George Borjas

A warning

I have been warning for the past five years about the effect of an open-door foreign worker policy in depressing the wages of native Singaporean workers and in particular low-income workers. I have pointed out both in Reform Party press releases  such as our yearly Budget analysis- see here for 2014- which is never printed or quoted in the Singapore  State Media, and in my blog, Rethinking the Rice Bowl,  (ditto) that the PAP have had one economic model for fifty years for achieving growth which is to add more labour inputs rather than increase productivity.

The sausage making machine

In 2013, in response to a comment by the former NMP Eugene Tan that took the title of my previous article, I wrote “When Immigration Stops Being the Elephant in the Room and Becomes the Great White Shark in Your Parliament”:

 The PAP government knows only one economic model. That model which I first pointed out and which these days is explained back to me by taxi drivers is this. It is a sausage-making machine.  You feed in additional inputs of labour at one end of the sausage machine to produce additional units of output, or GDP, at the other. In between there is no rise in underlying productivity. Despite a Budget devoted to productivity in 2010 and Tharman’s promise to raise productivity growth to 2-3% per annum and real incomes by 30% by 2020,the facts show that productivity growth was -2% in 2011 and 0% in 2012. That’s a clear sign for you. Wake up!

 A Nobel Prize-winning economist Paul Krugman exposed this same model in the 1990s when he debunked the Asian economic miracle and that led to the downfall of the Soviet Union in 1990. This is a basic model of economic development that has been around since 1954 when Arthur Lewis first propounded it (“Economic Development with Unlimited Supplies of Labour”). Sooner or later this model just runs out of steam or collapses because there is no innovation. The PAP have just put off  the day of reckoning by opening the floodgates to cheaper and cheaper labour supplies from the developing countries of Asia…

The PAP government is the principal owner of land and capital. By transferring resources from us the workers to themselves, facilitated by the role of immigration in depressing wages and pushing up land prices, that wealth stays out of our hands. Make no mistake, in the last 50 years that wealth could have been used to develop a strong middle, each generation better off than the one before, free universal education, joined up health care, a professional paid army, benefits for the most needy.

Stagnation of median real wages

in 2011, in an article entitled “Immigration is the Elephant in the Room”, where I criticised a discussion on the causes of rising inequality and the stagnation of median real wages by the chief economists at GIC and Resorts World Sentosa I wrote:

However they fail to mention the elephant in the room, which is immigration policy or the lack thereof. Undoubtedly the government’s determination to allow our wages to be determined by those in the poorest economies in Asia has played a major part in depressing real wages, particularly for the lower-skilled workers. Not only was there very little restriction on foreign labour, and no restriction at all for those earning more than $2,500 a month, but there appears to have been lax enforcement of what rules there were and ample loopholes. This has been demonstrated by a recent case where an employer was jailed for putting phantom Singaporean workers on his payroll to allow him to bring in more foreign Work Permit holders…

 What we have in Singapore is a situation where the wages of those who can be replaced by cheap foreign labour have been held back or in many cases cut.  Even those with higher-level skills have undoubtedly been held back by competition from third-world graduates from India, China and the Philippines, even Eastern Europe.  Worryingly there are clear indications that advances in software and machine intelligence are starting to make redundant even highly-paid white-collar jobs in areas such as law and financial services that were hitherto relatively protected from foreign competition. But this government’s open door policy to foreign labour has been the main cause of rising inequality in Singapore.

Opening the Floodgates 

In  2013 I wrote an article entitled “Singapore’s Economic and Immigration Policies are Insane” in which I said:

In the 1990s Singapore began to open the floodgates to the import of labour from Asian low-income countries, nearly doubling our population. As I keep telling you, this has resulted in real wage stagnation for the bulk of the working population and declines for those in the bottom quartile. Particularly because our work force isn’t protected by a minimum wage so wages can keep getting lower and we enjoy minimal labour protections.

Given my previous extensive writings on the PAP Government’s use of immigration to depress wages and boost profits, I had a strong sense of déjà vu when I received an email from Tan Jee Say yesterday. This contained an account of the conversations he had with his professors at Harvard about the economic effects of immigration. He quotes George Borjas, a labour economist and one who has warned about the consequences of large-scale unskilled immigration into the US, as saying:

There are gainers and losers of a country’s immigration policy. Gainers are the users of immigrant labour namely, employers and consumers. Losers are native workers who compete with the immigrants.”

I can understand why it is tempting for Tan Jee Say to be swayed by the opinions of foreign professors as he is currently at Harvard and in close contact with them.  After all he was PM Goh’s Principal Private Secretary for  a long time and the PAP have always taken their ideas from academics overseas. But I think it is a mistake and even shows signs of a Singaporean inferiority complex. We do not need foreign professors to tell us what our home grown pundits have been saying- in my case for years. I would prefer that Singaporeans started to think for themselves rather than act as sponges for outside influences.  It is also dangerous because the US economy is so different  to ours.

In the article Borjas repeats what I have said previously on many occasions. A frequent argument in favour of immigration, and one used by the PAP, is that immigrants do jobs that native workers shun. However as Borjas rightly points out the main reason why native workers no longer want to do those jobs is because the competition from immigrant workers has reduced wages in those occupations to levels where they are no longer attractive. This has happened to a large extent in Singapore. In many occupations such as construction, cleaning and food services it is cheaper to substitute lower-skilled and less productive foreign labour rather than invest money in automation and continue to employ more productive but more costly Singaporean workers. Our low productivity is a direct consequence of the easy availability of low-cost foreign labour.

While there are some analogies with the US, the Singapore situation is very different. The US has abundant land and is on many measures extremely underpopulated while Singapore is the second most densely populated country in the world (after Monaco). US workers enjoy the protection of a minimum wage and a probably too restrictive immigration policy. While the proportion of immigrants in the US population is around 12% as compared to a proportion of 40% foreigners in Singapore, the US figure includes new citizens whereas new citizens are excluded from the Singapore figure. Excluding PRs and new citizens from the residents figure would undoubtedly take the proportion of foreigners in the employed labour force  in Singapore to well above 50%.

Borjas says that the US minimum wage, which is set on a state-by-state basis, is too low to protect low-wage American workers. However that is still a big improvement over Singapore which has no minimum wage and no real protections for employees against being sacked and replaced by cheaper foreign labour. While Tan Jee Say is on the right track in calling for priority for Singaporeans in hiring this is not sufficient. Reform Party have called for a cap on the total number of foreign workers rather than the current situation where there is practically no upper bound on the number who can come in under the Employment Pass system. We want to replace the foreign worker levy with an auction that will ensure that more of the producer surplus from being able to employ cheap foreign labour is retained by the government and used for the benefit of Singaporean workers. The cap can be raised or lowered in line with economic conditions and to keep wage growth in line with productivity growth.

While it is good to see that some of the most prominent US academics in this field arrive at the same conclusions that I have, it is slightly disappointing to see that Tan Jee Say feels that the analysis of foreigners is more likely to impress Singaporeans than the same conclusions arrived at by a Singaporean economist. Until we can shake off this inferiority complex which has been inculcated by the PAP our people will never receive their just reward in the marketplace irrespective of government policy.

Published by kjeyaretnam

I'm a Singaporean economist who became an opposition activist. I blog to provide an alternative to the porkies that the Pinkies tell. It just so happens that my alternative is the truth. That's why I've never been sued in any civil or criminal court no matter how hard hitting my criticism. I'm quoted and interviewed and asked to speak across the world but largely censored in Singapore in an effort to silence my political opinions. The left hate me because they think I split their vote and because I eschew their outmoded economic models. Models that don't work. The Right and the Conservatives hate me because I'm a liberal. I'm not sure what the middle think of me. I don't think there are more than a handful of people in the middle, here in Singapore. I'm a Singaporean born and bred, dual heritage, my parents Singaporean established here before the State of Singapore was created. I'm not Eurasian. I read economics at Cambridge and could be broadly described as from the Keynesian school but I believe in interventions. I was formerly a successful hedge fund manager. After economics and politics my greatest interests are history, film and Makan. I run but I run so I can eat like a Singaporean. View all posts by kjeyaretnam