Mr S Iswaran at the 6th MTI Economic Dialogue

FUTURE JOB TRENDS: WHAT DO THEY MEAN FOR US?   SPEECH BY MR S ISWARAN, MINISTER, PRIME MINISTER’S OFFICE AND SECOND MINISTER FOR HOME AFFAIRS AND TRADE & INDUSTRY FOR THE 6th MTI ECONOMIC DIALOGUE, 29 AUGUST 2013, 6PM   Professor Euston Quah, Head, Economics Division, Nanyang Technological University Faculty and Students from NTU, NUS, SMU and Junior Colleges   Ladies and Gentlemen   1.                 I am pleased to join you this evening at the sixth MTI Economic Dialogue.  We view it as an important opportunity to discuss economic issues of the day with students.  It is also an opportunity for us to recognise university students who have produced outstanding pieces of independent research, and done well in their study of economics.   2.                 Let me start by congratulating this year’s thesis prize winners.  Lin Yumin, Wu Pei Yun and Yap Chai Teng from NTU computed a measure of welfare across Chinese prefectures. They found that while the eastern prefectures had higher welfare levels, western prefectures experienced higher welfare growth rates between 2005 and 2010.   3.                 Ma Bing from NUS studied the effects of taxes on an economy.  He found that capital-income taxes had a negative effect on long-run economic growth, while labour-income and consumption taxes did not.  Furthermore, in the short run, consumption taxes tend to outperform income taxes with respect to both economic growth and individual welfare.   4.                 Leung Weiwen examined the factors that affected scientific research in a country.  He found that the amount of scientific capital and labour in a country would affect its research quantity, whereas the levels of corruption, democracy and openness to ideas in the country would affect its research quality.    5.                 I would also like congratulate the economics book prize winners, Dang Thi Quynh Trang from NTU, Zhang Sanqian from NUS and Sharon Chan Zi Yin from SMU. Well done everyone and congratulations.   Economist Service Scholarship   6.                 We are also presenting Economist Service scholarships to three outstanding students who have demonstrated a keen aptitude and interest to serve in the public sector as professional economists.  I would like to congratulate Foo Yi Hui, who will be pursuing her studies at the University of Pennsylvania; Koh Wen Jie, who plans to further his education at a university in the UK after his National Service; and Alex Loo Yun Chai, who will be studying at the Singapore Management University.  We wish them all the best in their studies.   Challenges in Global Labour Markets   7.                 Today, I would like to share with you some perspectives on challenges in labour markets around the world.  What are some of these challenges and trends, and what do they portend for our economy and workforce?   8.                 In particular, I would like to highlight three issues in global labour markets which will be of relevance to us today and well into the future.   Youth Unemployment and Ageing Workforce    9.                 The first relates to rising youth unemployment alongside an ageing workforce in developed economies.  Today, Europe faces a severe youth unemployment problem.  Across the European Union, almost a quarter of all youths under the age of 25 are unemployed.  The situation is even more grim in Greece and Spain where more than half of their youths are jobless.  Even among those who can find a job, many are “underemployed” - not fully utilising their skills and working in low-paying temporary or part-time jobs.    10.              In part, this situation has arisen because of the protracted recession in European economies.  But there are other structural factors such as a mismatch of skills – where the skills acquired by the youth do not have currency in the labour market.   11.            Analysts have observed that even if Europe’s employment situation improves, the impact of the current youth unemployment may persist and continue to be felt for many years to come.  Young people who begin their careers without work are more likely to have lower wages, and are more vulnerable to joblessness later in life, especially as they would have missed out on the training and experience that are important to young workers.  In other words, this is a problem with a long tail.   12.              At the other end of the age spectrum, many developed economies also have to deal with the challenges of an ageing population and workforce.  Studies have found that an ageing workforce tends to be associated with lower levels of productivity and innovation.  To mitigate this impact, firms in the developed economies have restructured jobs and redesigned work processes so that they are more suitable for older workers.  Others have adopted elderly-friendly technology and assistive tools in the workplaces.  For instance, BMW has fitted the production line in its car plant in Dingolfing, Germany, with assistive tools, such as mobile tool trolleys, stools and robots, to ease the physical demands of the job on older workers.  This has reduced absenteeism and raised the productivity of the production line. In Japan, to help older workers upgrade their skills and remain relevant, the government funds courses for them, and encourages them to audit college courses and participate in continuing education programmes. So there have been different methods used on a national and company levels.   Impact of Technological Advancements   13.            The second trend pertains to the impact of technological changes on the nature of jobs and their skills requirements.  Technological advancements are constantly changing the way we work, and rendering some jobs obsolete.  There are two main modalities to this.   14.            First, smart algorithms are increasingly replacing some middle-skilled, white-collared jobs that require basic analysis.  For example, pattern-recognition software can do the work of, and has started to replace, entry-level lawyers.  Rather than having a lawyer sieve through massive amounts of legal documents manually, such work can now be automated.  According to a New York Times article, in 1978 it cost US$2.2 million to manually examine six million documents.  Today, the same number of documents can be examined by machines in a fraction of the time for a fraction of the cost.   15.            The competition for such jobs is not just from sophisticated software and machines, but also workers in other countries.  Online outsourcing platforms help firms find skilled service workers over the internet, for tasks such as programming and proofreading.  For example, Freelancer.com, a global outsourcing platform, connects more than four million employers and freelancers across 234 countries worldwide.  Projects posted on the platform are estimated to be worth more than US$1 billion in value.   16.            These trends tend to affect middle-skilled jobs more, as they are generally more routine or procedural in nature and, therefore more susceptible to automation and outsourcing.  In the United States and other developed countries, the hollowing out of middle-skilled jobs has led to the phenomenon of job polarisation.  Between 1983 and 2012, the share of employment in middle-skilled occupations in the United States fell by 14 percentage points, from 59 per cent to 45 per cent, while employment shares of both low-skilled and high-skilled occupations increased.  High-skilled jobs typically require abstract analytical abilities, and are harder for computers to replace.  At the other end, lower-skilled but high-touch jobs, such as chauffeurs, requiring personal interactions and situational adaptability, are less easily mechanised.   17.            Second, new technologies can suddenly and rapidly render old processes and jobs obsolete.  One example is the emergence of new production technologies such as 3D printing.  Compared to conventional manufacturing where materials are cut, moulded and bent into final products, 3D printers construct products by adding successive layers of materials.  This allows the products to be customised with little costs, reducing the benefits brought about by economies of scale.  This is a major shift.  We don’t need economies of scale because of the nature of the production process.  Entire business models may change as companies shift from selling products to providing blueprints and customised designs.  In the face of this and other new production technologies, manufacturing jobs of the future may require an entirely different set of skills.    18.            The services sector will also see substantial changes.  Already, we have seen how online retail businesses are challenging brick-and-mortar stores by changing the way consumers shop, and saving on rental and overheads.  Big-name retailers such as Woolworths have folded in recent years due to online competition, while many others are now seeking ways to offer hybrid experiences to customers.  In other words, they are offering both online and physical retail experiences in order to retain their competitive edge.   Rising Income Inequality   19.            The third aspect is the rise in income inequality.  Many of the new technologies I have highlighted are skills-biased.  Even as they replace some routine tasks, they also open up new opportunities for higher-skilled workers.  The premium for skills rises with technological advancements.  On the other hand, less-skilled workers who are displaced may not be able to seize the new opportunities brought about by technological changes.  With increasing globalisation, they may also be subject to competition from workers in other countries.  These forces will exert downward pressure on their wages.    20.            As a result of technological advancements and globalisation, income inequality has increased in many countries around the world.  Between 1995 and 2010, the Gini coefficient increased from 0.36 to 0.38 in the US.  Over the same period, the Gini in OECD member states rose from 0.30 to 0.32.  This trend is exacerbated in cities.  In response, governments have endeavoured to narrow the income gap through measures such as establishing a minimum wage, and enhancing transfers to those with less.   Implications for Singapore   21.            What do these trends mean for Singapore and for all of us?  Europe’s situation is a cautionary tale of what might happen if we are not able to create enough of the right type of jobs for future generations of Singaporeans.  Our challenge is that much greater because younger Singaporeans are becoming better educated with a commensurate rise in the type of jobs they aspire towards.   22.            Today, 70 per cent of our citizens aged 25 to 29 have at least a diploma qualification, compared to less than 30 per cent among those aged 45-49.  This profile will continue to improve, with the Government expanding university places to cater to the increasing demand for university education.  By 2020, 40 per cent of each cohort will receive university education.  Many Singaporeans are also upgrading themselves through post-diploma qualifications or part-time undergraduate studies.  In all, we estimate that two-thirds of Singaporeans will have the educational qualifications to hold PMET jobs by 2030, compared to about half today.  In absolute terms, their numbers will increase from 850,000 to 1.25 million in 2030.   23.            We will therefore need to transform the economy to create jobs that are suitable for an increasingly educated Singaporean workforce.  If we fail to do so, our educated workers will join the ranks of those are underemployed or unemployed.  Moreover, given our ageing population, we will increasingly also need to learn from other countries on how to adapt work processes and better tap on older Singaporeans as a valuable resource in the workforce.   24.            Rapid technological advancements will make our task of creating better jobs for both young and older Singaporeans more difficult. Especially since they have the potential to render entire industries and jobs obsolete. While we can try to anticipate and prepare for linear movements and changes in sectors, we cannot predict where the next disruptive force is going to come from and which sectors it will affect.    25.            What are the implications of this operating environment for the Government, for businesses and workers?  First, we need a nimble and diversified economic strategy that is anchored and premised on strong capabilities and flexible response. On the one hand, we need an economy that has deep capabilities. In other words, we need to deepen our capabilities especially in our core skills and sectors where we have a comparative advantage.  At the same time, we need to be deft in identifying potential opportunities in high value-added and high growth industries that can create good jobs for Singaporeans.  Our system must have that flexibility and adaptability to respond to that change.  These efforts are mutually reinforcing.    26.            We cannot know which sectors will be winners 20 years down the road.  Nor will we know for certain whether the jobs we create now will be hollowed out in the future because of technological advancements or offshoring. As such, our core strategy must be to build broad and deep capabilities that will help diversify our base of industries and the variety of jobs we can offer today.  In doing so, we will be well-placed to capitalise on opportunities, not just in adjacent sectors, but also in totally new sectors that will leverage on the same capabilities.     27.            Let me give you an example. Taking 3D manufacturing as a case in point, if we have deep capabilities in areas such as material technologies, material engineering, process engineering and design, then 3D printing technology will not necessarily be a threat. In fact it can be a new opportunity in which we can apply our existing core capabilities bundled in a new way.  This can also be argued for various capabilities in the services sector, depending on the kind of capabilities we nurture in our workforce.   28.            The Government will continue to invest heavily in education and training to help Singaporeans develop such board capabilities in order to seize those opportunities in the emerging new growth areas, and also to remain relevant and employable throughout their careers.    29.            There is also an impact on businesses. Businesses have always had to be adaptable and flexible. They will need to be even more so in this environment in order to stay adaptive to the changing landscape.  As resource constraints and technological advances favour more productive and innovative companies, businesses and entire industries must be willing to restructure and make better use of technologies and tap on new pathways to remain competitive.    30.            Let me go back to the retail industry as an example. In the face of fierce online competition, some of the conventional brick-and-mortar shops overseas have responded to the challenge by providing fast home delivery services from their extensive store networks. For example, Tesco’s subsidiary in Korea, Homeplus, puts up posters of their products in train stations. Commuters are encouraged to scan the posters with their mobile phones to order the products, which will then be delivered to their homes.  Like these companies overseas, companies in the retail and other clusters in Singapore will need to think of innovative solutions. In some instances, finding a hybrid between what they do now and the new technologies.  In other cases, completely and radically changing their business model in order to sustain their business.   31.            Third, at an individual level as Singaporeans, we will need to be flexible and continually upgrade our skills. Given how rapidly new technologies and ideas will be introduced in the future, it is quite likely that what we learn in school today may be somewhat less relevant by the middle of our careers.  We need all workers to seize on the opportunities offered by our Continuing Education and Training (CET) infrastructure, and also the various government schemes.  But the drive must come from within, and there must be a commitment to continually refresh.    32.            Importantly too, we need to change our view of “skills”. We should not think of skills as only tied to a particular job or a particular industry. Every job in any sector is really a bundle of skills.  What we need is the ability to unpack and repack, recombine these skills according to the new types of industries and demands. For example, a human resource officer will not only need to know about HR practices to attract and retain talent. It may well be that in the future and even now, the officer may need analytical skills to do the analysis to identify trends and challenges in the workplace and in the larger workforce to see how to position the organisation competitively to achieve the goal of attracting and retaining talent.  Essentially, the challenge is to develop both generic and technical core skills. You need these to work together, in order to sustain our relevance as individual workers, and also to maintain our economic competitiveness into the future.   Quality and Inclusive Growth   33.            The Government is committed to bring about quality growth that will benefit all Singaporeans. However, despite our best efforts, some Singaporeans may still fall behind. Similar to other developed economies, our income inequality has risen over the years.  Between 2002 and 2012, our Gini coefficient increased from 0.45 to 0.48 before taking government transfers into account. Why should this matter if these asymmetric outcomes are really tied to the ability of individuals?   33.     I offer you two perspectives.  First, at a very pragmatic level, no economic structure that perpetuates a widening income gap is sustainable in the long run.  It may continue for a while, but eventually, it will erode the base from which that growth can be achieved.  And perhaps more importantly, it is the basic rule of any democratic society that we owe a duty of care to our fellow citizens, especially to those who are unable to fully capitalise on opportunities or fend for themselves. We need both a competitive economy that rewards talent, innovation and ability, as well as a system that is able to support those and help those who are unable to compete on the same footing.   34.     To help lower-income Singaporeans, the Government has introduced several important and fundamental schemes.  I would like to highlight the Workfare Income Supplement scheme which supplements the income and CPF savings of low-wage workers. What is the benefit of this? On one hand, it enhances the incomes of lower wage workers while retaining the incentive to work. It does not impose an additional undue burden on businesses in terms of cost.   At the same time, we also achieve income redistribution.  We also heavily subsidise healthcare, housing, education and training for the lower income.  Indeed, if government transfers and taxes are taken into account, our Gini coefficient will fall from 0.48 to 0.46.  The Government must and will continue to seek ways to ensure that our economy remains inclusive, even as we restructure.   Conclusions   34. Let me sum up. Competition for jobs is keen and technological advancements are relentless. Our economy needs to remain dynamic and open to ensure that there will continue to be good jobs for Singaporeans. To thrive in this environment, we must nurture deep capabilities in our businesses and workers so that we can maintain our current competitive edge even as we gird ourselves for disruptive change.  Against this backdrop, the Government is committed to fostering inclusive and quality growth that can create good jobs for Singaporeans and everyone has a share in the fruits of this growth.     Thank you.