ELECTRONICS INDUSTRY (Labour shortage)

Mr Chiam See Tong asked the Minister for Trade and Industry whether the rapid expansion in the labour-intensive electronics industry will create the same labour problems for Singapore as in the recent past when there were as many as 150,000 foreign workers in Singapore.

The Minister for Trade and Industry (BG Lee Hsien Loong): Mr Speaker, Sir, as the Singapore economy has recovered, more jobs have been created. Unemployment has declined from a peak of 6.5% in June last year to 4.7% in June this year. The electronics industry, whose output in the first half of this year increased by 35%, has created exceptionally many jobs. With further steady growth projected for the rest of 1987, there is a danger of a labour shortage resulting in job-hopping and high wage increases.

The labour shortage can be eased in two ways - either by increasing the supply or the price of labour. In other words, either by finding more workers, or by raising wages, which means costs. There is a limit to the number of additional Singaporean workers available to join the workforce in the next few months. This is because our population is only expanding slowly - less than 1% a year - and also because there are fewer school leavers in the second half of the year. Any immediate increase in labour supply must therefore come from foreign workers.

The Government's policy is to use foreign workers as a buffer to cushion the swings in our economic cycle. This year as the economy has expanded, the number of foreigners on work permits has steadily increased. The Government intends to allow a continued controlled inflow of foreign workers to our factories over the next few months.

Another possible source of labour are the older unemployed Singaporean workers. Many lost their jobs in the recession. Most have been re-employed, but some are having difficulties finding new jobs. The Government has a duty to look after their interests. The best way of doing this is to generate economic growth, and create new and productive jobs for them. The number of unemployed male workers aged 35 and above has declined from 19,900 last June to 15,400 this June.

Many employers, especially in electronics, prefer younger workers (often work permit holders) to older ones. They find the younger ones better educated, easier to train, cheaper to hire, and sometimes more productive. The Government would like to encourage employers to exercise more flexibility in hiring older workers.

But we cannot keep out all foreign workers until the last Singaporean is hired. It is not true that letting in foreign workers causes local unemployment. If Singaporeans do not have the skills needed for the jobs which are available, keeping out foreign workers will merely worsen the shortage of trained Singaporeans, not increase the employment of untrained ones. Our economy will become overheated, and the danger of another boom-and-bust cycle will be increased.

The older workers themselves must therefore also do their part. They must make the effort. They have to equip themselves with the basic skills and render themselves attractive to employers. The Government has organized programmes like BEST and MOST to help them. They should make the most of these opportunities.

In the problems of these older workers lies a lesson for all Singaporeans. We must acquire new skills while on the job, not after losing it. As we grow older, we must never allow ourselves to become obsolete, difficult to retrain but easy to retrench.

On the price side, how much wages workers demand depends partly on their expectations. Memories of the recession are still fresh. Singaporeans realize that good times do not last forever, and that it is unwise to try to squeeze the maximum out of employers in a boom year. Union leaders too understand the importance of moderation and restraint. This has helped to hold down wage increases, and make our wage restraint policy a success.

The Minister for Labour has announced that if the economy continues to do well, then the first adjustment to the CPF contribution rates will take place in July next year. The Government has deliberately stated its intentions early, so that knowledge of this impending adjustment to CPF rates can restrain the wage settlements which are reached this year. Companies which may be tempted to grant over-generous wage increases are forewarned. When the CPF rates are raised, they should have no reason to complain that the Government has raised their costs unexpectedly.

The NWC statement for 1987 already provides for companies which are doing exceptionally well to make bonus payments in line with their profits and productivity performance. The NTUC Secretary-General has suggested a year-end bonus for the public sector. 1DPM has endorsed the idea of a small one-time year-end bonus of up to one week's wages, but only provided the economy grows strongly - say, by more than 7% - and productivity improves significantly. However, I stress that no decision to pay the bonus has been made. The Government intends to wait for the third quarter economic results before deciding. We should not count our chickens too soon.

Successful companies in the private sector can follow this lead. Such a conditional and variable bonus would be a fair reward to workers for their efforts and sacrifices during the recession, without locking in employers to paying the same in future years which may not be so rosy. In parallel with the more detailed company by company negotiations on wage reform, such a bonus will also firmly establish the principle of flexible wages in our economy.

Managing a tight labour market depends not only on the Government, but also on the private sector. Wage settlements are voluntary agreements between employers and employees. The NTUC has stated that it is not for the unions to turn down any over-generous offers from the employers. The Government agrees with this view. Discipline and good sense must come from the employers themselves. They have to calculate the long term interests of the firm, and reward their workers in ways which are fair and sustainable. They can depend on a responsible union leadership and on the support and cooperation of the Government. I hope that in a tightening labour market, employers will maintain their perspective and do their part in preventing a recurrence of the mistakes which contributed to our last recession.

Dr Augustine H.H. Tan (Whampoa): Mr Speaker, Sir, would the Hon. Minister agree that one way to safeguard the interests of our older retrenched workers is to insist that all firms hire a certain minimum quota of Singaporeans?

BG Lee Hsien Loong: Mr Speaker, Sir, that is one way, but I am not sure that is the best way. In the labour market, as in so many other areas of the economy, who hires whom, who buys what, at what price, is best left to market forces to decide, as the hon. Member for Whampoa has many times reminded us in this House, as an economist. We can encourage employers to hire older workers. I think we should. We can encourage them and pressure them not to discriminate unfairly against older workers. But in the end, the employer has a responsibility to hire the person best able to make a contribution to the firm, and not merely be a burden on the payroll and be a token gesture of charity. So we cannot force employers to hire older workers.

I think we have to make the older workers more productive. We have to get them retrained. We can find ways to help retrain them, as I said, through BEST and MOST, and we will look for other ways as well. But I do not think that coercion will lead either to greater welfare or to higher economic growth.

Dr Augustine Tan: Mr Speaker, Sir, is the Hon. Minister aware of the biases, distortions, introduced by the Work Permit policy in that bigger firms, hotels and enterprises are free to import virtually all the labour that they want, while the smaller firms, usually local and Singaporean firms, cannot find any foreign workers, and are not allowed to import any? There are these biases that must be corrected?

BG Lee Hsien Loong: I am aware that some employers may be prejudiced against older workers. The Minister for Labour has mentioned it and it has been published in the newspapers. But there is no bias in the Work Permit policy against local firms.

Not every sector of the economy can bring in foreign workers. We have confined it to construction, to manufacturing, to hotels and domestic maids. I speak from memory on behalf of the Minister for Labour. I think it is right that we confine import of foreign workers to individual sectors where the problem can be contained. In construction, during a boom there is tremendous demand for workers. The boom does not last forever. After it is over, these foreign workers are retrenched, and they go home. In manufacturing, the turnover of workers is high, and the fluctuations are also large. In electronics, where there has been 35% growth, there are shortages. It is the most sensible place to allow in additional workers. They will meet the temporary shortfall, which will not last forever. In the next manufacturing recession, the numbers will be reduced.

In other sectors of the economy where the fluctuations are not primary but derivative and smaller, to allow in foreign workers is to make ourselves permanently dependent on a foreign source of labour. We cannot disengage. If you are operating a department store or a supermarket, the requirement for workers does not go up and down. It stays the same. The business does not go up and down. What goes up and down is the ease with which you can find workers and perhaps the effort you must make to recruit them. But if we allow in foreigners into these sectors - retail, department stores, local small restaurants - then we will be permanently hooked. And I think the objective which the NTUC Secretary-General mentioned, and many labour MPs I am sure will heartily second - that we should encourage employers to hire Singaporeans rather than blindly depend on foreign workers for all their needs, no matter how peripheral - that objective will never get achieved. I am sure the Member for Whampoa also subscribes to that objective.

Mr Tang See Chim (Chua Chu Kang): Sir, is the Minister aware that under our present wage system, the cost of hiring older workers is necessarily higher than younger workers, and that if we leave the entire decision on hiring to the employer, other things being equal, the employer would hire younger workers instead of retaining the older workers?

BG Lee Hsien Loong: Mr Speaker, Sir, I am aware of that. In fact, that was one of the primary motivations for wage reform. Workers have to be paid in accordance with their output and productivity. The expectations of some older workers may not be completely in line with what they are able to produce or in line with their contribution. And if they want employers to hire them, then these expectations will have to be revised. And I encourage the Member for Chua Chu Kang to make some speeches to affect these expectations downwards.

Mr Chiam See Tong: Mr Speaker, Sir, the Minister has mentioned that one of the ways to ease the labour shortage is to allow a controlled inflow of foreign workers. I believe that policy is being pursued at the moment. I would like to ask the Minister to what extent or to what percentage of our total labour force will foreign workers finally be limited.

BG Lee Hsien Loong: I should explain that we bring in foreign workers not to swell our labour force but to provide ourselves some flexibility to expand and contract. Our labour force, as I said, is expanding at about 1% a year. Why? Because 18 years ago too few babies were born. Can we fix it? Yes, but it will take 18 years. Foreign workers cannot solve that problem. Foreign workers can help to buffer rapid expansions and rapid contractions, so that all of the tightness is not taken up either in a wage explosion during a boom year, or in high Singapore worker unemployment during a recession year. The numbers of foreign workers are going up. How far can they go? Well, they are still some considerable distance below the peak that was reached in the last boom. We are watching the situation carefully, not just in terms of numbers of workers and percentages but also the side effects which are created "socially and culturally", to use the Member's words. As long as the side effects are containable, as long as we think that this is a temporary surge, we will allow in foreign workers. But if it goes beyond that point, eg, many of them overstay or want to settle down and marry Singaporeans, then some measures must be taken to tighten it.

The Member would be aware that we have changed our rules on work permits so that all work permit holders come in on a $140 per month levy rather than on CPF. The reason we did this is because we wanted to use the levy as a control mechanism. If the numbers escalate out of control, we can tighten by raising the levy and choking back the demand. I hasten to add that we have no plans to do anything like that at the moment, but the mechanism is in place.

Mr Chiam See Tong: Mr Speaker, Sir, it was a very lengthy answer but the Minister has not answered my point yet. To what level the Government will stop the inflow of foreign workers, 10%, 11% or 12% of our total labour force, or what? Or when the need arises, it can expand as high as it could go? Is that the policy?

BG Lee Hsien Loong: Our policy is to have a controlled inflow. We do not have an absolute limit in mind. But I very much doubt that foreign workers would exceed one-quarter of our labour force.