Professional Conversion Programmes help workers acquire skills they need to stay relevant and move into growth industries.
At the national level, longer-term change is being driven by the SkillsFuture movement and the Industry Transformation Programme. The first equips workers with the right skills for the industries and jobs here. The second is to help firms and industries compete and innovate.
The other big factor to consider is how many foreigners to allow in, an issue that is potentially divisive and hits the Government where it hurts - electoral support.
Some observers believe the overall ratio of two local workers to one foreigner, which the Government has been maintaining, will need to be relooked as resident labour force growth slows. The time may come when more foreigners are needed to fill jobs which Singaporeans do not take up.
But exactly what number is needed will have to be carefully calibrated, and balanced with efforts to ensure locals are not discriminated against. As Prof Cheung says: "It's important for the Government to be aware of the grievances and tension in the workplace."
Singapore is still fairly new to the ageing scene compared with developed economies, like Japan and Germany, which are further along the road. "We are into this whole new experiment, and there are lots of possibilities," says Prof Cheung.
The difference, says DBS' Mr Seah, is that "we're small". "We cannot afford to live like a big country. We need to be nimble, to adapt."
For now, Manpower Minister Mr Lim is convinced, after having attended various multilateral meetings of late, that Singapore is ahead of the curve in terms of helping the economy and workers prepare for the coming changes.
"Those who are able to adapt and find a solution, in fact, will be able to find a way out ahead of the others," he says, using the Chinese idiom "xian bian xian tong" to illustrate his point. "And we have our way out. It's by transforming our industry, by transforming our workforce and by keeping the two in sync."
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