In a Facebook post on Monday (15 June), veteran architect Tay Kheng Soon shared a newspaper clipping from 29 March 1982 which detailed the Government then-introduction of the new Levy Scheme that will require employers to pay a monthly levy of 30 percent of their foreign workers’ salary, subject to a minimum of S$150 per worker.
The purpose of introducing this scheme was to build an all-Singaporean workforce. In fact, the Government stated that the minimum levy was implemented to deter the employment of low-skilled foreign workers.
“The Government’s plan over the next 10 years is to cease reliance on foreign workers and to build up a wholly Singaporean workforce by 1992,” the Manpower Ministry said then.
It added, “Low-skilled workers who have been allowed in as a temporary measure to relieve our industries of acute labour shortage will be gradually phased out.”
Objective of foreign worker levy
According to a study by National University of Singapore (NUS) published in 1989, before the foreign worker levy was introduced for all workers in the industrial sector (manufacturing and construction), foreign workers could enjoy the benefits of CPF.
In fact, a two-pronged plan to make sure that Malaysian foreign workers in the construction industry could enjoy the benefits of CPF was implemented, where the contribution rate was set at 19 percent from January 1981. The percentage was increased six months later to 38.5 percent.
However, to help deal with the shortage of labour, foreign workers from non-traditional sources, like Sri Lanka, Thailand, Indonesia and the Philippines, were allowed to be hired for the construction sector without the need to contribute to CPF.
As for implementing the foreign worker levy, employers who hire a foreign worker under a Work Permit or S Pass are required to pay a sum for each worker. This levy is supposedly imposed to regulate the number of foreign workers in Singapore.
Besides introducing a foreign worker levy, the Government also implemented a “dependency ratio ceiling”, or quota, which limits the number of foreign workers in the total workforce of a particular employer.
In 1987, the Manpower Ministry decidedly allowed a controlled revolving pool of foreign workers beyond 1992, the year in which Singapore planned to phase out all unskilled foreign workers.
According to NUS’ study, this “appears to be a policy reversal, implying an abandonment of a wholly local labour force and some compromise in economic restructuring”.
Following that, in October 1991, the Government introduced a two-tier levy system which required employers to pay a higher levy on workers whose employment would change the “dependent ceiling” value of the company.
Both the levy and “dependency ratio ceiling” are the determining factors which the Government falls on to regulate the inflow of foreign workers into the country, in line with changes in domestic labour-market conditions.
Reliance on foreign labours increased
Although the main motive was to control the number foreign workers in Singapore and slowly phase them out, but the current situation is different from the original intention.
According to the Census of Population, the total number of non-citizen and non-resident (foreign) workers increased from 72,590 in 1970 to 119,468 in 1980. That constitutes to 11.15 percent and 11.09 percent of the total labour force respectively.
Fast forward to this year, it was reported that there are 1.4 million foreign workers in the country, and nearly a million of them are in lower paid, lower skilled work.
This clearly shows that Singapore’s reliance on foreign workers has increased over the last few decades, instead of going down. Additionally, the foreign worker levy (FWL) which started off at just S$150 per worker has now increased exponentially.
From S$150, the rate went up to S$170 in April 1988, S$220 in April 1989 and S$250 in July 1989 for workers in the construction and manufacturing sectors, the NUS study stated.
Based on latest rate found in the Ministry of Manpower’s (MOM) website, under Tier 1, employers are now required to pay a monthly levy rate of S$330 for each foreign workers in all sectors in the country, except for those in services. As for those in Tier 2, the monthly rate is S$650.
However, the monthly levy for those in the construction sector ranges from S$300 to S$700 for workers in the basic tier (Malaysian and North Asian countries), and S$600 to S$950 for those in Man-Year Entitlement (from non-traditional source countries and China), which can be seen in the chart below.
This, in fact, has become a huge source of revenue for the Government.
Quoting an article by the Straits Times in 1988, the NUS study highlighted that the Government emphasised that the foreign levies were imposed not to raise revenue but instead, only as a pricing mechanism to monitor the number of foreign workers—acting like an “import duty” to discourage over-reliance on them.
“But with the introduction, extension and increase in the FWL (Foreign Worker Levy), the revenue which is not earmarked has also increased,” the report stated.
It added, “At S$250 per month per worker for an estimated pool of 150,000 foreign workers, the FWL could generate an annual revenue of S$450 million or about 5% of estimated total government revenue in 1987.”
MOM does not publicly reveal the amount collected via foreign worker levies. Only when questions are raised in Parliament would they disclose figures for one or two years.
Back in 2013, then-Manpower Minister Tan Chuan Jin revealed that the Government collected a total amount of S$2.5 billion for the Financial Year 2011. With the number of migrant workers and increased worker levies, it is probable that the total sum may be $4 billion or more.
Local job seekers avoid certain industries
The country’s reliance on foreign workers also continues to go up as Singaporean job seekers continue to eschew certain sectors. In fact, job vacancies in industries like nursing and services remained vacant for at least half a year in 2015.
According to a report on job vacancies released by MOM in 2015, about four in 10 job opening—or 25,860 vacancies—stay unfilled for at least six months.
If that’s not all, nearly seven in 10 job opening, totalling to 41,980 vacancies, are difficult for Singaporeans to fill, employers pointed out. This is because these vacancies offer unattractive pay, a preference for a shorter work week, physically demanding job scopes and working on shifts.
Non-PMET (professionals, managers, executives and technicians) jobs make up the majority of such vacancies, particularly for service and sales workers, cleaners and labourers.
As a matter of fact, DBS economist Irvin Seah said to TODAY in 2015 that the foreign worker labour crunch in both low-skilled and white-colour sectors has caused problems for employers. This is because they find it hard to fill vacancies that were left empty by foreigners, given that Singaporeans avoid such positions.
“There is essentially a mismatch in the labour market. It has been happening for the last two years and it will continue to persist going forward, as long as those measures to cut foreign labour remain in place,” he said.
Although foreign labour is “cheap”, but it does not necessarily mean that the work produced is cheap as well.
As explained by former NCMP Yee Jenn Jong in his recent commentary, he stated that cost of buildings in Singapore is not far off compared to other first-world economies that pay their labourers significantly higher.
If that’s not all, he also said that Singaporeans are not calling for a stop to over-reliance and ever-increasing number of migrant workers, but rather for “deliberate steps to correct the process and to seriously make careers in construction [sector] viable for Singaporeans so a more sizeable number can be in the industry”.
He said this in reference to Trade and Industry Minister Chan Chun Sing’s recent comment that Singapore’s reliance on foreign workers is inevitable as the country is small in size and lack natural resources.
Mr Yee argued that locals shun a career in the construction field due to the poor image that the industry has because “we can only think of the low wage and low skilled migrant workers”.
“The reality in many places is that skills in a strenuous job can pay well. Many of these jobs are not shunned by the locals in say Japan, Australia, Switzerland or Finland. And some aspects of the construction sector do include skilled specialists and trained experts,” he wrote.
He added, “The salaries of the migrant workers in construction are low but the cost to employers is not low because of huge levies and accommodation costs. The effect of such a large-scale replacement of skilled craftsmen with low wage workers effectively made these jobs unattractive to locals.”
Additionally, some countries are globally quite competitive even though they rely heavily on locals for their construction sector, Mr Yee said. “Some are in fact competing fiercely with Singapore to be regional hub and to be a financial centre,” he added.
“Australia, New Zealand, Japan, Hong Kong, Switzerland, Finland, and many other developed economies do not have this huge reliance on low cost migrant workers, such as in construction. There is decent pay for their locals in the sector and they are better trained, more productive and manage automation better.
“But the experience of other developed countries like Japan, Australia and Europe shows us it is possible to have a higher skilled, more productive, largely locally-manned construction industry that pays decent wages and where construction work is a skilled and respectable profession,” he said.
As such, rather than constantly increasing the foreign worker levies to stem employers from hiring them, shouldn’t the Government be looking at helping Singaporeans to consider applying for jobs that they have thus far shunned?
While the high rate of levies have hugely contributed to the Government’s income, it is also preventing locals from securing jobs that are primarily dominated by foreigners as the salary offered is often too low for local breadwinners to survive in Singapore.
Another example of locals, especially those in the essential services, being underpaid compared to their counterparts in other countries can be seen in the nursing industry.
A healthcare professional recently mentioned about the government is seeking to hire short term “swabbers” in return for the relatively high salary of between $3400 to $3800 per month without a corresponding requirement for the successful applicant to have any prior healthcare experience.
Given that experienced nurses are remunerated at around $3,000 per month on average, it does seem odd that someone without healthcare experience could potentially be paid more than a trained and experienced nurse.
Criticism over low nursing pay is not a new issue in Singapore. Research has shown that nurses in Singapore are paid less than their counterparts in other developed countries in the region.
Their current remuneration does not match up to the essential and crucial nature of their job. The Government’s willingness to pay untrained individuals more than the average nurse is a tacit admission that the work nurses undertake deserve a higher wage package.
Given this whole situation, it seems the winner here is the Government as it is paying local essential workers lower wage but at the same time, is earning a hefty sum from the levies paid for the employment of foreign labourers.
It is a vicious cycle that knows no end.