S Pass tightening: job take-up by locals to differ between industries

Singapore

MID-SKILLED locals will likely benefit from Singapore's lower reliance on foreign workers in manufacturing, watchers have agreed - even in the face of the perennial complaint that such jobs are not attractive to locals.

But the bump to their employability and wages may not be as easily replicated in other sectors, even though quotas there were already cut earlier.

In moving away from foreign staff, policymakers aim to open up higher-value roles for locals to enter, as manufacturers are expected to change business models and bank on digitalisation and Industry 4.0 technologies.

"Such labour can then be re-trained and re-deployed to take on other roles in the company or within the industry," Douglas Foo, president of the Singapore Manufacturing Federation, told The Business Times.

The latest Budget reduces the maximum share of S Pass holders that manufacturers can employ from 20 per cent now, to 15 per cent by 2023.

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The same reduction is under way in the construction, process and marine shipyard sectors, while the ceiling for services was lowered from 15 per cent in 2019 to 10 per cent this year.

Meanwhile, the S Pass qualifying salary has been raised three times since 2019, from S$2,200 to S$2,500.

Citing this pay level, UOB economist Barnabas Gan said: "The job requirements for an S Pass worker could be easily fulfilled by domestic labour."

Singapore has enough mid-skilled workers - Institute of Technical Education (ITE) and polytechnic graduates - to mop up some vacancies from fewer S Pass holders.

That's as "Singapore has put in considerable investment in technical skills training", said Terence Ho, associate professor at the Lee Kuan Yew School of Public Policy. "There is scope for more locals to take up roles in the mid-skill, mid-wage segment in manufacturing, based on the supply trained by the polytechnics and ITE."

Official statistics show that about 37,000 full-time students graduate from ITE or polytechnics each year. Meanwhile, some 48,000 residents with post-secondary, diploma and other such non-degree qualifications were unemployed as at mid-2020. In comparison, there were 188,800 S Pass holders in the same period.

But "certainly we aren't looking at full substitution of the entire S-Pass workforce", said Mr Ho, even though he thinks that "there is also scope for substitution in other sectors".

That's as observers are wary about the scope for locals to take over S Pass jobs outside of manufacturing - such as in construction or food services.

While future rounds of tightening could target these industries, "it won't happen so soon, considering that these two sectors have borne the brunt of the pandemic", DBS senior economist Irvin Seah told BT in an e-mail.

Calling factory jobs a traditional gateway to the middle class, Singapore University of Social Sciences labour economist Walter Theseira expects the S Pass tightening to improve work conditions for locals.

The productivity and value-added of advanced manufacturing bodes well for career prospects, wages, and working environment, which would support local jobs take-up, he told BT.

Yet he also said that "lower-end services, such as neighbourhood based food and beverage", may find it even harder than manufacturing to attract locals - no thanks to sensitivity to cost, and low productivity growth.

All the same, wages might not suffer in the transition to local workers - regardless of the sector involved.

Median gross salary for fresh poly graduates was S$2,400 in 2020 - so "starting pay is more or less comparable" with the S Pass qualifying salary, once Central Provident Fund contributions are baked in, said Mr Ho.

Higher wages and job progression should help to win over hesitant locals, Prof Theseira added: "In the end, if you can pay more, and offer better career prospects, there's no reason why locals won't take up the jobs."

To be sure, Moody's Analytics economist Denise Cheok noted: "The government has also been pushing firms towards digitisation and automation to cut costs, and firms might substitute foreign employees with an automated process when quotas are cut, rather than with local employees."

That's even as a cut in the S Pass workforce "would most likely increase firms' operating costs such as higher wages to attract domestic labour", as UOB's Mr Gan suggested.

But, as the labour force will only keep shrinking, "it's really about pushing the companies to do the transformation to use less manpower", said Pearl Yu, marketing and human resources director at electrical cable maker Keystone Cable, at a post-Budget roundtable by BT on Tuesday.

Singapore Business Federation chief executive Lam Yi Young, who was another roundtable panellist, added: "The message to companies seems to be that they should start looking at... how to either redesign the job, or redesign processes so that you don't need such a big workforce."

"The ongoing gradual tightening of foreign worker policies should help incentivise companies to hire more locals," noted Nomura chief Asean economist Euben Paracuelles.

"All this would also be supportive of the goal of improving the quality of foreign workers."