Explain the reasons behind increasing income inequality in Singapore.
a. Explain the reasons behind increasing income inequality in Singapore. [10]
Introduction
Income inequality refers to the uneven distribution of income across different individuals or households in an economy. In Singapore, while the country has consistently achieved high levels of GDP growth and employment, income inequality remains a persistent challenge. This is reflected in measures such as the Gini coefficient, which although mitigated by government transfers and taxes, still indicates significant disparities in earnings. The structural shifts brought about by technological change, globalisation, and immigration patterns have intensified income divergence, especially between high-skilled and low-skilled workers. The Fourth Industrial Revolution—driven by automation and digitalisation—has accelerated these trends, displacing certain types of labour while enhancing the earning potential of others.
Technological Change and Job Displacement
The Fourth Industrial Revolution is characterised by automation, artificial intelligence (AI), machine learning, and the widespread use of the Internet of Things (IoT). These innovations allow machines to not only perform physical tasks but also make decisions traditionally handled by humans. This transformation has deep implications for the labour market, especially in Singapore, which is a technology-driven, high-income economy.
A key impact is the replacement of routine and repetitive jobs across several sectors:
In manufacturing, automated production lines now handle processes previously done by assembly-line workers.
In the transport industry, autonomous vehicles are increasingly being trialled to replace bus, truck, and taxi drivers.
In retail, self-checkout machines and e-commerce platforms are reducing the need for cashiers and retail assistants.
These jobs are typically held by low-skilled workers, whose roles can be easily codified and automated. As firms adopt cost-saving technologies, the demand for low-skilled labour falls, leading to a leftward shift in the demand curve for such workers. With a surplus of labour and falling demand, wages in these sectors decline, reducing the income of affected workers and widening the income gap.
Conversely, automation has led to a boom in demand for high-skilled workers, especially in tech-related roles. These include software engineers, data scientists, AI specialists, cybersecurity experts, and others involved in developing, managing, and optimising intelligent systems. As digitalisation becomes pervasive, such professionals are increasingly vital across multiple sectors, from finance and logistics to healthcare and education.
This surge in demand causes a rightward shift in the demand curve for high-skilled workers, leading to higher wages, especially for those with in-demand technical skills or advanced qualifications. Since the supply of such talent tends to be limited in the short run—due to the time required for training and education—the wage premium for high-skilled jobs rises rapidly. This widening wage differential between high-skilled and low-skilled workers directly contributes to growing income inequality.
Globalisation and Immigration
Another factor exacerbating income inequality in Singapore is globalisation, particularly through labour mobility. As air travel becomes cheaper and Singapore continues to attract foreign labour, especially from neighbouring countries, there has been a marked increase in the supply of low-skilled workers.
The influx of foreign workers into sectors such as construction, cleaning, security, and manufacturing leads to a rightward shift in the supply curve of low-skilled labour. With a greater pool of workers willing to accept lower wages, employers face less pressure to raise pay. This suppresses wages at the lower end of the labour market and contributes to the stagnation of incomes for local low-skilled workers.
Conclusion
In sum, increasing income inequality in Singapore is the result of multiple structural forces. Technological advancement is replacing low-skilled jobs while rewarding high-skilled professionals with rising wages. At the same time, globalisation and immigration have expanded the pool of low-wage workers, further suppressing incomes in already vulnerable sectors. These forces together have widened the wage gap and exacerbated disparities in income distribution.
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