HE2011 Tutorial 12

1. Singapore imports food, fruits, fish and veg from Malaysia. But people observe that
prices of food fluctuate more in Malaysia than in Singapore. Singapore did not use
incomes policy to control imported inflation. Discuss how does Singapore control or
moderate imported inflation?

● Imported inflation is domestic inflation caused by increases in prices of imported goods

● Singapore uses exchange rate policy to control imported inflation

● Suppose there is imported inflation from Malaysia

● The Monetary Authority of Singapore (MAS) can target the Singapore dollar for a greater appreciation against Malaysian
Ringgits to strengthen the exchange rate
● MAS could do this by changing interest rates or foreign reserves to influence exchange rate
● This makes the cost of imports in Singapore Dollars cheaper ultimately leading to cheaper domestic prices in Singapore
● Because Singapore’s long-term and high demand food import from Malaysia, the price will not fluctuate too much based on the
demand and supply relationship
● Agriculture is the primary industry of Malaysia, the inflation of agriculture will be higher than other industries.
Singapore imports food, fruits, fish and veg from Malaysia. But people observe that prices of food fluctuate more in Malaysia than in Singapore. Singapore did not use incomes
policy to control imported inflation. Discuss how does Singapore control or moderate imported inflation?

● This is not a macro course. But using exchange

rate to control imported inflation has a downside
as it would affect our exports.
● Also, we import from Indonesia. We have one
tool which is the exchange rate but we might
have too many targets.
● MAS might have to compile an imported food
price index.
Singapore imports food, fruits, fish and veg from Malaysia. But people observe that prices of food fluctuate more in Malaysia than in Singapore. Singapore did not use incomes
policy to control imported inflation. Discuss how does Singapore control or moderate imported inflation?

● In the past, inflation rate in Singapore has been low and if

it was high, it did not last long. Hence, using exchange
rate policy can work.
● Now inflation is above 5% and worldwide and last a long
time. Cannot use exchange rate.
● In the UK and many countries, the Central Banks say got
to accept lower standard of living.
● Singapore leaders say got to learn more by having more
skills, or put in more hours.
2. The tripartite partners in Singapore are the Ministry of Manpower (MOM), the
National Trades Union Congress (NTUC) and Singapore National Employers
Federation (SNEF). Is this the best composition of Tripartition to deliver best results
to Singapore society at large?

Singapore's government is not a coalition; stable and efficient.

MOM is part of the government sector.

Labour movement, the NTUC is macro-focused. However not independent

of the political party, PAP.

The employer body is run by SNEF, involved in state-owned enterprises.

Not the best example of tripartism but able to achieve full employment
and price stability; did a good enough job.
Question 2

The tripartite partners in Singapore are the Ministry of Manpower (MOM), the National Trades
Union Congress (NTUC) and Singapore National Employers Federation (SNEF). Is this the best
composition of Tripartition to deliver best results to Singapore society at large?

Has composition been delivering well for Singapore economy.

But is this the best? Western countries believe in check and
balance for their own societies. How about Singapore? Is
something is wrong on the part of the government, would
SNEF present a different view? Would NTUC say the
government is wrong?
3. How did NWC maintain the competitiveness of Singapore?

• NWC’s fundamental goal remains to ensure wages expectations in Singapore are consistent with actual macro
economic growth and sustainable in the long-run
• To maintain competitiveness (increasing GDP), wage growth should be < productivity growth
• NWC helped reform the wage system in SG, from seniority based → flexible wage system → Monthly Var.
Component(MVC). This is to ensure wages can be adjusted to reward or cushion impacts during good and bad
times.

• The NWC aims to influence wages to be at equilibrium W1 & subsequently W2 (after Dd & Ss shifts), where
employment is maxed.

• Some key recommendations made in Mar 2020 to ensure competitiveness:

○ find ways to utilise excess manpower productively

○ retrench only if necessary
○ Reduce wage costs (flex. wage structure)
○ Workforce upgrading 7
Source: https://dollarsandsense.sg/guide-understanding-singapores-national-wages-council-affect-salary/
Question 3

How did NWC maintain the competitiveness of Singapore?

Competitiveness means sustainable GDP growth rate. Over the years

Specifically
(1) Hence wage increases cannot exceed productivity increases.
(2) NWC wants orderly wage increases over the years and not high wage
increases in one year and then wage cut in another year.
(3) If there is a recession, NWC would want no retrenchment. That is why
NWC was involved in wage reform

Source: https://dollarsandsense.sg/guide-understanding-singapores-national-wages-council-affect-salary/
Question 3

How did NWC maintain the competitiveness of Singapore?

NWC more useful to Singapore during

good time or recession?

Source: https://dollarsandsense.sg/guide-understanding-singapores-national-wages-council-affect-salary/
4.Having NWC means market forces do not work in Singapore. Do you agree or disagree?

Disagree. NWC guidelines are not mandatory and

only serves to influence wage expectations in
Singapore instead of enforcing them. Hence market
forces are still in play, but possibly on a smaller
extent.
Tutorial 12
4. Having NWC means market forces do not work in Singapore. Do you agree or disagree?
Without NWC, we would go to A1 from A2
according to market forces.
But with NWC, we can go there faster.
Also, NWC can change the path from A1 to
another equilibrium point.
If NWC thinks the wage increase is too
High next year, they can increase more
foreign workers. NWC wants wage increases to be sustainable from year to year. NWC want
orderly wage increase.
Tutorial 12

4. Having NWC means market forces do not work in Singapore. Do you agree or
disagree?

Market forces do work in Singapore.

How to answer?

(1) NWC is part of market forces

(2) NWC changes market forces.

(3) NWC moves faster than market forces.

(4) The government is impatient.

5. Is NWC as an institution exportable?

National Wage Council (NWC) is a tripartite body focused on influencing workers’ wage expectations,
subject to macroeconomic expectations (such as inflation).

NWC is created by the government (public sector) but has representatives from private sector (employers)
and trade unions too.

NWC must be macro-focused to be successful.

Many countries like Fiji, Honk Kong, Malaysia, Korea and New Zealand tried to implement the idea of NWC
in their countries but were unsuccessful. This is because NWC has to be macro-focused to be successful.
For example, if there is imported inflation, growth rate remains very less if wage is unincreased. Thus, to
increase wages in such a situation, NWC is established, but it will be of vain if there are no 3 forces (public,
private, unions) coming in.

Hence, I feel NWC as an institution is not exportable.

Q5. Is NWC as an institution exportable?
(1) We cannot charge a fee when other countries adopt NWC. This is a
public good.
(2) Secondly, other countries cannot copy NWC because it is the same
reason other labour unions cannot copy NTUC. NTUC would work for
PAP government
(3) If NWC is our competitive tool, our blue ocean strategy, why do we
want other countries to copy
6. Is Labour Market Testing the best form to protect Singaporean workers from
unfair employment practice?

LMT obliges employers who want to recruit foreign professionals,

managers and executives (PMEs) to show that they have exhausted all
local sources before they are given permission to employ foreign PMEs.

Companies required to give priority to local PMEs and will be monitored

closely if found to be unfairly favoring foreigners.

Q
Question 6

6. Is Labour Market Testing is best form to protect Singaporean

workers from unfair employment practice?

The labour market test is not binding. It is for a show. It is a

wayang , a movie or play in Malay. It is a paper tiger.
MOM should publish the name of those firms on watched list
7. Does Singapore export water?

Yes. Under the 1962 Water Agreement, Singapore continues to draw 250 million
gallons of raw water per day from the Johor River. In return, we are obliged to
provide Malaysia with a daily supply of treated water up to 2% (or 5 mgd) of the
water supplied to Singapore. Therefore, Singapore export water.

Q
Question 7

Does Singapore export water?

● Yes, Singapore exports water (but mainly virtual water)

● Our main exports are machinery and equipment, petroleum and chemical
products
● These exports require water during most of their production processes
● Additionally, Singapore exports treated water to Malaysia as part of the water
agreement. Too bad for Malaysia that the water agreement is priced in
Malaysian currency and not Sing dollar or USD.
Question 7

Does Singapore export water?

One of world bank’s consultants argued that Singapore should focus on

agrcultural products. Are you happy that Singapore did not follow his suggestion?
Question 7

Does Singapore export water?

From internet

Chinese scientists have successfully transformed desert sand

into fertile farmland, allowing for the cultivation of 8200 acres of
rice, using ecological water retaining sand planting technology,
which saves water and avoids the use of pesticides.
My take is the above method should be used to stop desert
from spreading and not to use desert to produce crops.
8. Do you expect the GDP growth rate of Singapore to be very high in near future?

No, Singapore is already in the Elephant Period, with low GDP growth and low
population growth. As a mature economy, Singapore has already exploited many
potential areas of economic growth, such as its geostrategic location as a trading
port, off-shore oil refineries, and attractive location for FDI.

For almost the past decade, Singapore’s GDP growth maintained stable at around
4% (not counting the covid recession), higher than other mature economies like
US and UK. MTI had also revised their prediction for Singapore’s GDP growth
from 3-5% to 3-4% in August this year.

The high GDP growth rates from our time as one of the Four Asian Tigers (>10%)
are not likely in the near future.

Q
Question 8
GDP growth rate = prodictivity growth rate (A) +
Do you expect the GDP employment growth rate (B).
growth rate of Singapore to B is exhasted and A has never been higher than
2% on consistent basis.
be very high in near future? Look at Japan.
Are you sad that Singapore cannot grow faster?
Not really when your per capita is too high
already
MCQ
Q1. Diagram 1 on the next slide shows that the governments in the west have tried to shift OJ to OK in the
name of incomes policy. What is the likely outcome?
(a) Workers are not happy
(b) The unions would not support
(c) The employers are supportive
(d) Lack of industrial peace
(e) All of the above
(f) None of the above

• Options (a) and (b) are correct because the

workers and the micro-focused union want
higher wages for the workers.
• Option (c) is correct too because employers
do not want wages to increase too fast such
that their profit decreases.
• Option (d) is correct as well because
employers would be less likely to increase
wages to meet the union’s demand, hence Incomes policy aims to reduce sensitivity
there might be strikes. of excess demand on wage growth
Therefore, option (e) is the answer.
The background is inflation and wage inflation. Wages catching with prices
(a) Workers are not happy
- Workers want higher wages

(b) The unions would not support

Unions not happy as they want higher wages

(c) The employers are supportive

- Employers are supportive as lower wages implies lower cost of employing workers

(d) Lack of industrial peace

- If wage increase cannot match inflation, there would be strikes

What is the best way to manage? To manage inflation to be low.

Take inflation rate out of wage increases equation.
Question 2
In country XYZ, the chiefs of many big corporations have the practice of employing
unqualified relatives to top positions in the corporations. This culture
(a) Will increase ULC
(b) Will increase UBC
(c) Will not encourage team work
(d) All of the above
(e) None of the above

ULC = unit labour cost from many lectures especially Lecture 5

UBC – total business cost/ output. Total business cost include total labour cost
Q2. In country XYZ, the chiefs of many big corporations have the practice of employing
unqualified relatives to top positions in the corporations. This culture
(a) Will increase ULC
(b) Will increase UBC
(c) Will not encourage team work
(d) All of the above
(e) None of the above.

Workers know they have incompetent upper management, likely will not work to the company’s interest.
Team work will not be encouraged. Workers know some workers are relative of the management. These
management’s workers would not work hard. They can be spies too.

ULC may increase as worker productivity drops due to disengagement from company culture (produced
output decreases).

UBC may increase due to incompetent management’s inability to manage company operations.
Question 2
In country XYZ, the chiefs of many big corporations have the practice of employing unqualified
relatives to top positions in the corporations. This culture
(a) Will increase ULC
(b) Will increase UBC
(c) Will not encourage team work
(d) All of the above
(e) None of the above

If corporations are corrupt, these corporations cannot be very competitive. But not so bad as they
must be make profits good enough to employ relatives. But some relative are there to watch other
workers. The cost of monitoring is high.
At the country level, some government are corrupt. The national cost is high. The election system
fails to elect capable people in office. The tripatism composition is a liability . Employers’
association is working with government for self interest.
Ukraine is in the news. Ukraine suffers from this.
Q3. Singapore has been in the last two years trying to reduce office rental and car prices. This measure
directly will reduce
(a) ULC
(b) UBC
(c) Reduce profits of manufacturing firms
(d) All of the above
(e) None of the above.

Unit Labor Cost (ULC) is how much a business pays its workers to produce one unit of
output.

Unit Business Cost (UBS) is the total expenditure incurred by the company to produce,
store, and sell one unit of output.

Reducing office rental and car prices will thus affect UBC directly as operating costs are
lower for firms with offices and/or company cars. ULC might be changed but indirectly at
employers’ discretion. Profits of manufacturing firms will be indirectly affected, by demand
and supply as a result of the reduction in price.
Question 3
Singapore has been in the last two years trying to reduce office rental and car prices.
This measure directly will reduce
(a) ULC
(b) UBC
(c) profits of manufacturing firms
(d) All of the above
(e) None of the above
In JB, business cost is very low compared to Singapore, why some firms prefer to
operate in Singapore instead of JB?
It is cheaper in JB, but firms also worry about revenue there and implicit costs might
be high in terms of crime .
Rent is very low in Malaysia. Many Singaporeans buy apartments in cities in Malaysia.
They rent out cheap is to protect the apartment from thieves and unlawful occupation.
 Which is the Efficiency Wage?
Wage
rate
SL
WE4
WE3
WE2
WE1
WC D4
D2 D3
D0-

0 EC Employment