How much more productive have Singaporeans really become?

ONE nugget in the 2017 report card of the Singapore economy is the finding that labour productivity jumped to a seven-year high last year, confirming earlier trend projections.

According to the data released last week, Singapore's labour productivity - as measured by real value added per actual hour worked - grew 4.5 per cent in 2017. This is a marked uptick from 2016's 1.8 per cent, and the highest since the economic rebound from the global financial crisis in 2010. All this raises some interesting questions. For one thing, is productivity a cause or effect? It would be noted that Singapore's productivity gains have come largely in tandem with a pick-up in global economic activity and trade. And much of it has been achieved in the external-orientated sectors. On the flip side, sectors such as construction achieved lower productivity amid a slump in the industry. So to what extent is Singapore's productivity demand-driven?

One can also argue that the gains of recent years have also come on the back of the government's decision to slow down foreign worker inflows. Indeed, the figures show that the foreign workforce numbers have either dipped slightly or flattened out over the past three years. The Ministry of Trade and Industry's own analysis showed that higher output had been achieved despite a fall in employment growth, which one can reasonably assume translates into fewer man-hours. Then there is also the question about the role of technology. How do we measure the improved efficiency and output gains achieved by optimal man-machine interaction?

For that, one has to look at Total Factor Productivity - still a somewhat nebulous concept, even among economists, which considers the residual output not accounted for by the traditional inputs of labour and capital. And there are other rather more straightforward, perhaps more intuitive measures of productivity. Some have argued, for instance, that in Singapore's case, average output should be divided by cost of manpower, given that it is a high-wage fairly advanced economy.

The point is, productivity cannot be measured in a single dimension. In an ageing society facing manpower constraints, cost efficiency and other factors are just as material in gauging productivity. Seen from that angle, the seemingly "less productive" sector may not have fared all that badly. Construction, for example has progressed by leaps and bounds, thanks to advanced engineering methods that harness sophisticated automation and integrated technologies.

A multi-dimensional approach to productivity is necessary today. Changing demographics and a shrinking workforce is one factor. The rise of the digital and gig economies, and the changing nature of work, certainly present challenges. And Singapore is a very open economy, subject to the vagaries of the global economy. Often, it is the numerator - or output - that is key in the productivity equation.

Hence it could be misleading to read too much into strong productivity figures in a year when external demand-led growth was strong. Yes, the 2017 productivity figures are good. But did Singaporeans really become a whole lot more productive last year? The call to raise productivity across industry and economy certainly has much to commend it - it is key to economic growth. But one should remember that the numerical measure itself, derived from dividing output over input, is but a mathematical equation.