Twenty years from now, where will our cheap labour come from?

Twenty years can be, in some ways, a blink of an eye. Even as we write this, it is already three-and-a-half years since the beginning of Covid-19.

Singapore may be sleepwalking into a crisis much bigger than the loss of foreign workers we experienced during the pandemic. Whereas then we had hope, even if we didn’t know the timeline, that we would get over Covid-19 in due course and workers would come back again, the next crisis will be one in which it will become permanently harder to get migrant labour – more specifically, the kind of migrant labour that would accept our low wages.

Singapore has been addicted to cheap foreign labour for too long. We have built masterful rules and regulations that suppress their bargaining power, and have developed a habit of being lenient with employers who behave in exploitative ways, perhaps because we see the low wages they impose as “good” for our economic prosperity. Ours has become a society in which we need armies of people to clean up after us, and to constantly tear down and rebuild our infrastructure. This has been possible because of population growth in many of our neighbouring countries and relatively poor employment opportunities there. Naturally, men and women hoping to escape poverty or idleness seek work abroad.

But here’s the shocker. In nearly all the countries from where we draw our migrant labour, the Total Fertility Rate (TFR) has fallen to below replacement level or is close to doing so. This means that over a few decades, these countries will, after a bit of a lag, have a gradually shrinking population.

The Total Fertility Rate (per woman) is the average number of children that would be born to a female over her lifetime. A rate that is below 2.1 children per woman generally means that the population will decline over time. That number (2.1) is considered the replacement level.

Here’s a latest available data from the World Bank for the East, South and Southeast Asia regions:

Among Singapore’s major source countries, China has a TFR nearly as low as us. Bangladesh, India, Myanmar and Indonesia have TFRs that are around the replacement level or slightly below it, and since TFRs tend to go steadily lower with time (as experienced by many East Asian countries), their TFRs will likely go lower still in the coming years. In other words, the population decline will more likely accelerate than decelerate.

The bottom line? Singapore needs to begin preparing for a future in which we won’t be able to get the same huge numbers of foreign workers anymore.

Nor will they be cheap

Japan, South Korea and Taiwan  (TFR 1.2 in 2022) can be expected to take in more and more migrant workers. Because they are much larger than us population-wise, their ability to absorb foreigners may prove greater than Singapore for each comparable percentage of the population. Thus, their demand for migrant labour will pose significant competition for Singapore.

More importantly, these countries apply their minimum wage laws to migrant workers too.

Japan has different minimum wages by industry and prefecture but generally it is around 960 yen per hour. If a worker worked 44 hours a week like in Singapore, such a worker would earn about $1,800 a month in Singapore dollar terms.

South Korea’s minimum wage is 9620 won per hour. If a worker worked 44 hours a week like in Singapore, such a worker would earn about $1,900 in Singapore dollar terms.

In Taiwan, non-domestic workers enjoy a 2023 minimum wage of NT$26,400 a month. That is equivalent to about $1,160 monthly in Singapore dollars.

Here in Singapore, basic salaries for new migrant workers are typically around $500 a month. Why come here once opportunities in the East Asian countries open up more, and when the balance of supply and demand has turned in favour of workers?

The missing Thai worker

In other ways, twenty years can feel like a long time ago. Many younger Singaporeans don’t even remember that the first major wave of non-Malaysian migrant workers we had were from Thailand. For about two decades from around 1980, they were so ubiquitous, the term “Thai worker” was often used synonymously with “foreign worker”. However, they began to disappear from our workforce by the turn of the century.

The Thai wave lasted only about 20 – 25 years.

Thailand’s TFR was about 3.3 in 1980, falling rapidly to 2.1 (replacement level) by 1990. It fell further to 1.6 in 2000. Ten years after crossing the replacement level, the Thai worker began to get scarcer in Singapore. Today, Thailand is a labour-importing country, drawing workers from Myanmar, Laos and Cambodia.

In the light of this historical experience and in the knowledge that East Asian countries are likely to be accepting more migrants in the years ahead and paying them handsome wages compared to Singapore, the writing is on the wall for our present economic model that relies heavily on cheap foreign labour.

We will have to make do with fewer of them. Ministers have been lamenting about the productivity rate for years, but little seems to change. For obvious reasons: they remain too cheap. There isn’t enough cost pressure to make employers change their work methods.

Upping their wages to better compete with Japan, Taiwan and South Korea will be wrenching for us, but adapt we must. And precisely because it is going to be painful and disruptive, it is better to start the change process now than carry on with wishful thinking, only to have a new reality hit us while we’re sleepwalking.