Jul 24th, 2007
The economics of foreign talents
Email This Post
Print This Post
Despite the impressive sounding title of this entry, I am not an economics guru. I only have JC economics background. Nontheless, given my rudimentary understand of economics, I’m going to talk about an interesting idea that I read in The Undercover Economist by Tim Harford, a book I bought recently from Borders.
In trying to illustrate how economics actually work in real life, Harford invoke the example of foreign talents (he calls them immigrants). He says that if more skilled foreign talents are allowed into a country, it will cause the wages of skilled natives to drop. This results in the closing of income gap. However, if more unskilled workers are allowed to enter a country, it will cause the the wages of unskilled natives to drop, thus causing a widening of the income gap.
There has been talk these days that Singapore has one of the highest income gap in the world as measured by the Gini coefficient. So, perhaps the solution we need is even more skilled foreign talents? Maybe the government has the interest of Singaporeans in mind when adopting a liberal immigration policy. However, we cannot import in a few more foreign talent Prime Ministers, Senior Ministers, or any other Ministers. How then do we propose to close the income gap between ministers and skilled natives and unskilled natives? Surely it’s not a case of “all animals are equal, but some are more equal than others”?
Sarcasm aside, it’s not just the skilled natives that are now hurting. The influx of supply of skilled foreign talents are hurting the foreign talents themselves. I was just talking to Bernard Leong yesterday and he remarked that the foreign talents aren’t exactly any better off than locals, and I suspect that the unending supply of foreign talents are now causing a boomerang effect.
At the end of the day, the ones who really earn big bucks manage to do so because their skills are deemed scarce either by the market, or by the government (think Ministers and other political appointees). Everyone else, be it natives or foreign talents are not immune from widening income gap (and low wages). Of course, my opinion could be completely wrong because I’m no economist. I await some pointers from an economics expert, like maybe Bart JP?
Loading ...
“He says that if more skilled foreign talents are allowed into a country, it will cause the wages of skilled natives to drop.”
1st/
This is only true if the native and foreign talent are competing.
In Singapore they are not.
Thanks to the education system, foreign talents get better paid jobs
2nd/ The local income gap might well be between foreign and local talents but not be reflected in statistics since they do not separate PR but foreign talents from native local talents.
3rd/ What is expected of bringing more foreign talents is that the income gap of native would go down, not by increasing the lower wages, but by lowering the medium high ones; hence making Singapore a country of poorer Singaporeans and richer foreigners (which does sound true).
Indeed the only people who would not see there income reduced are those with reserved to locals jobs: e.g. PAP ministers.
Dear Aaron,
Thanks for the high hat, calling me an ‘expert’. In truth, I am only regurgitating some economic wisdom from standard textbooks. I have not read the book so I can only make some general comments.
Hartford is not wrong, but his views may stem from an old fashion neoclassical understanding. I can think of at least two grounds on which Hartford’s views can be challenged, the first from a neoclassical ground, the second on a newer approach.
(1) Singapore is a small and very open economy. Much of what it produces is traded with the rest of the world. Small economy means price-taking, it does not influence international prices. So long as what it produces is tradable in the international market, and prices set by the international market, there will be no effect on wages. The influx of skilled or unskilled workers merely changes the patterns of production (there is a famous economic theorem on this). Why? Remember, final goods prices are fixed by the international market, thereby setting the wage rates in a competitive economy.
(2) Externalities. More recent branches of economics recognise the positive externalities of a big market. A larger market becomes more productive (firms use each other’s outputs, learn from each other, share technology, lower trade costs, etc etc). Therefore, the influx of skilled and unskilled workers can potentially create this big market effect, supporting a variety of firms and industries. Firms become more productive in a big market, and higher wages can be supported for all.
Yes, the influx of skilled foreign workers would depress the wages of native skilled workers (whether this is good from an income equality point of view is another matter) only if Singapore is a closed economy. Ours is as open as it gets. In our case, the clustering of talent generates positive externalities, creating a bigger economic pie. It’s just that in Singapore, how the pie is distributed is probably more skewed than in other countries because we don’t have the social safety nets in place. The WIS is a step in the right direction but the government needs to be bolder in its approach. Our huge fiscal reserves means that the government has the wherewithal to do more.
Bart,
Don’t need to be humble. Among us, you are the expert - there is no doubt.
.
There is little argument that the influx of labour has caused a structural unemployment by changing the demographics of our workforce. Who would hire a 40 yr old technician when he can get an equally skilled younger more productive person from china at the same cost? The only way for the 40 yr old technician to stay employed is to accept lower wages. The problem is at 40, the technician’s need for money is at its maximum if he has a family to support, that is where the pain lies. To be frank, I’m totally guilty of causing this structural unemployment, I refuse to hire anyone over 40 as a rule unless there is an exceptional case. In the past, when the labour market was tight, I might be “forced” to accept a few “senior citizens” but now with plentiful supply of imported labor, there is no need. Of course companies is better off with imported labor and one can argue that if we protect our labor market companies will leave we will all be worse off.
.
If you look at total cost of doing business, imported labor help to relieve the downward pressure on rents, govt fees, utilities, transport etc. When people talk about competitiveness, you have to look at the overall package….it is not by wages alone. If we had decided not to import labor, we have to stay competitive by slashing rentals, utilities, transport cost etc all those will hurt the revenues of many GLCs which is a no-no.
.
Anyway, Singapore’s imported labor levels if far from the norm in most countries we REALLY embraced globalisation when it comes to imported labor. I dare say no countries even come close to us except oil rich middle east states where the indigenous population is probably sitting on top of the imported labor and enjoying the fruits of that labor.
Lucky Tan,
What a relevation you bring. It really make me feel like jumping down the MRT track .
Either way, whether Harford or Bart is right, the natives are at the losing end of game of big players without govt intervention.
Worst still, it is the govt itself that supports the influx of both foreign talents and non-talents. Last time, when my brother reached 50, he could not get a job and was laid off for about 18 months. Now, when I reach 40, I cannot find a job unless I downgrade to accept a lower post at even much lower pay. Thats a double blow. So, in the long run, what can we do; or what are we going to do, when our children actually needs more money to finance them to further their education?
There seems to be no solutions being offered by the govt that still maintains, if not increase, the momentum of inviting and welcoming foreign talents and non-talents, plus foreign free-loading so-called scholars. What can people like me in their late 30s do?
I have though about it for quite a long time. The answer is to emigrate to a 3rd World Country, where the cost of living is much lower and opportunities are increasingly more and better. So, I visited a few countries and see first hand for myself. My conclusion is to go to countries like Vietnam, Cambodia, Laos, Bhutan, Nepal or even Thailand and Malaysia.
For a better future of our children and their children, we have no choice but to uproot and move. If that is what our govt wants, that is what we will do. We are a very obedient and understanding bunch of people. We will simply fade away and leave this tiny island to the whims and fancies of the Experimenters and the Exterminators.
We may be branded as quitters but actually we are not. We are descendants of a very loose migrant society that our temporal rulers are trying to forge an impossible dream of a new nation; that after 40 plus years of nation-building, the dream is actually falling apart because of the choice of either the devil or the deep blue sea, trying to strive for a win-win solution all the time but actually ending up in a lose-lose result.
Don’t forget, we still have not entrench ourselves in the values of patriotism and loyalty because of self-contradictory schemes and policies and their manner of implementations. Everything these days is measured by money, cost and price. Day in and day out, we hear nothing but dollars and cents in every single speech made by the ministers, especially the PM and the MM. As a result, I get the signal very strongly that economics overrides ethical and moral values. The message is very clear. No doubt about it. So, therefore, I asked how much does my patriotism worth? Would they pay me a $3million a year as they are shamelessly paying themselves?
As in economics, everything has a price. Choose. You have a choice. We have no choice. You want a nation? Or you merely want a workforce that can churn out two digits growth rate every year? You can’t have the cake and eat it. You can’t win all the time, while others go bankrupt.
The choice is yours. The ball is always in your court, not ours!
We have no choice. Our only choice is suffering in silence!
Well put Suffering in Silence,
You have correctly described the situation many Singaporeans are facing in their native land.
The constant influx of cheap foreign labour i.e construction workers and talented foreign labour actually squeezes the ordinary Singaporean. For Singaporeans who used to hold managerial jobs will compete and easily lose to younger and higher educated foreign talents from better universities than ours, and when these local Singaporeans are beaten down a rung in the corporate ladder they again face intense competition against cheaper hungry foreign graduates who are willing to work for a lower salary. Eventually only the brightest, smartest and most determined of Singaporeans will be able to survive in such an environment. And honestly, how many Singaporeans are able to compete with Indians and Chinese who by the virtue of their geographical mobility places them in the top 5-10% of their country?
The only Singaporeans who benefit from such a policy of globalization are jobs that cannot be replaced by foreign talents i.e jobs that require citizenship, MPs, military and police personnel or Singaporeans who have the intellect or capital to utilize the foreign talents. However this group of people is probably in the minority, and the majority of Singaporeans who have no desire to serve in the civil service or existing capital to operate a business will have a no holds barred competition with the best and the hungriest foreign talents in the world. Don’t think that if you have a bachelor’s, a master’s or even a phD will you be protected by this relentless trend of globalization. You may have bought yourself a little time with some education qualifications but eventually you will have to compete with the best in the world just to have a decent job and quality of life.
So to all Singaporeans who are not intelligent, competitive, rich or hold a job that requires citizenship as a prerequisite. Singapore is hardly the place for you. It will be no more than a hamster cage with a wheel, where you have to run as hard as you can and sacrifice lots of personal time just to have a few crumbs of cheese.
Therefore, leaving Singapore is the most rational decision for most. It’s not because the grass is greener on the other side, but the grass in Singapore is out of reach for most. Singapore is for the rich, intelligent and people in power, no more for ordinary, honest and patriotic Singaporeans to live a simple and carefree life.
Some comments:
#
Importing foreign workers is undoubtedly a means of lowering labour costs. Doesn’t matter if they are high skill or low skill. When costs get lowered, profits rise. Thus, a major effect would be the reduction in the share of income that goes to wages. Just looking at wage differences may be counterproductive when assessing the effects on total income inequality.
#
Wage effects are somewhat counter-balanced by demand effects. Because foreign workers are also spenders, their incomes largely go back into the domestic economy. For every foreigner making high wages, there is some local property agent feeding off him.
#
Because investments (in factories, HQ operations etc) are lumpy, companies may decide not to invest at all if the local supply of suitable workers isn’t enough. In that case, importing some workers to meet the thresholds of firms can get local workers better paying jobs.
#
Talent added to talent can give complementary effects - e.g. a whole team of researchers or designers may be a lot stronger than each of them working in isolation. More people around means more exchange of ideas. Eventually (if things all work out!) talented people will want to come here because they get to work face-to-face with other talented people. Thats the dynamic that names like Robert Lucas and Richard Florida allude to when they look at the big vibrant cities such as NY and London.
Of course, it is going to take more than bringing in talents to reap the benefits of this last point. And that’s cause for worry.
jason,
I’m glad your last para throws in an optimistc beautiful scenario.
.
Have you wondered where the decendents original inhabitants of Silicon Valley - not the red indians but the the people who were there in the 50s/60s, have gone. Except for a handful who were landlords, the rest have moved out! To survive in Silicon Valley (high rentals, demanding jobs, etc), you have to be a top talent from around the world.
.
What happens to Singaporeans who are born average or below average if we skew the demographics by bringing in 2.5M of the top indian/chinese graduates into Singapore (no problem China produces 5M graduates a year) the people on the right side of the bell curve?
Remember Singapore is a land scarce place and resource is limited once it gets overcrowded, the people who can’t compete suffer tremendously. .
[...] has a post about ‘The Economics Of Foreign Talent. The post and the comments got me thinking about a fundamental difference between Singapore and [...]
Lucky,
I guess the simplest answer would be that sh*t happens to these people.
Yes, in places like Sillicon Valley, or NY, London, if you can’t cut it, you could move to some other part of the country. The equivalent option for Singaporeans would be to move to Malaysia and Indonesia, which is, needless to say, not quite the same deal.
Absent this exit option, there has got to be channels to get the gains redistributed, or else the system will breed an underclass. San Jose, and indeed the entire Bay Area itself, is known for spanning the spectrum - uberrich neighborhoods + throngs of homeless. That’s a scary thing.
But we’re just going to have to experiment our way through this. Nobody really knows all the answers here.
Jason,
Minister Khaw has already revealed possible solutions of shipping the old and unproductive to neighboring islands like Batam, Johor etc. It is all part of a bigger plan.
The old and the unproductive happen to be the parents or grand parents of the young and productive.
.
If Minister Khaw, a former Malaysian, comes all the way to Singapore and benefited from Singaporeans sweat and toil,
has the guts to throw out the native Singaporeans, do you
think he would be able to sleep in peace?
.
People will go after him and his family. He better think ten or twenty times before he makes that move, unless he is asking for ………….
.
This is not a threat. This is nationalism and filial piety.
I missed out on Khaw saying that. When was it? Not gonna happen in his lifetime.
Jason,
The news article is found here:-
http://commentarysingapore.blogspot.com/2006/04/send-our-old-folks-away-to-bintan.html
It should happen by the time you’re old because the PAP govt plans to import people to the tune of 6.5M. Already we see an escalation of rentals from our current boom, when our population hit the 6M mark…what do you think will happen?
Putting your parents in an old folks home is something people are reluctant to do …but many have no choice becaus they have to work and have children to take care of. The costs of running such homes is very high in Singapore and children pay upwards of $2000 when they send their parents there.
With Singapore Inc becoming a super-dynamo of growth, it is unproductive to have old folks around…so the PAP says ship them to Batam & Johor.
When the old folks are discarded ruthlessly in this way because of economics objectives, against ethical, moral, traditional and cultural values, it would be the time for many to rethink about nationhood. It would be the time for them to leave the country, if they have not already done so.
.
When the roots of families are uprooted by force, through legislative means or whatever, and replaced by tom, dick and
harry from everywhere and nowhere, the little red dot would simply become a prostituted half-way house. So, what for having National Days and saying pledges when nation-building is just for lip service?
.
Moreover, what would be the Malaysian and Indonesian governments reaction at the point in time? Is the calculation the sole domain of the govt of the little red dot only, and for its own interest of progress and prosperity, while chucking its own unwanted into others’ soil? What would be the political implications to the people and governments of Malaysia and Indonesia? Won’t it be a very good excuse for them to launch a co-ordinated attack to take over the little red dot? Which by then would be a very attractive gem to own and possess, isn’t it?
.
When we treat our own natives in this manner, the morale of our people would be at its lowest. The foreigners, whether talent or non-talent, would be stupid to stay and help us to defend our country and questionable interests. That is when we would be the most vulnerable. That is when our enemies can exploit and take advantage of the situation. Can the armed forces truly defend the little red dot effectively then?
.
Economics is not the end all of the life of a nation-to-be!
Sh*t…. Not in his lifetime!
Not in his life time? Read on please:
.
.
“With a rapidly ageing Singapore population, Mr Khaw said in five years’ time, retirement villages will become economically viable.
.
One obstacle is the high costs of land in Singapore.
.
“My personal view is, our land is expensive. But we have nearby neighbours in Johore, Batam and Bintan. The elderly want to reach their doctors within half to one hour. So retirement villages in neighbouring countries is possible, barring the cross-border hassle. It is best to find cheap land on short leases,” said Health Minister Khaw Boon Wan.”
.
From CNA: 17 April 2006.
.
foreign talent. indians lying on the floor of hdb void decks
http://singaporeseen.stomp.com.sg/singaporeseen/viewContent.jsp?id=11257
foreign talent. bullying singaporeans
http://www.youtube.com/watch?v=YpXpvXUPzwQ&feature=related