Committee of Supply (Speech 1) by Mr Gan Kim Yong, Minister for Manpower, 09 March 2011, 3.15PM, Parliament

(I) LABOUR MARKET UPDATES

1. Mr. Chairman, Sir, when I made this speech last year, we were just coming off one of the worst global recessions which we had ever seen and there were significant uncertainties then. However, 2010 turned out to be a good year for the labour market. Overall employment increased by 3.8% as 112,500 jobs were added, with about half going to locals. Consequently, the proportion of residents aged 25 to 64 in employment reached a new high of 77.1% from 75.8% in the previous year. So in a nutshell, more Singaporeans are employed today than ever before.
2. Our employment rate for older residents aged 55 to 64 also rose to a new high of 59.0% in 2010, after holding steady at 57.2% over the last two years.
3. Overall unemployment rate improved to 2.2%, as compared to 3.0% in 2009. This chart shows that our unemployment rate is significantly lower than regions like the US and EU, which suffer from unemployment rates of more than 9%. It is also lower than Asian countries such as China and Japan which posted unemployment rates of over 4%.
4. Our ability to bounce back from the recession so quickly was more than just sheer luck. It was because we implemented the right policies and tripartite partners worked together to save jobs and prepare for the recovery.
5. The Skills Programme for Upgrading and Resilience, or SPUR, introduced in December 2008 played a key role. The Government invested a total of $635 million on SPUR to benefit 334,000 workers. More than 80,000 job seekers found jobs through SPUR. Madam Halimah will be pleased to know that training efforts have not slackened despite strong economic recovery. Our training participation rate improved to 29% in 2010 from 27.9% a year ago.
6. The economic outlook for 2011 remains positive and we expect to see a stable labour market and healthy employment growth, especially in the Services sector.
   
   (II) TOWARDS SUSTAINABLE AND INCLUSIVE ECONOMIC GROWTH – RAISING PRODUCTIVITY
7. With robust economic growth and a tight labour market, there is even greater urgency for us to raise productivity. We must step up our efforts on skills training and innovation while at the same time, further moderate demand of foreign workers.
8. Let me first elaborate on moderating demand of foreign workers.
   
   MANAGING OUR FOREIGN WORKFORCE
   
   (III) REDUCING OUR RELIANCE ON FOREIGN WORKERS
9. Sir, the strong economic growth last year had spurred the demand for foreign workers and about 53,000 foreigners were added to our workforce. While we need foreign workers to complement and supplement our local workforce, we have to further moderate their demand if we want to keep the foreign share of the total workforce to around one-third (1/3) in the long term and encourage our employers to invest in productivity.
10. As the Finance Minister announced earlier, my Ministry will further increase foreign worker levies in 6-monthly intervals up to July 2013. The schedule has been released earlier and I will not go into the details. I would like to stress that the foreign worker levy changes should not be taken in isolation. They are part of the package of measures and initiatives introduced by the Government to encourage companies to embark on productivity efforts. Let me highlight a few issues relating to levy changes.
11. First, we will increase the levies for Work Permit holders (WPHs) in all sectors but the increases for the Services and Construction sectors will be more significant. This is because there is greater scope for productivity improvements in these two sectors. Senior Minister of State Grace Fu already talked about the Construction sector. Let me just touch on the Services sector. The productivity of our Services sector is about 75% of that of Hong Kong and about half that of the US and Japan. In the Retail industry, for example, the value-add per worker in Singapore is only S$37,000 compared with S$56,000 and S$84,000 in Hong Kong and New York. This means that with the same number of workers, Retail companies in Hong Kong are producing 50% more than Singapore companies, while those in New York produce more than double as much as us. This gives us a sense of how much productivity improvement is possible. But as Madam Halimah pointed out, this is not just about getting our retail workers to work harder and work longer. It is about how we can generate more revenue, create more value-add, how we can bring in more customers into each Retail outlet, how we can streamline their workflow to be more efficient and reduce wastage of manpower resources.
12. Some have also asked why we are raising the levy so soon. We need to make these painful adjustments now rather than later. First, we must realise that the rest of the world will not wait for us. Some of us have watched the reality show called “Amazing Race” and in this show, there are teams of competitors racing to the final destination in order to receive a big prize. So we are like one of the teams being stuck in the traffic in a taxi. While ahead of us, we are seeing some of the other teams racing ahead on an MRT train. And on our rear view mirror, we are seeing another team behind us on their motorbikes weaving in and out of traffic getting closer and closer to us. So, what do we do? If we do not catch up quickly on productivity, the gap with our competitors, the team ahead of us, will widen and we will lose our competitiveness over time. Even countries which are behind us today in terms of productivity, those in our rear view mirrors, they are on motorbikes but they can weave in and out, they are very nimble and they will catch up with us over time. We must, therefore, push ahead with our efforts to reduce reliance on foreign manpower and create the necessary impetus for employers to turn to productivity improvement instead. Secondly, it is better for us to do this when the economy is growing strongly and when companies are in a stronger position to make the necessary adjustments rather than to do so in a recession when companies are facing more challenges.
13. Let me turn to S Pass. The levy for S Pass will be increased quite significantly by between $190 and $300. This is necessary because the S Pass stock has more than doubled since 2007. This growth rate is clearly not sustainable. S Pass holders are mid-skilled and they form part of the overall foreign manpower landscape. Therefore, we will also need to moderate the demand for S Pass holders to avoid an over dependence on S Pass workers.
14. I agree with Mr Yeo Guat Kwang and Ms Jessica Tan that we need better skilled workers. Our work pass framework is in fact designed to encourage employers to hire skilled workers. Employers will pay lower levies if they hire Work Permit holders who possess recognised trade tests relevant to their occupations or industries, including those from the Institute of Technical Education as well as from the Singapore Workforce Skills Qualifications (WSQ) system, as suggested by Mr Yeo. We have also recalibrated the S Pass entry criteria earlier so that only better qualified foreign workers will be eligible for S Pass. .
15. Ms Jessica Tan asked whether companies will still be able to capture growth opportunities in the current tight labour market. The answer is definitely yes, but provided they make sustained efforts to raise productivity. As Ms Jessica Tan pointed out, there will be no change in the Dependency Ratio Ceilings. Companies that require foreign workers to grow and capture new opportunities will continue to be able to hire them as long as they are able to remain competitive with the higher levy rates and have the requisite number of local workers.
16. Sir, the levy increases will be spaced out until 2013 but I urge companies to push immediately towards innovation and productivity to reap maximum benefits. The impact of all the impending levy increases will be about 1.7% of total labour cost when they are fully implemented in 2013. If businesses tap on the funding from the various Government schemes to embark on productivity improvements and save on foreign manpower, the cost impact will be significantly lower. Let me illustrate. The average levy increase for a Services WPH is about $260. If a company improves its productivity and hires just one fewer WPH, the savings in wages, levy, accommodation and other costs from this one worker will more than offset the levy increases for the other 4 to 5 WPHs in its employment. This excludes the additional funding that the company may get from the Productivity and Innovation Credit and the National Productivity Fund. This applies similarly to a company with S Pass holders.
17. Some have said that their businesses and challenges are different and it is not possible to improve productivity further. We should not underestimate the potential of every business to improve and upgrade. Ms Jessica Tan has asked for examples of businesses which managed to do this. Let me give you an example from the F&B industry.
18. Some F&B employers said that they have no choice but to pass the increased costs onto their customers. Well, we can understand that F&B outlets have to maintain a certain level of personal service and interaction with customers and this cannot be done by robots. There is still much scope for productivity, especially at the back end. Some of you may have read about Minister Lim Swee Say's visit to Ruyi¹ restaurant where he saw an automatic wok frying rice. Some may think that this is just a showpiece and not for real. Well, Ruyi is not alone. Let me show you this particular slide. Like Ruyi, Lerk Thai, a restaurant which serves Thai cuisine, similarly uses automated frying woks, and not just woks, automatic boilers as well and deep fryers in its kitchen and has also standardised its workflow. All this innovation will save Lerk Thai 20-30% in manpower costs. Also, now that food can be served faster, Lerk Thai’s table turnaround time is shorter and sales have increased by an estimated 20-30%. The chef also has more time to create new menus. The food prepared is also of a higher consistency. Now, this is what every business should be aiming to do.
19. Sir, in conjunction with levy increases, my Ministry will also be making administrative refinements so that a company’s monthly levy bill will be more reflective and responsive to changes in its workforce profile. We have also reviewed the various salary benchmarks in the work pass framework. This is necessary given that local salaries have increased over time.
    
    a) Increase in Salary Threshold for Part-Time Employment
20. A company needs to have the requisite number of full-time local workers under our Dependency Ratio framework to qualify for foreign workers. To ensure that local workers are employed meaningfully rather than being employed on token salaries just to allow the employer access to foreign workers, we adopt a threshold salary of $650 today below which local workers are deemed to be working part-time, and employers will need two such part-time workers to be counted as one full-time worker. Given the increases in locals' wages, we will increase the threshold salary from $650 to $850. This will take effect from July this year.
    
    b) Raising Salary Thresholds for Employment Pass and S Pass Holders
21. Mr Liang Eng Hwa was concerned about Employment Pass (EP) holders competing with local Professionals, Managers, Executives, and Technicians (PMETs). The strong economic growth last year had added to the strong demand for PMETs. This means there are many opportunities for local PMETs, and this includes occupations in the Strategic and Skills-in-Demand List (SSL) which Mr Liang has mentioned. These jobs are available to locals as well and we will encourage locals to consider taking up these jobs.
22. Given the tight labour market for PMETs, salaries of local PMETs have moved up in recent years. We need to raise the qualifying salary thresholds for EP and S Pass applicants accordingly to keep pace with the local PMET labour market and to encourage companies to be more selective in hiring foreign talent who can contribute to our economy.
23. Therefore, from 1 Jul 2011, to qualify for S Pass, applicants' monthly salaries will have to be $2,000 or more, up from $1,800. Similarly, the qualifying salary thresholds for Q1, P2, and P1 Passes will be raised to $2,800, $4,000, and $8,000 respectively. Employers of existing EP and S Pass holders will be given a one-time renewal of up to 2 years to meet the salary thresholds. Further renewals thereafter will be subjected to the new salary criteria. Existing EP and S Pass holders who cannot meet the new salary threshold may also apply for lower pass types if they are eligible.
24. I would like to also add that we cannot close our doors to foreign talent. Foreign talent continues to be critical for our economic growth. These talents will help to grow the economic pie, so that everyone will have a bigger pie to share. Otherwise, we will lose our attractiveness as an investment destination and we will not be able to create good jobs for our locals. Let me assure Mr Liang that what we will do is to tilt the balance in favour of our local PMETs by helping them upgrade and become more productive. For this, we will roll out a comprehensive programme for the local PMETs which I will talk about in the next segment.
    
    (IV) CET – 3 KEY THRUSTS FOR 2011
25. Sir, moderating foreign labour demand alone will not raise productivity. We will need a second strategy of skills training and upgrading.
26. DPM Teo Chee Hean has already provided an update on the progress of the National Productivity and Continuing Education Council (NPCEC). Mr Low Thia Kiang has asked about the beneficiaries of the progress of the National Productivity Fund. As DPM Teo had already elaborated earlier, the NPCEC has endorsed the sectoral blueprints for seven out of twelve priority sectors and allocated half of the first $1 billion. The various champion agencies are in the process of finalising their roadmaps. The funds will be progressively utilised as these plans are being rolled out. Mr Low will understand that productivity is a long journey. We are in the initial stages of implementation and at the appropriate time, the Council will provide an update on the beneficiaries and the impact of the fund. And I would like to also point out that productivity improvement involves everyone; local workers, foreign workers, all have to upgrade. Local companies, foreign companies, SMEs and multinationals all have to be part of this effort to raise productivity. And I hope Mr Low will understand and not just ask local workers to make the effort to upgrade, and not the foreign workers. So productivity involves everyone. One of the core strategies of NPCEC is to develop a first-class Continuing Education and Training (CET) system.
27. Sir, let me share my Ministry’s vision for CET with the House.
28. Our vision is to nurture a culture of life-long learning among our workforce and our enterprises: companies eager to acquire new capabilities, integrating CET as part of their business strategy and rewarding their workers for better skills and higher productivity; workers on the other hand, always seeking to constantly improve themselves, learning new skills, keeping abreast of the latest knowledge and taking personal responsibility for their own upgrading. We see CET developing into a major competitive advantage for our economy and workforce. To do this, we will build our CET system on four fronts.
29. First, we will develop high quality and relevant training programmes, relevant not just to today’s skills needs but also future-oriented and outcome based. Second, we will improve on the accessibility of these programmes and build more CET pathways and linkages so that workers from all levels, from all sectors will have access to good quality CET programmes. Third, we will raise the quality of our CET institutions by developing the capability of local CET providers as well as bringing in international best-in-class institutions so that they are innovative and responsive to the needs of the industries and adult learners. We will also be developing two national CET campuses as catalysts for the development of the CET industry. My MOS will talk more about the two campuses later. Fourthly, we will enhance the quality of our CET professionals by raising the bar so that we can deliver high quality CET programmes effectively.
30. To achieve this vision, the government will continue to leverage on our tripartite partners to reach out to our employers, workers and unions. Last year, we announced that we are investing $2.5 billion in CET over 5 years in support of this vision and also to ensure that CET remains affordable and accessible to all Singaporeans.
31. The pursuit of our CET vision is an on-going journey. Our immediate tasks this year will focus on three key thrusts. I will describe our broad policy rationale and my MOS and SPS will elaborate on the details.
    
    a) Targeting Professionals, Managers, Executives and Technicians (PMETs)
32. For our first key thrust, we will provide greater training support for PMETs. Our CET system has traditionally provided strong support for rank-and-file workers. We will continue to do so but we need to expand and increase our attention on PMETs as they now form 52% of our local workforce.
33. PMETs are key drivers of value creation in enterprises. They are highly skilled and extremely proficient in their current jobs. But as Ms Josephine Teo rightly pointed out, when the global economy becomes more dynamic and volatile, the pace of economic restructuring will become faster and skills will become obsolete sooner. PMETs whose skills are highly specialised will paradoxically need to be more mobile and adaptable so that they are less vulnerable.
34. To address PMET needs, the Government has already increased the number of subsidised PMET courses available. Some MPs like Ms Josephine Teo asked whether the Government will do more to help Singaporeans stay ahead.
35. We will introduce a new comprehensive programme for PMETs, the Skills Training for Excellence Programme, or STEP, to provide a sharper focus for our efforts to help PMETS. The aims of STEP are four-fold. First, STEP will allow PMETs to deepen their industry and occupational specific knowledge and skills so that they can be more proficient in their jobs. Second, STEP will allow PMETs to broaden their skills through developing relevant horizontal skill sets such as human resource, marketing, management and finance. Third, there will be courses for PMETs to refresh their skills and update their knowledge to stay abreast with new trends and developments in their sectors. Lastly, STEP will develop a talent and leadership core for key industries through scholarships and customised training roadmaps for PMETs in various sectors.
36. The Government will invest $150 million over the next 3 years under STEP.
37. Many of our training programmes are delivered through small bite-sized modules to meet the needs of working PMETs. Nevertheless, attaining a full qualification, through the completion of a requisite set of modules, gives trainees a more comprehensive repertoire of skills.
38. Therefore, we will introduce a CET Qualification Award (CQA) to encourage workers to complete a full qualification. This will also help PMETs finance the cost of training.
    
    b) Raising the Quality of CET
39. Our second key thrust is to enhance the quality of our CET professionals and CET courses. As we grow and expand our CET system, we need to continually raise the quality of WSQ training providers and programmes so that they are able to deliver positive training outcomes.
40. Today, we have about 4,000 WSQ trainers, assessors and curriculum developers. Less than half of them possess a formal qualification in competency-based training and assessment. Many are freelancers whom training providers engage on a project basis. In order to grow, support and professionalise the CET community, we must now take the next step.
41. From 1 April 2011, we will introduce mandatory qualification requirements for trainers, assessors and curriculum developers engaged by WSQ training providers. This will improve the quality and outcomes of our CET programmes and benefit both employers and workers. My Minister of State will elaborate further on these new requirements.
    
    c) Seizing CET Opportunities at Sectoral Level
42. For our third key thrust, we will adopt a targeted, sectoral approach to help industries address their different needs as we strengthen CET. We will collaborate with industry partners to develop and implement CET-related initiatives to raise the skill levels of workers to meet their unique challenges. My Minister of State will give more details.
43. On the whole, our message for continuous training and skills upgrading has reached many employers and workers, especially the older ones. In 2010, 277,000 workers have upgraded their skills through WSQ. I am encouraged that about 45% of them were older workers aged 40 and above.
    
    (V) CONCLUSION
44. Sir, we can no longer grow by blindly following our old economic blueprint of importing cheap foreign labour. Instead, productivity improvement must become the key driver of growth. In his Budget Speech, Minister Tharman has laid out the challenge to improve our productivity by 30% over 10 years. No doubt, our journey towards this target will be a challenging one and involve painful transformations. The Government has already committed significant resources to help companies and workers to push ahead in the right direction. But for us to succeed, we will need everyone's cooperation and hard work - workers, unions, government and employers alike. This is the tripartite way, the Singapore way to succeed. I am confident that we can, we will and we must achieve our goal. Thank you.

¹ Ruyi is a restaurant owned and managed by the Tung Lok Group.

Factsheet on Salary Threshold for Part-Time Employment
Factsheet on Changes to Employment Pass and S Pass Qualifying Salaries
Factsheet on Skills Training for Excellence Programme (STEP)