Assess the effectiveness of Singapore’s current macroeconomic policies in tackling unemployment.
In its December 2019 Recent Economic Developments Statement, the Monetary Authority of Singapore noted that unemployment was set to rise. This was mainly due to factors such as weaknesses in external demand and the acceleration in developing and deploying artificial intelligence (AI) solutions in Singapore.
Adapted from: Recent Economic Developments in Singapore, MAS, 6 Dec 2019
b. Assess the effectiveness of Singapore’s current macroeconomic policies in tackling unemployment. [15]
Introduction
Unemployment is a key macroeconomic concern that governments seek to address through various policies. In Singapore, macroeconomic policies aimed at reducing unemployment include expansionary fiscal policy to combat cyclical unemployment and supply-side policies to address structural unemployment. Expansionary fiscal policy involves increasing government spending to stimulate aggregate demand, thereby encouraging firms to hire more workers. Meanwhile, supply-side policies focus on equipping workers with the necessary skills to transition into new industries, helping to reduce long-term unemployment caused by technological changes. While these policies have been effective to some extent, they also have limitations that may reduce their overall impact.
Expansionary Fiscal Policy
During periods of economic downturn, such as the Global Financial Crisis of 2008 and the COVID-19 pandemic, the Singapore government has implemented expansionary fiscal policy to reduce cyclical unemployment, which arises from insufficient aggregate demand. This is achieved through increased government spending (G) on various initiatives aimed at sustaining employment levels and stimulating economic activity.
One key measure was the Jobs Support Scheme (JSS), where the government subsidized a percentage of workers' wages, thereby reducing firms' cost of production (COP) and encouraging businesses to retain employees despite the downturn. Additionally, the government directly created jobs in areas such as public health enforcement, hiring Safe Distancing Ambassadors during the pandemic. Another measure included bringing forward infrastructure projects, such as construction of roads and train lines, to generate employment in the construction sector.
These measures work by increasing government expenditure (G), which raises aggregate demand (AD), leading to an increase in real national income (NY) and stimulating economic growth. As firms experience greater demand for goods and services, they require more labour, leading to a decline in cyclical unemployment.
Limitations of Expansionary Fiscal Policy
Despite its effectiveness, expansionary fiscal policy has certain limitations. First, Singapore’s economy has a high marginal propensity to save (MPS) and a high marginal propensity to import (MPM), which results in a small Keynesian multiplier effect. This means that the impact of government spending on overall economic activity may be limited due to leakages from savings and imports.
Additionally, while increased government spending can boost employment in sectors such as construction and public services, certain industries, such as tourism and aviation, may not benefit significantly from these measures. For instance, government spending on domestic projects does not directly help businesses that rely on international travel, limiting the policy’s effectiveness in addressing unemployment within these sectors.
Another potential trade-off is the risk of demand-pull inflation, especially if government spending is increased when the economy is already near full employment. This can lead to rising costs of living, which may erode the purchasing power of households, offsetting some of the benefits of higher employment.
Supply-Side Policies
To address structural unemployment, which arises when workers' skills are mismatched with the needs of the labour market, Singapore has implemented various supply-side policies. These policies focus on reskilling and upskilling workers to enable them to transition into growing industries.
One such initiative is the SGUnited Jobs & Skills Package, which includes the Global Tech Talent Programme. Under this program, participants undergo three months of programming lessons at Ngee Ann Polytechnic, followed by a three-month overseas apprenticeship. The program is heavily subsidized by the government, costing participants only $500, and includes a $1,200 training allowance. Such initiatives help equip workers with new skills, enabling them to take on jobs in emerging sectors such as technology and digital services.
Limitations of Supply-Side Policies
While supply-side policies have the potential to reduce structural unemployment, they are not always guaranteed to be effective. One major limitation is that there is no certainty that workers will be hired after completing training programs. Employers may still prefer candidates with more industry experience, making it difficult for newly trained individuals to secure jobs.
Another concern is whether short-term training programs are sufficient to equip workers with the necessary skills for a complete career transition. For example, a six-month training program in programming may not provide workers with the depth of knowledge required to compete with experienced professionals in the technology sector. If training is insufficient, workers may remain structurally unemployed despite completing such programs.
Conclusion
Macroeconomic policies in Singapore, particularly expansionary fiscal policy and supply-side policies, have played a crucial role in tackling unemployment. Expansionary fiscal policy has helped reduce cyclical unemployment by increasing aggregate demand and supporting businesses through wage subsidies and job creation. However, its effectiveness is limited by leakages, sectoral differences, and potential inflationary pressures. Supply-side policies have been instrumental in addressing structural unemployment, but challenges such as uncertainty in job placements and the adequacy of training programs remain. Overall, while these policies have had positive effects, they should be complemented by targeted measures to ensure that job seekers can successfully transition into new employment opportunities.
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