Foreign worker buffer is not working

In an article in the Straits Times on Saturday, 12 September 2009, Professor Ivan Png makes an argument that data produced by the Ministry of Manpower (MoM) confirms that the foreign worker buffer is working as intended (“Foreign worker buffer is working”, p. A34).

He argues that “when the economy booms, Singapore attracts more foreign workers; when the economy weakens, foreign workers are laid off and return to their home countries.” And, “to the extent that this buffer works as intended, unemployment among foreign workers would be lower than among Singaporeans.”

He then produces a chart that shows that Singapore resident unemployment has always been higher than total unemployment from 1999 to 2009 and concludes “the resident unemployment rate is always higher than the total unemployment rate, thus confirming that the foreign worker buffer is working as intended.”

It is unclear that the evidence produced supports his argument. If foreign workers serve as a buffer through economic cycles, the most direct measure of this would be the proportion of Singapore residents as a fraction of total employment.  That is, if foreign workers serve as a buffer:

a)     During good times, more Singaporeans are employed, and more foreign workers are employed (because there are too many jobs and not enough Singaporeans).  Therefore, the proportion of employed Singaporean residents as a fraction of the total workforce would be lower since the total workforce base has been enlarged.

b)    During bad times, if many more foreigners are sent home than Singaporean residents are retrenched, the proportion of employed Singaporean residents would rise, since the size of the total workforce is reduced, but more Singaporeans retain their jobs.

All the data necessary to prove or disprove this is available to the Ministry of Manpower, and MoM should analyse it and publish the results to remove all doubt.

There is, in fact, some evidence that foreign workers do not serve as a buffer.  In the last year, the manufacturing sector has been one of the most affected by the global slowdown.  Yet figures published by Ministry of Manpower show that the manufacturing sector shed 4,600 local jobs while adding 24,100 foreign jobs in the year 2008 [1].

When asked in Parliament why this was the case, the Minister of Manpower, Mr Gan Kim Yong replied:

In 2008, total employment in manufacturing grew by 19,500. The growth came largely in the earlier part of the year. Although some companies had cut their headcount, others were still growing and expanding. Given the tight labour market then with record local employment rate of 77.0%, manufacturing companies which were still growing had to recruit foreign manpower to meet their needs. However, as the economic downturn deepened, both foreign and local employment in manufacturing fell towards the end of the year. Job losses in the manufacturing sector were more than offset by jobs created in other sectors as overall local employment grew by 64,700 in 2008.

Two statements, in particular, stand out: When the economy was growing, manufacturing companies which were still growing had to recruit foreign manpower to meet their needs.  When the economic downturn deepened, both local and foreign employment fell.

Does this not show that foreign workers don’t serve as a buffer?  The data presented, that foreign jobs are added in manufacturing while local jobs are lost, implies that the proportion of locals in the manufacturing sector must decrease over time.  And this is indeed the case – figures published by the MOM show that the proportion of Singaporean residents employed as a fraction of total employment in manufacturing fell from 62% in 2003[2] to less than 50% in 2008[1].

Comparing resident unemployment rates against total unemployment as a measure of the effectiveness of foreigners as an employment buffer is probably requires a number of intermediate steps and assumptions.  Perhaps Prof. Png could publish his methodology, so that an independent assessment of its soundness may be obtained.

Astute readers would also note the contrapositive to Prof. Png’s conclusion: “If the foreign worker buffer is not working as intended, then the resident unemployment rate would always be lower than the total unemployment rate.”  If this is the case, most Singaporean residents would probably want the foreign worker buffer to not work as intended.

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