Assess the effectiveness of Singapore’s existing macroeconomic policies in reducing unemployment.
In its Recent Economic Developments Statement released in December 2019, the Monetary Authority of Singapore indicated that unemployment was expected to increase. This was largely attributed to weak external demand and the rapid advancement and adoption of artificial intelligence (AI) technologies within Singapore.
Adapted from: Recent Economic Developments in Singapore, MAS, 6 Dec 2019
b. Assess the effectiveness of Singapore’s existing macroeconomic policies in reducing unemployment. [15]
Introduction
Unemployment remains a key macroeconomic concern for most governments, and Singapore is no exception. The Singapore government has employed a blend of demand-side and supply-side macroeconomic policies to reduce unemployment—particularly in response to cyclical downturns like the Global Financial Crisis (2008) and COVID-19 (2020), as well as structural challenges posed by technological disruption and sectoral shifts. While these policies have generally been effective in stabilising the labour market, they come with certain limitations that must be acknowledged.
Expansionary Fiscal Policy to Address Cyclical Unemployment
During periods of economic downturn, Singapore has relied heavily on expansionary fiscal policy to mitigate the effects of falling aggregate demand and to reduce cyclical unemployment. When aggregate demand (AD) contracts—due to falling consumption, investment, or net exports—firms respond by reducing production and laying off workers, leading to higher cyclical unemployment.
To counter this, the government increases government spending (G) as part of expansionary fiscal policy, which boosts aggregate demand. For instance, in response to the COVID-19 pandemic, the government rolled out a series of budgets totalling over $100 billion, which included wage support schemes, direct hiring, and accelerated infrastructure spending.
The Jobs Support Scheme (JSS) subsidised a percentage of wages across various sectors, effectively lowering firms’ cost of production (COP) and incentivising them to retain workers despite weak demand.
The government also created direct employment opportunities, such as the deployment of Safe Distancing Ambassadors, to absorb labour that might otherwise have been unemployed.
Bringing forward infrastructure projects like MRT lines or roadworks also helped boost construction activity and created jobs in both skilled and semi-skilled segments.
Through the multiplier effect, an increase in government spending leads to a multiplied increase in national income:
↑G → ↑AD → ↑Real National Income (Y) → ↑Derived demand for labour → ↓Cyclical unemployment
However, the effectiveness of such fiscal measures can be limited in a small, open economy like Singapore’s:
First, the fiscal multiplier in Singapore is relatively small due to high leakages. With a high marginal propensity to save (mps) and marginal propensity to import (mpm), a significant portion of any increase in income is either saved or spent on foreign goods, dampening the full impact of fiscal stimulus.
Second, some sectors may not respond to increased government spending. For example, industries like tourism and aviation—badly hit by COVID-19—did not benefit directly from infrastructure spending or wage support schemes, as demand in these sectors remained depressed due to border closures.
Lastly, if the economy is already operating near full employment, expansionary fiscal policy may lead to demand-pull inflation instead of job creation, especially in sectors already facing manpower shortages.
Supply-Side Policies to Address Structural Unemployment
Singapore has also been proactive in tackling structural unemployment, which arises when workers’ skills do not match the demands of the labour market. This form of unemployment has become more pronounced with the rise of digital disruption, automation, and a shift towards higher-skilled industries.
To address this, the government has implemented supply-side policies focused on retraining and skills upgrading, aiming to make the labour force more adaptable and responsive to new economic realities.
A prime example is the SGUnited Jobs and Skills Package, which includes schemes such as:
The Global Tech Talent programme, where participants undergo 3 months of programming training at Ngee Ann Polytechnic followed by 3 months of apprenticeship overseas.
Participants pay just $500, thanks to heavy government subsidies, and receive a $1,200 monthly training allowance, easing the opportunity cost of retraining.
These programmes aim to increase the employability of displaced workers by equipping them with relevant industry-specific skills, thereby reducing structural unemployment over time.
However, the limitations of such policies must be recognised:
Firstly, completion of training does not guarantee employment. Firms may remain hesitant to hire mid-career switchers or workers lacking industry experience, regardless of certification.
Secondly, six months of training may not be sufficient to build deep technical expertise required in complex fields such as data science, software engineering, or biotech.
There is also the question of worker receptiveness. Older workers or those accustomed to traditional sectors may be resistant to change, reducing the overall effectiveness of retraining initiatives.
Nevertheless, these supply-side policies serve an important long-term function—they help raise the productive capacity of the economy (shift LRAS right) and reduce structural rigidities in the labour market.
Conclusion
Singapore’s macroeconomic policies to reduce unemployment have, on the whole, been responsive and targeted. Expansionary fiscal policies have been effective in containing cyclical unemployment during crises like COVID-19, while supply-side strategies have aimed to future-proof the workforce by tackling structural mismatches.
However, policy effectiveness is not uniform across all sectors and timeframes. The small multiplier effect of fiscal spending, skill mismatches, and uncertainty over training outcomes suggest that macroeconomic policy alone cannot eliminate unemployment. For more sustained success, these policies must be complemented by close coordination with industry, better career counselling, and stronger employer incentives to hire and retain retrained workers.
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