Striking the balance: Managing population challenges and foreign labour

SINGAPORE’S population reached a record high of 6.04 million in mid-2024, and this growth presents both opportunities and challenges. According to the latest Population in Brief report jointly released by the National Population and Talent Division of the Prime Minister’s Office and the Department of Statistics, the rise in non-residents, particularly unskilled or semi-skilled migrant workers, has been essential in sustaining key sectors such as construction and healthcare while the trends of an ageing population, later marriages, and falling birth rates persist.

From these demographic trends, three key questions arise. First, what defines an optimal population size? Second, how does the ratio of residents to non-residents influence this optimal size? Finally, in what ways do foreign workers complement or compete with the local workforce, and how might this affect marriage and fertility rates among citizens?

Considerations in deriving the optimal population size

Scholars such as Roberts (1971) and Hardin (1971) suggest that the optimal population size is achieved when demographic and economic equilibrium is balanced. Neither maximum population size nor the gross national product should be the goal.

Instead, the focus should be on improving quality of life and maximising a per capita measure of well-being that also reflects the value of intangible goods and services, such as leisure pursuits and environmental quality.

Foreign workers are vital to Singapore’s economy, particularly in construction, healthcare and domestic work, with work permit holders and migrant domestic workers constituting 59 per cent of the non-resident population. In addition to low-wage migrant workers, higher-income expatriates also supplement the workforce, contributing talent that reinforces Singapore’s position as a global hub for innovation and growth.

According to Ministry of Manpower (MOM) data, although only 20 per cent of companies are foreign-owned, these businesses employ 33 per cent of residents, including 60 per cent of residents in high-earning jobs. Given these contributions, it makes sense to include non-residents in calculations of optimal population size.

However, maximising per capita well-being with non-residents involves several challenges, since non-residents’ contributions to the economy and labour force are significant but often under different legal and financial frameworks.

Including non-residents in income inequality measurements could inflate estimates, as work permit holders and migrant domestic workers earn much less than Employment Pass and S Pass holders. Remittances could constitute a significant proportion of low-wage migrant workers’ earnings, thus reducing their disposable income.

As a result, factoring in non-residents when evaluating domestic consumption may show a lower percentage contribution to the economy, as a significant portion of their income is sent abroad rather than spent locally.

Another consideration is that non-residents do not receive the same welfare benefits or tax treatment. Only citizens and permanent residents qualify for subsidies under Singapore’s healthcare system, whereas non-residents must pay full healthcare costs. While non-residents are exempt from Central Provident Fund contributions, they face potentially higher tax rates.

Including them in welfare calculations may distort assessments, while excluding them could inflate per capita welfare expenditures for residents and overlook the contributions and needs of non-residents.

The foreign worker debate

The influx of foreign workers, particularly in blue-collar sectors, has long raised concerns about job competition and wage suppression among less-educated Singaporeans. With 53 per cent of working-age residents having tertiary qualifications in 2023, many Singaporeans are unlikely to compete for blue-collar work so job competition is less of an issue.

At the higher end of the wage scale, while foreign professionals, managers, executives and technicians (PMETs) may pose competition to local professionals, residential unemployment remains low, with rising wages in the services sector, according to the latest MOM labour market report.

A more holistic set of Employment Pass application criteria also helps ensure foreign PMETs are not only highly qualified, but are also capable of complementing rather than displacing the local workforce.

Each key sector of the economy has a dependency ratio ceiling, limiting the proportion of foreign workers a company can employ. The construction sector has the highest foreign worker allowance, while the services sector has the least. By specifying the number of local employees and S Pass and work permit holders, companies reveal whether their intended workforce composition aligns with these quotas.

Since the Singapore dollar holds greater purchasing power compared to the currencies of migrant workers’ home countries, these workers are willing to accept lower wages, making them attractive to profit-maximising firms seeking to minimise costs.

As the supply of work permit holders and migrant domestic workers for labour-intensive jobs remains highly elastic and there is a domestic labour supply shortage for such jobs, employers will naturally prioritise cheap imported labour in a free market.

However, this may diminish incentives to invest in productivity-enhancing technologies, risking long-term competitiveness if capital improvements are neglected.

Continuing to impose stricter quotas or a higher minimum wage threshold for lower-skilled foreign workers to discourage dependence on migrant labour may not be a sustainable way to deal with the situation, as this would raise operational costs, ultimately increasing the cost of living.

Essential sectors such as construction cannot simply grind to a halt in view of these higher costs, making these trade-offs inevitable if we were to pursue such market intervention policies.

Local workers may not necessarily lose out or see productivity decline if there is a mandatory scheme for employers to reinvest cost savings from hiring cheaper foreign labour into higher wages for Singaporeans, or into upskilling and automation.

More studies could be conducted on whether and to what extent foreign workers complement or substitute local workers by skill level in each sector. In the food and beverage sector, foreign cooks may struggle to replicate the authentic quality of local dishes.

However, more advanced automated cooking technologies could reduce reliance on human skill, making any distinction between local and foreign cooks less relevant. In contrast, the healthcare sector may face less resistance to foreign workers, as many elderly patients, accustomed to migrant domestic workers, might be more open to foreign nurses caring for them.

Achieving this level of granularity requires close collaboration between the government, industries and citizens, aligning preferences and reconciling both bottom-up and top-down approaches.

Some Employment Pass and S Pass holders eventually become permanent residents and, later, citizens. From 2019 to 2023, an average of 32,600 permanent residencies and 22,400 citizenships were granted annually, slightly higher than the previous five years. Immigration plays a crucial role in boosting the citizen population, both directly and through future generations.

This helps mitigate the potential issue of Singapore’s death rate surpassing its birth rate by 2030, especially with transnational marriages rebounding after Covid-19 travel restrictions were lifted.

Bottom line

In sum, there is no easy way to navigate the challenges posed by population growth and foreign labour dependency. Singapore must continue to balance economic needs with the well-being of its citizens.

While foreign workers remain crucial to maintaining our global competitiveness, a holistic approach – considering productivity gains, the sectoral value of different types of foreign workers, and sustainable development – is needed to ensure that Singapore’s population growth continues to benefit all residents.

As the nation continues to evolve, the dialogue on optimal population size and labour policies must evolve too, by understanding how costs and benefits are distributed and what constitutes acceptable trade-offs for society and the economy.

Euston Quah is Albert Winsemius Chair Professor of Economics and director of the Economic Growth Centre at Nanyang Technological University (NTU), Singapore. He is also the president of the Economic Society of Singapore. Tan Jun Rui is a researcher in NTU.