Evaluate which type of unemployment is likely to present the most significant challenge to Singapore’s labour market in the coming years.
Although Singapore is often ranked as the leading city in Asia for standard of living, it still faces several challenges. For example, technological disruptions and global developments like the US-China trade tensions have contributed to a gradual rise in unemployment since early 2018. Furthermore, broadening the scope of the Progressive Wage Model to cover more sectors could potentially increase unemployment, as it may raise business costs for employers.
b. Evaluate which type of unemployment is likely to present the most significant challenge to Singapore’s labour market in the coming years. [15]
Introduction
Singapore's labour market faces several challenges that could contribute to rising unemployment in the coming years. Among the key factors are the expansion of the Progressive Wage Model (PWM), government policies regulating foreign labour, and technological advancements driven by the Fourth Industrial Revolution. While the PWM aims to uplift low-wage workers through mandated wage increases and skills upgrading, it may lead to higher unemployment if firms struggle to cope with rising labour costs. Similarly, tighter restrictions on foreign workers, including increased levies and lower dependency ratio ceilings, may raise production costs for businesses, potentially leading to job losses. However, the greatest threat to Singapore’s unemployment situation is likely to come from technological disruptions, which will result in structural unemployment. As industries increasingly adopt automation, artificial intelligence (AI), and digitalisation, many low-skilled jobs will become obsolete, displacing workers who may lack the relevant skills to transition into new roles. Although new employment opportunities will arise in high-tech sectors, the skills mismatch between displaced workers and available jobs will likely result in persistent unemployment, making this the most significant long-term challenge for Singapore’s workforce.
Expansion of Progressive Wage Model
The expansion of the Progressive Wage Model (PWM) could lead to higher unemployment due to its impact on labour costs for employers. A similar economic model for analysis is the minimum wage framework, where a legally mandated wage floor is set above the market equilibrium wage.
As illustrated in Figure 1, when a minimum wage (Pmin) is imposed above the equilibrium wage (Pe), the quantity of labour supplied increases from Qe to Qs, as more workers are willing to offer their services at a higher wage. However, the quantity of labour demanded by employers decreases from Qe to Qd, as firms are less willing to hire at higher wage levels. This creates a labour surplus (Qd - Qs), leading to higher unemployment.
However, the PWM is not an exact replica of a typical minimum wage model. Unlike a traditional minimum wage system, the PWM requires workers to undergo skills upgrading and training. As a result, higher productivity levels offset the impact of wage increases, making it less likely that employers will reduce hiring. Therefore, while the PWM may contribute to unemployment pressures, it is unlikely to be the most significant threat to Singapore’s labour market.
FIgure 1: Likely impacts of the Progressive Wage Model
Policies Relating to Foreign Workers
In the years leading up to the COVID-19 pandemic, the Singapore government implemented stricter policies on foreign workers by increasing levies and reducing the dependency ratio ceiling. These measures aimed to reduce reliance on cheap, low-skilled foreign labour and encourage firms to invest in automation, technology, and workforce upskilling.
During the pandemic, the government also introduced new regulations on foreign worker dormitories to improve living conditions. While these policies are well-intended, they collectively increase business costs, leading to potential job losses.
As illustrated in Figure 2, an increase in production costs leads to a leftward shift in the Short-Run Aggregate Supply (SRAS) curve from AS0 to AS1, raising the general price level (GPL) from P0 to P1 and reducing national output from Y0 to Y1. As firms cut back on production to manage costs, they may hire fewer workers, including local residents, thereby increasing the unemployment rate.
While foreign labour policies do contribute to cost-push pressures that may reduce employment opportunities, firms are still able to adapt through automation and workforce restructuring. Moreover, these policies are often adjusted based on economic conditions, making them a manageable rather than a severe threat to long-term unemployment.
4th Industrial Revolution
The Fourth Industrial Revolution (4IR) poses the greatest challenge to Singapore’s employment landscape due to the rapid adoption of automation, AI, and digitalisation across various industries.
Technological advancements are already replacing jobs in transport, retail, and logistics. For example: Autonomous vehicles are set to replace taxi and private-hire drivers, Self-checkout kiosks in fast-food chains and supermarkets reduce the demand for cashiers, Drones may replace postal and parcel delivery workers.
While technology also creates new employment opportunities, such as for engineers and AI programmers, the displaced workers may lack the necessary skills and qualifications to take up these roles. This results in structural unemployment, where workers are unable to find jobs due to a mismatch between their skills and the requirements of available jobs.
Structural unemployment is particularly concerning because it is long-term in nature – Unlike cyclical unemployment, which can be addressed through economic recovery, structural unemployment persists unless workers undergo retraining and skills upgrading.
It also affects lower-skilled workers disproportionately – Many workers in traditional sectors may lack the educational background or resources to transition into high-tech industries.
Additionally, it could widen income inequality – As high-skilled workers benefit from better job opportunities, those who remain unemployed due to technological disruptions may face lower wages or prolonged joblessness, exacerbating income disparities.
Given the irreversible trend of technological transformation, structural unemployment caused by automation will likely be the most significant threat to Singapore’s employment situation in the coming years.
Conclusion
While multiple factors contribute to Singapore’s unemployment rate, technological disruptions caused by the Fourth Industrial Revolution pose the greatest long-term threat. The expansion of the Progressive Wage Model (PWM) may increase unemployment due to higher labour costs, but productivity gains through skills upgrading help mitigate its impact. Foreign labour policies raise production costs for firms and may result in job losses, but businesses have room to adapt through automation and restructuring. However, structural unemployment caused by technological advancements is a persistent and significant challenge, as displaced workers may struggle to acquire the skills needed for new job opportunities. Without adequate retraining efforts, Singapore risks a growing mismatch between labour demand and supply, making automation-driven job displacement the most severe and lasting threat to employment in the coming years.
📚 More Free A Level Econs & GP Resources? Yes, Please.
If you found this model essay helpful, you’ll love what’s waiting on our ETG Telegram Channel — trusted by over 2,000 JC students across Singapore.
Get instant access to free, high-quality resources from Singapore’s top economics tuition centre:
🎁 What You’ll Get:
📘 A Level Economics Model Essays
📊 Summary Notes & Case Study Templates
📉 Annotated Diagrams for Micro & Macro
✍️ GP Examples, Phrases & Essay Starters
💡 Study Hacks, Time Management Tips & A Level Predictions
Whether you’re prepping for Promos or the A Levels, this is the online economics tuition boost you didn’t know you needed.
📲 Join Free Here → t.me/etgecons
You don’t have to be enrolled in our H2 economics tuition classes to benefit — this is our way of giving back to the JC community.
Because great economics tuition Singapore isn’t just about lessons — it’s about sharing the right resources at the right time.
Forward it to a friend. Save your notes. Let’s crush this A Level season — together. 💪