Tuesday, March 08, 2005

Employment and globalisation 

While the job market appears to have become rosier for graduates of the National University of Singapore and Nanyang Technological University last year, KnightofPentacles of Singapore Serf still has trouble getting work which pays reasonably in the IT sector.

If you think the education policies puts Singaporeans at a disadvantage, just wait until you start competing in the cut-throat work private sector environment...

I was chatting with a friendly recruitment agent (“headhunter”) last Friday. What I heard ran a chill down my spine... What was upsetting to me personally was that her clients are specifically rejecting Singaporeans for those positions.

Seems that clients are requesting Caucasian faces for the mid- to top-level positions to bolster the “image” for the company...

As for the cost-sensitive entry-level positions, the clients have specifically requested for India and PRC workers and are more than willing to apply for (‘Q’-class) employment passes since it is cheaper than paying the extra CPF for Singaporeans, and the hassle of having male Singaporeans disrupt employment for National Service reservist every year...

... The recruiter told the SO that the wages for the IT market (from the recruiter standpoint) has pretty much collasped due to the influx of cheap foreign labour...
The discrimination at the mid- to top-level positions would probably strike a chord with redrown of Rebrab Moor. For entry-level positions, the situation that KnightofPentacles describes has to be seen against the backdrop of globalisation, and specifically, the rise of India as an IT powerhouse.

The effects of globalisation is far-reaching. In my earlier post on “Budget crunch?”, I had consciously stretched my excerpt from The Straits Times to include a paragraph that mentions Harvard economist Dani Rodrick and his book Has Globalisation Gone Too Far?. Much of the income risk that I have mentioned elsewhere in this blog is the result of globalisation. It is a phenomenon that Singapore cannot be shielded from.

Incidentally, I doubt that Australia — where KnightofPentacles hopes to go to — can either. It’s a worldwide problem. In fact, just yesterday, Morgan Stanley chief economist Stephen Roach wrote a commentary entitled “From Jobless to Wageless” regarding the current American job situation:

The global labor arbitrage has a rich and long history... Courtesy of e-based connectivity, both tradable goods and an increasingly broad array of once non-tradable services can now be sourced anywhere around the world. That has turned low-labor-cost platforms in places such as China (goods) and India (services) into both wage- and price-setters at the margin... [T]hese offshore employment options played an important role in crimping domestic hiring. Now, I suspect these same forces are having an important impact on the US real wage cycle... Why pay up for a software programmer at home when you can get the same functionality at a fraction of the cost from Bangalore?
To a large extent, many of the Singapore government’s policies — including that on accepting foreign talent — are formulated in an attempt to address the effects of globalisation without sacrificing economic growth. In a sense, I guess, the Singapore government should be commended for being proactive about meeting the challenges arising from globalisation.

However, being proactive also often means implementing untested policies. Or even reversing tested policies. The policy that favours foreign talent, for example, contradicts a long-standing policy of keeping out immigrants from Singapore, a factor behind the foreign worker levy. Little wonder then that its effects are causing a brouhaha among Singaporeans (see “TODAY Reader Mail: Feeling marginalised in own country”).

On a more fundamental level, we also need to ask whether the almost-single-minded pursuit of economic growth — at least as measured by gross domestic product or similar indicators — is realistically compatible with the true wishes of individual Singaporeans. This is a question that I am not sure the government has provided the correct answer to (For elaboration on this point, see for examples another Singapore Serf post “GK’s Real Question” and my own “High expectations and cost of living”).


I agree that no country can be safely shielded from the effects of globalisation.

However from the individual point of view, there are important differences between Singapore and Australia.

Australia has a minimum wage policy that pretty much guarantees that any healthy body willing to work can and will make a decent standard of living. And for those who are unable or unwilling, there are unemployment benefits. (Subject to conditions)

Singapore has neither.

For a more detailed analysis from a serf's point of view on the personal economic prospects in both countries, Follow the Money may be the more appropriate blog post.

I'll grant that there's much to be said for quality of life differences between Australia and Singapore...

But is a minimum wage policy such a great idea? (See e.g., this) In fact, I would have thought that precisely a minimum wage policy stands in the way of the ideal that "any healthy body willing to work can" (just as surely as rent control guarantees a housing shortage!).

As for the welfare policy--unemployment benefits, etc.--the funding's got to come from somewhere...usually from taxes. Now compare the below two ranges:

Singapore (2004-05) 4% on the first S$10,000 above S$10,000, to 22% for every dollar above S$320,000; GST = 5%

Australia (2004-05) 17% on the first A$15,600 above A$6,000 (=S$7,680), to 47% for every dollar above A$70,000 (=S$89,600); GST = 10%

In other words, from the purely personal economic point of view (abstracting from other intangibles), Australia looks good if you are unable or unwilling to work, or if you are a student not quite in the job market. But if you are willing and able to work, it's not exactly the same story anymore.

It's not that the money paid in taxes just disappears--they do come back to one in the form of various welfare benefits--but one does not get to choose where that money goes to or does. In other words, the difference is between benigh collectivism and something more individualistic (ironically).

“But is a minimum wage policy such a great idea?”

Once upon a time it was the consensus among economists to think minimum wages reduced employment for the low skilled, that’s no longer the case.

So don’t take Linda Gorman as the last word on minimum wages. Take a look at the empirical case for minimum wages from a study by David Card and Alan Krueger: Myth and Measurement: The New Economics of the Minimum Wage.

And take a look at Australia’s own experience. I see little evidence that minimum wage laws impeded the country’s excellent reduction in unemployment during the past decade or so.

“As for the welfare policy - unemployment benefits, etc.- the funding's got to come from somewhere ..usually from taxes.”

What’s the problem with paying more taxes if it ensures a greater amount of social security for all? What I find ironic is that just as economic uncertainties are rising rapidly, we prefer to privatize risk.

Let me put it another way. How protective should we be with regards to the income that we earn in a free market? For one thing, we can never know for sure what prospective returns we can expect to receive for the amount of labour we put in. If we could truly plan our future, we would be living in Mao Tse Tung’s China. So sheer clueless luck often accounts for a not insignificant portion of what we earn in a free market. And since nobody deserves what comes to him by sheer luck, why not put it in a social security kitty?

1. "Take a look at the empirical case for minimum wages from a study by David Card and Alan Krueger: Myth and Measurement: The New Economics of the Minimum Wage."

...the accuracy of the underlying basic data of which has come under some critical attention. So much so that Krueger has stated (at a Milken Institute conference), "I want to emphasize that my comments should not be interpreted as support for the position that increasing the minimum wage is sound public policy" (Krueger 1993:11). (There's a survey of the lit here)

But my point was not to attack a minimum wage policy per se--only to call into question the original contention that such a policy "pretty much guarantees that any healthy body willing to work can and will make a decent standard of living." Such a policy *might* be able to ensure that anybody who actually has a job would make a decent standard of living, but I am suspicious of the first part.

Same with the Australian case--the question is not whether the minimum wage policy "impeded" reduction of unemployment, but whether it somehow contributes to fuller employment.

Once again: there *may* be reasons to implement a minimum wage policy, but they won't be the ones originally put forward.

2. "What’s the problem with paying more taxes if it ensures a greater amount of social security for all?"

Your underlying perspective is made clear by this line: "If we could truly plan our future, we would be living in Mao Tse Tung’s China."

No thank you! The issue goes beyong economics. It's not that I'm dead set against social insurance, or that arguments about luck and desert (or lack thereof) do not appeal to me; but going for any form of collectivism only exchange one problem for another, much more intractable one. So we exchange the vagaries of the market for...central planning?

Taxes don't just go to "society", they are collected and spent by *people*. The more collectivistic a society becomes--the more taxes it collects--ironically, the more some small number of people get to decide for the rest what to do with society's resources, which, from your perspective, presumably belong to every member of society. In other words, your "social security for all" is managed and run hardly by all, but by the few. There is no surer invitation to corruption than that. (Heard of "porkbarrel politics"?)

I have no illusions about the market; but I have even fewer illusions about the *state*. To exchange the "clueless luck" of the market for the inordinate control of our lives by a few...I'll take the "clueless luck" any day.

I'll come back to your actual arguments (last two paragraphs) in a later comment (got to go for now).

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