Financial Freedom SG

As promised- although one day late, I will try to say something on the topic of foreign talent in Singapore. In my previous post, I mentioned that Singapore was raising the retirement age. One of the reason for doing so, besides making senior citizens in Singapore self sufficient and not lapsing into dependency mode (the top most fear of the current government in Singapore) is because there is a pressing need for labour.

With the birth rate still languishing and hovering around or below the replacement rate, the government's options is to import even more foreign talent and/or to raise the retirement age so that workers in Singapore can still contribute another 5 years or more. The Singapore government has stated before that the issue of foreign talent is a matter of life and death. In reports that I have read on the internet published by academics, they have mentioned that around 2-2.5% of Singapore's GDP growth in the 1990s is due to foreign talent. So that is around a quarter or more of Singapore's growth being directly attributed to foreign talent. And that was before the government opened the gates even wider to welcome foreign talent.

The average Singaporean will probably not have any strong views on these foreign talent. I dare say that all companies in Singapore have some foreign talent from the education sector (some teachers in Singapore hail from foreign shores too) to the banks to the construction industry. You see them all the time, everyday of the week. Resentment surfaced when there was a recession in the 1997 Asian Financial Crisis and the meltdown in the markets in the first few years of the 21st Century. People viewed these foreign talent as people who are taking away jobs of the local Singaporeans.

The economic answer to the resentment is using the economic magic word- multiplier effect. Like the economic answer to whether protectionist policies helps or hinder a country, the multiplier effect is rather ingenious. Basically it says that $1 spent in the economy multiplies many times. So if you spend $1 to buy say some small items, the grocer who receives this $1 may spend it to buy newspaper, and the newspaper vendor uses it to buy something else. In short, the $1 has this multiplying effect on Singapore's economy.

So, how does it relate back to the foreign talent? The simple answer is that each and every foreign talent has a multiplying effect on Singapore's economy. They work here, they earn money and they spend a large part of this money they earned back into Singapore's economy. Thus, the Little India Jewellery store owner's smile is a little wider because of the effect of foreign talent on the store. The owner will spread a little of this multiplying effect to maybe hire a new assistant to manage the booming business. The owner will also spend part of this money to consume goods and services. Therefore, in this little example, you can see that there is actually also job creation from the hiring of foreign talent.

Now that you are having nice and positive thoughts about foreign talent, you notice that the title says 'bane' too. So where is the flip side? Foreign talent increases labour supply. As any half baked student who studies economics will tell you, increasing the supply means that the prices of labour goes down. Foreign talent reduces wages on average. As employers have more options, the labour costs goes down and your wages either stagnates or goes down with more foreignt talent.

After hearing this, a lot of people will flip and say, good riddance to foreign talent. We don't need them. However, this movement of foreign talent from country to country is a shift that cannot be prevented. If we prevent this, they go to another country to contribute there and grow that country's economy. In the end, when our labour costs go through the roof, we lose our competitiveness and the companies who have invested here go where labour costs are lower. In case I haven't bore you with this long post, you can read this illuminating article from a prominent economist from Deutsche Bank about Singapore future (his name sounds like he is also a foreign talent-apt for this particular post)

The title of my blog post should have read- Foreign Talent- A Need. It doesn't mean that I have to like it, but knowing how it pans out in the economic sense, I have to accept the inevitable. Maybe I'd join the ranks of foreign talent and move around too :)