Foreigners Are Causing Our Unemployment

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					      Economic Literacy:

      Some Myths about
    the Singapore Economy

     A Presentation by the
Econ Special Paper Students 2004
              Globalisation


           Government Policies


     Fiscal Policies & Monetary Policies



                Wage
Unemployment
             Restructuring       Cost of Living


             Economic Growth
  Singapore is a SMALL and
OPEN economy and therefore we
       are HELPLESS.


                       Globalisation
What is Globalization?

   IT IS INTEGRATION….

ECONOMIC                            POLITICAL


           SOCIAL
                    TECHNOLOGICAL




                                    Globalisation
             Economic Implications
“The Asian economic miracle was due to the forces of
  globalization”
                                 ----------George Yeo

:: Trade liberalization   :: Environment damage
:: New markets            :: Outsourcing
:: Investments
                          :: MNCs
:: Imports
                          :: Competition
:: Consumer choice
:: Technology

                                                  Globalisation
             Our Response
• Transforming into a knowledge-based
  economy

• Diversification

• Trade

                                  Globalisation
          Free Trade Agreements
• What are FTAs?
A legally binding agreement between 2 or more countries to bring about
  closer economic integration.
• Basic components
Trade in goods + services and investment chapters
• FTAs Singapore signed :
 ASEAN (AFTA)
 New Zealand (ANZSCEP)
 European Free Trade Association (ESFTA)
 Japan (JSEPA)
 Australia (SAFTA)
 USA (USFTA)
                                                        Globalisation
                Why FTAs?
• Trade Liberalisation
•  Create employment
•  Consumer Choice
•  Singapore-based companies enjoy cost-savings
•  Elimination of customs duties (tariffs)
•  Improved market access
•  Both our producers and service suppliers will
  enjoy “national treatment”
 BUT…..
• More foreign competition
                                        Globalisation
Lowering income tax benefits the
            RICH?




                         Fiscal Policy
      What is Fiscal Policy?

• Government policies involving
  government expenditure and revenue:
  i.e. taxation and spending




                               Fiscal Policy
• Major role of fiscal policy in stimulating
  economic growth
  – Tax incentives encourage industrial
    development
  – Tax concessions development of Singapore
    into regional financial hub

                                     Fiscal Policy
           BackGround
– shift from direct to indirect taxation
– increase GST from 3-5%, (indirect)
– lowering corporate tax from 22% to
  20%, lowering overall personal
  income tax (direct)
                Aims

– Attract foreign talent.
– Increase incentives to work.
– Increase competitiveness
– Encourage investment and
  entrepreneurship

                                 Fiscal Policy
-Therefore…
  • Redistributive effect of increase in
  GST




                                 Fiscal Policy
A Strong Singapore Dollar Is
       Good For Us.



                       Monetary Policy
             Singapore Context
       Open economy         Small economy


   Large trade &
                            Vulnerable to changes in
   money flows
                            other countries
 from & to abroad


Exchange rate is the most direct way to control prices
in Singapore
                                          Monetary Policy
  How the Exchange Rate Works
Foreign Price    Exchange Rate      Domestic Price

  Higher           Strong S$            Lower
                e.g. 2 S$ = 1 US$



  Lower             Weak S$             Higher
                e.g. 5 S$ = 1 US$


                                      Monetary Policy
   Strong           vs. Weak Dollar
• Cheap imports for      • Cheaper exports to
  consumers                other countries: more
                           competitive prices,
• Reduce imported          better sales
  inflation from other
                         • Boosts demand for
  countries                exports, stimulates
• Reduce foreign           economy
  demand for exports     • More expensive for
                           people to buy imports
                                     Monetary Policy
 Singapore’s Monetary Policy
Exchange Rate

        Price Stability
                            Support
                            investments
  Encourage
  trade
                      Sustainable Growth
                                 Monetary Policy
FOREIGNERS Are Causing Our
      Unemployment.




                    Unemployment
  800,000 Foreigners in Singapore
                         Foreigners


       Foreign Talents                  Foreign Workers


CEOs    Professionals Researchers Construction      Maids
                                           Unemployment
        Why Foreign Talents??
–it allows businesses to bring in
investments knowing they could
employ the best global talents.
–create jobs
–bring new knowledge and
expertise.
– promote trade
–win support from the
international community and
                                    Unemployment
analysts
     Why Foreign Workers??

–Cheaper
–Fill in the labour
gaps in industries




                       Unemployment
   One People One Nation One
           Singapore
–contribute to at least 41% of GDP
growth in the 90s
–achieved an average quarterly
growth of 7.8 percent during the
period
–gives Singapore a cosmopolitan
feel and lift its status to that of a
'world city' rather than being a
regional backwater.                     Unemployment
        Structural Unemployment
•Older and less-educated (40
and above) are finding it hard
to secure employment and earn
wages that reflect the true cost
of living in Singapore.


•A general mismatch of
education/skills and jobs
among a sizeable percentage of
the work force across different
age groups.
                                   Unemployment
       What Causes Structural
        Unemployment??
–New Economy
–Insufficient Domestic
Demand to create jobs
–Older workers cannot
compete for physically
taxing jobs
–Citizens expect high wages

                              Unemployment
Wage Cuts Benefit Employers
         ONLY?



                      Wage Restructuring
               Wage Cuts
Wages can be cut by two means :
• Introduction of a Variable Component

•   Decrease in employers’ CPF contributions




                                   Wage Restructuring
Variable Components
• Monthly variable component (50% for senior
  managers, 40% for middle managers, 30% for
  rank-and-file employees)
• Variable Annual Wage Supplement or 13th month
  pay
• Performance indicators
• Wage levels reviewed when companies face wage
  pressures from global competition


                                     Wage Restructuring
                 CPF Cuts
Workers Aged 55 and below:
• 3% cut in employer contribution to 33% wef 1 Oct
  03

Workers Aged 55 and above:
• Lower contribution from both employer and
  employee with a reduction of 9% from 36% to 27%
  over the next 3 years
                                       Wage Restructuring
         Benefits to Economy
• Enhances global competitiveness of firms
       1.Lower Costs of Production
       2.Incentives for foreign investment
• Reflects true market value of employees according
  to the productivity of the worker and the existing
  financial situation
• Allows companies to remain viable during periods
  of economic recession without significant cuts in
  labour force
                                         Wage Restructuring
         Benefits to Employees
• Lower CPF contribution rate for older
  workers than that for younger workers
  help older workers keep jobs and
  unemployed to find jobs

• More workers stay employed in tough
  times


                                          Wage Restructuring
Inflation is BAD!!




                Inflation & Cost of Living
                            Inflation
• A sustained increase in the general price level.

• Mild Inflation
   – Around 2% to 3%

• Creeping Inflation
   – Around 6% to 7%

• Hyperinflation / Galloping Inflation / Runaway Inflation
   – Prices rise at a phenomenal rate
   – Associated with social instability
   – Argentina


                                               Inflation & Cost of Living
              Really Bad?
• Mild inflation can be beneficial
   Sign of a healthy economy

       Confidence in the economy

             Investment

                   Economic growth!!!
                                 Inflation & Cost of Living
    Inflation and CPI in Singapore
                                         Annual Inflation
CPI                 Year   Price Index
                                         Rate
•Consumer Price     1993   92.2          2.3
Index
                    1994   95.1          3.1
•One of the most
                    1995   96.7          1.7
useful indicators
                    1996   98.0          1.4
of inflation
                    1997   100.0         2.0
                    1998   99.7          -0.3
                    1999   99.8          0.0
                    2000   101.1         1.3
                    2001   102.1         1.0
                    2002   101.7         -0.4
                                         Inflation & Cost of Living
Inflation & Cost of Living
  Singapore is a SMALL and
OPEN economy and therefore we
       are HELPLESS.


                       Globalisation
          Economic Growth
• Economic Growth measured by Gross
  Domestic Product (GDP)
• GDP: total market value of all final goods
  and services newly produced within the
  geographical boundaries of a country during
  a specified period; usually one year


                                   Economic Growth
Real GDP growth in Singapore,
          1965-99




                       Economic Growth
         1997 Economic Crisis
• Suffered adverse spill-over effects of the Asian
  financial crisis in 1998, following very strong
  growth in 1997
• GDP growth slowed down significantly from a
  positive 11.8 percent in the third quarter of 1997 to
  a negative 2.1 percent and negative 1.1 percent in
  the second and third quarter of 1998 respectively. As
  a result, its GDP growth fell from a robust 8.9
  percent in 1997 to a mere 0.3 percent for 1998 as a
  whole
                                         Economic Growth
        1997 Economic Crisis

• Only the transport and communications, and
  business services sectors continued to show
  positive quarterly growth despite the crisis.




                                    Economic Growth
    Economic Impact of SARS
• Domestic demand fell by 9.6%
• Hotel and restaurants sector shrank by 12%
• Transport and communications sector contracted
  by 2.0%
• After a sharp 7% contraction in Q2, real GDP
  rebounded by a brisk 16% in Q3 and a further
  11% in Q4
• Growth in GDP was largely attributable to the
  electronics, chemical and biomedical
  manufacturing
                                       Economic Growth
Recent Economic Developments

• 7.3% growth in 1st
  quarter of 2004
• GDP rose by 1.1% in
  2003
• GDP growth is
  expected to be about
  7.5% for 2004


                         Economic Growth
 Singapore is a SMALL and
OPEN economy BUT we are
     NOT HELPLESS.


                    Economic Growth

				
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