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by Assoc Prof Shandre M. T. and Tan Zhen Li

by Assoc Prof Shandre M. T. and Tan Zhen Li.

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by Assoc Prof Shandre M. T. and Tan Zhen Li

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  1. by Assoc Prof Shandre M. T. and Tan Zhen Li The Twin-Engines of Growth in Singapore: Employment Linkages and Structural Changes in Manufacturing and ServicesPrepared for“2006 International Symposium on Contemporary Labour EconomicsLabour Markets Mobilization and Economic Development in a Harmonious Society, with a Focus on Chinese Labour Markets"(December 16-18, 2006)

  2. Introduction and Scope • Emergence of the Services Sector Globally • Structure of Sectors in Singapore’s Economy • Increasing GDP from services and manufacturing • Increasing importance of services in employment • Linkages Between Manufacturing and Services: Twin Engines of Growth (ERC’s Recommendations) • Identification of Key Sectors and Employment Effects: Input-Output Tables • Policy Conclusion

  3. Evolving M&S Sector Globally • Globalization – Open world market • Progress of manufacturing and services sector through promotion of export services • Expansion of service sector role as intermediate inputs

  4. Gross Value-Added of Services Global trends in Services

  5. Employment in Services Global trends in Services

  6. Employment growth in Developing countries Global trends in Services

  7. Importance of services sector for sustained growth of the Asian countries • Demand for services is highly income elastic that is the demand for services increases concurrently as the income for Asian countries rises • Demand for services such as education, health care, telecommunication services, and travel services are expected to expand faster than the demand for manufactured and agricultural goods • Services activities are becoming an importance source of export growth for the Asian countries. Services activities are becoming the faster growing cross-border and FDI activities in East and South-East Asia for the past decade

  8. Table 1: Key Macroeconomic Indicators: 1999-2005 Key Trends in Singapore Economy Source: Thangavelu and Toh (2005) Services sector includes: Wholesale and Retail trade, Hotels and Restaurants, Transport and Communication, Financial Services, Business Services, other services

  9. Structure of Sectors in the Singapore Economy • Increasing GDP from Manufacturing and Services Sector – potential areas of growth Source: SingStat, 2005

  10. Increasing Importance of Services in Employment • Increasing Share of Services in Employment, Decrease in Manufacturing Source: MSRD, MOM Are there linkages between the two to account for such trends?

  11. Product Composition of Singapore’s Exports (%), 1994 - 2005 Source: Ministry of Trade and Industry, Economic Survey of Singapore, various issues; Yearbook of Statistics, Singapore, various issues

  12. Importance of Linkage between M&S – Twin Engines of Growth • ERC’s Recommendation for twin engines of growth: • “A strong manufacturing engine contributes to growth of services, and likewise, a strong services sector makes factories in Singapore more competitive... • Manufacturing will become more knowledge and research intensive... • Services will become more exportable and its quality will be raised…”

  13. Relationship between M&S • Usage of intermediate services • Demand for service/manufacturing inputs • Eg. to complement manufacturing production or service implementation • Splintering”: outsourcing of business-related services • Eg. R&D, finance, logistics • Change in Employment Structure • Decline in manufacturing employment, shift to service sector • “between effect” • Increase in non-production employment or indirect labour within manufacturing itself • “within effect”

  14. Relationship Between M&S Domestic Final Demand Domestic Final Demand • Demand Shares of Services and Manufacturing Outputs – 2000 (In per cent of total output per sector, data from I-O Tables 2000) 11.2% 31.8% 7.0% Intermediate Input Services 35.2% Manufacturing 15.1% 6.2% 18.9% 69.1% Exports Other Sectors Exports Manufacturing is highly export-oriented Services allocates more of its intermediate outputs back into its own industry Linkage between services and manufacturing is evident in intermediate inputs used reciprocally by both sectors

  15. Input-output analysis • Provides a complete picture of the flows of products and services in the economy for a given year • Illustrate the flows between various industries and also between industries and the final demand sector • These linkages allow estimates to be made of the extent to which industries contribute directly and indirectly to the various final demand sectors within a country • Greenhalugh and Gregory (2001) – UK • Franke and Kalmbach (2005) – Germany • Cho, Shon and Geoffrey (2000) – Korea • Paolo and Maliciani (2005)

  16. Methodology and data sources Classify data from 1995 and 2000 input-output tables into 18 aggregated industrial sectors (over 150 industries) Compute output multipliers Compute employment multipliers for 1995 and 2000 using the output multipliers and employment data from Labour Force Survey data

  17. Framework from Annex B • Computation of output multipliers • Expressing in matrix form, we have: • X = AX + F • X (1-A) = F • X = (I–A)-1F • Where I denotes the 4X4 identity matrix and • (I–A)-1 is the Leontief output multiplier matrix • Computation of employment multipliers • Compute the total output figures, (I–A)-1final demand • Compute the employment to output ratio, ei • Multiply every entry in the (I–A)-1 matrix by ei will yield the corresponding employment multiplier

  18. Methodology and data sources • Use of the closed model • Treats private consumption expenditure in final demand as an endogenous variable as data on personal disposable income is not available • Includes the Keynesian multiplier effect and Leontief multiplier effect • Results in larger employment multipliers • Enables us to determine the total multiplier effect on output and employment

  19. Share of Intra and inter-industry jobs created arising from a change in final demand in each industry (95, 00 & 04)

  20. Intra & inter-industry effects • Inter-industry jobs created are higher for manufacturing and services industries as compared to industries like construction and others E.g.

  21. Intra & inter-industry effects • The employment spill-over effects from individual mfg industries to the services sector as a whole is stronger than that from the services industries to the mfg sector

  22. Intra & inter-industry effects • The employment spill-over effect within the services sector is higher as compared to that within the manufacturing sector

  23. Structural changes in employment creation • For the period from 1995 to 2000 and 2000 to 2004, there was a decrease in the share of jobs created within the same industry for most of the mfg industries • This could reflect the move to higher VA industries and Outsourcing / production fragmentation

  24. Structural changes in employment creation Generally, the effects of the restructuring process on employment seem to be levelling off to a steady state equilibrium

  25. Policy Implications & Conclusion • Our findings reveal the presence of strong employment linkages between different sectors of the economy, especially from the manufacturing to services sectors • It is suggested that jobs created arising from such employment linkages tend to be of higher skills content • In this respect, implementation of flexible labour market policy and initiatives to upgrade skills of workers will play a crucial role to create flexibility in the economy • The aim of Workforce Development Agency (WDA) to enhance the productivity and employability of the workers through training, retraining, and retaining workers in the labour market

  26. Policy Implications & Conclusion • Two key areas of concern as the industrial structure matures and companies fragment its components and production line: • The displacement effect of outsourcing on wage gap (skilled and unskilled wages) and on employment has not been thoroughly investigated in the economy • Sustainable productive improvements of the Singapore economy is the development of strong small and medium size enterprises (SMEs): • Formation of a cluster of SMEs that support the activities of the larger conglomerates  These enterprises will provide employment to high VA workers providing commodities and services demanded by companies within and beyond Singapore

  27. Thank you

  28. Percentage change in share of employment in various sectors by occupational classification

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