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 Economics

Labour Markets Mobilization and Economic Development in a Harmonious Society, with a Focus on Chinese Labour

Markets"

(December 16-18, 2006)

by

Assoc Prof Shandre M. T. and Tan Zhen Li

2

Introduction and ScopeIntroduction 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

Global trends in ServicesGlobal trends in Services

GVA trends

AAG rate of Svc in 1990s

Share of Svcs in late 90s

Developed countries

Australia 6.0% 66.7%

Germany 4.1% 61.1%

Japan 3.2% 57.6%

US 6.5% 62.9%

Developing countries

Singapore 10.2% 56.3%

Ireland 10.5% 56.0%

Korea 13.6% 45.4%

Mexico 22.0% 62.8%

Gross Value-Added of ServicesGross Value-Added of Services

Share of Services in Total Gross Value-Added in 1990s

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Australia Germany Ireland Japan Korea Mexico NewZealand

Singapore UK US

Early 90s Mid 90s Late 90s

5


Employment trends

AAG rate of Svcs in 1990s

Share of Svcs in late 90s

Developed countries

Australia 2.0% 68.0%

Germany 1.9% 58.9%

Japan 1.5% 57.4%

US 2.3% 67.6%

Developing countries

Singapore 3.8% 53.1%

Ireland (95-95) 7.1% 58.0%

Korea 3.6% 56.0%

Mexico 2.9% 49.1%

Employment in ServicesEmployment in Services

Share of Services in Total Employment in 1990s

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Austra

lia

German

y

Irelan

d (9

5-98

)

Japa

n

Korea

Mexico

New Z

ealan

d (9

7-99

)

Singap

ore

UK US

Early 90s Mid 90s Late 90s

6


Employment growth in Developing countriesEmployment growth in Developing countries

Korea in 1990s

020,000

40,00060,000

80,000100,000

Who

lesa

le &

Ret

ail

Hot

els

and

Res

taur

ants

Tra

nspo

rt,

Com

mun

icat

ions

and

Logi

stic

s

Fin

anci

alS

ervi

ces

Rea

l Est

ate,

Bus

ines

sS

ervi

ces

& IT

Edu

catio

n

Hea

lth &

Soc

ial,

Com

mun

ity &

Per

sona

lS

ervi

ces

Pub

licad

min

istr

atio

nan

d de

fenc

e

0.0%2.0%

4.0%6.0%

8.0%10.0%

AAG (Abs) AAG (Rate)

Singapore in 1990s

0

2000

4000

6000

8000

10000

12000

Whole

sale

&

Reta

il

Hote

ls a

nd

Resta

ura

nts

Tra

nsport

,

Com

munic

atio

ns

and L

ogis

tics

Fin

ancia

l

Serv

ices

Real E

sta

te,

Busin

ess

Serv

ices &

IT

Educatio

n

Health

& S

ocia

l,

Com

munity

&

Pers

onal

Public

adm

inis

tratio

n

and d

efe

nce 0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%


Ireland (1995 to 1998)

-2,0000

2,0004,0006,0008,000

10,00012,00014,00016,00018,000

Who

lesa

le &

Ret

ail

Hot

els

and

Res

taur

ants

Tra

nspo

rt,

Com

mun

icat

ions

and

Logi

stic

s

Fin

anci

alS

ervi

ces

Rea

l Est

ate,

Bus

ines

sS

ervi

ces

& IT

Edu

catio

n

Hea

lth &

Soc

ial,

Com

mun

ity &

Per

sona

lS

ervi

ces

Pub

licad

min

istr

atio

nan

d de

fenc

e

-2.0%0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0%


Mexico in 1990s

-200000

20000400006000080000

100000120000

Who

lesa

le &

Ret

ail

Hot

els

and

Res

taur

ants

Tra

nspo

rt,

Com

mun

icat

ions

and

Logi

stic

s

Fin

anci

alS

ervi

ces

Rea

l Est

ate,

Bus

ines

sS

ervi

ces

& IT

Edu

catio

n

Hea

lth &

Soc

ial,

Com

mun

ity &

Per

sona

lS

ervi

ces

Pub

licad

min

istr

atio

nan

d de

fenc

e -2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%


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

Key Trends in Singapore EconomyTable 1: Key Macroeconomic Indicators: 1999-2005

1999 2000 2001 2002 2003 2004 2005

Real GDP (2000 market price & % change)

7.2 10.0 -2.3 4.0 2.9 8.7 6.4

Manufacturing 13.6 15.3 -12.8 8.4 3.0 13.9 9.3

Services 6.0 9.0 1.9 4.0 3.3 7.6 6.0

Construction -8.8 -1.7 -1.2 -14.0 -9.0 -6.1 -1.1

Share of Gross Value Added (%)

Manufacturing 23.1 26.8 23.7 25.8 26.3 27.7 27.3

Services 63.6 61.9 64.5 63.5 63.4 63.0 63.8

Construction 7.9 6.3 6.1 5.4 5.0 4.3 3.7

Others 5.1 5.0 5.7 5.3 5.3 5.0 5.2

Employment Share (%)

Manufacturing 21.0 20.8 18.8 18.2 17.9 17.3 21.4

Services 71.1 65.5 74.2 75.0 75.6 76.3 69.6

Construction 6.9 13.1 6.1 5.9 5.6 5.5 8.1

Others 1.0 0.6 0.9 0.9 0.9 0.9 0.9

Unemployment rate (average)

3.5 3.1 3.3 3.6 4.0 3.4 3.2

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

0

20000

40000

60000

80000

100000

120000

in Millions

Manufacturing Construction Services Others

Nominal GDP by Industry

2000

2001

2002

2003

2004

Source: SingStat, 2005

10

Share of Electronics to Manufacturing Sector in Singapore: 1990-2004

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Output

Manu Exports

Manu Emply

11

Increasing Importance of Services in Employment

Increasing Share of Services in Employment, Decrease in Manufacturing

0

10

20

30

40

50

60

70

Share of Employment

Ma

nu

fac

turin

g

Co

ns

tru

cti

on

Se

rv

ice

s

Oth

er

1995

2000

2004

Are there linkages between the two to account for such trends?

Source: MSRD, MOM

12

Product Composition of Singapore’s Exports (%), 1994 - 2005

Exports

1994 1999 2003 2005

Electrical & Electronic components and Machinery

45.6 55.3 50.8 58.8

Manufactured Goods 6.0 4.3 3.7 4.6

Chemicals & Pharmaceutical 5.7 8.0 11.8 11.4

Fuels and Petroleum Products 9.5 7.9 11.1 15.0

Textiles & Clothing 1.4 2.0 1.0 1.0

Transport Equipment 18.3 11.0 10.3 1.6

Food, Beverages, Crude Materials 4.4 3.3 1.9 2.2

Miscellaneous Manufactures 9.1 8.2 9.4 5.4

Export of Goods (values S$) $145,079m $196,004m $281,699m $386,919m

Export of Services (values S$) $55,474m $40,158m $63,157m $85,435m

Transportation 53.2 40.5 38.4 34.9

Travel 19.8 19.3 13.0 11.1

Financial & Insurance 0.7 5.9 8.7 9.4

Other Services 26.3 34.3 39.9 44.4

Source: Ministry of Trade and Industry, Economic Survey of Singapore, various issues; Yearbook of Statistics, Singapore, various issues

13

Importance of Linkage between M&S – Twin Engines of GrowthERC’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…”

14

Relationship between M&SUsage 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”

15

Relationship Between M&S

Demand Shares of Services and Manufacturing Outputs – 2000 (In per cent of total output per sector, data from I-O Tables 2000)

Intermediate Input

Services Manufacturing

Domestic Final Demand

Exports Other Sectors

Domestic Final Demand

Exports

31.8%

35.2% 15.1%

7.0%

11.2%

6.2%18.9% 69.1%

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

16

Input-output analysisProvides 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)

17

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

18

Framework from Annex BComputation 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

19

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

20

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

Food 40.84 59.16 39.92 60.08 42.19 57.81Textiles 69.45 30.55 55.87 44.13 52.3 47.70Paper 59.29 40.71 54.65 45.35 47.96 52.04Petrochem 38.74 61.26 22.06 77.94 23.46 76.54Fab Metal 43.76 56.24 36.74 63.26 34.22 65.78Mach 58.42 41.58 53.28 46.72 52.21 47.79Electric 49.54 50.46 38.88 61.12 32.05 67.95Electronic 53.79 46.21 35.66 64.34 31.34 68.66Medical 62.26 37.74 49.9 50.1 49.86 50.14Trans 54.47 45.53 49.93 50.07 54.77 45.23Other Mfg 54.96 45.04 52.74 47.26 49.08 50.92Commerce 54.72 45.28 45.21 54.79 44.48 55.52Comms 51.77 48.23 41.48 58.52 40.63 59.37Finance 44.15 55.85 36.55 63.45 36.64 63.36RE & Biz 51.76 48.24 54 46 55.55 44.45CSPS 57.44 42.56 51.95 48.05 53.46 46.54Construct 68.03 31.97 68.46 31.54 60.6 39.40Others 66.84 33.16 63.99 36.01 64.65 35.35

Intra-industry jobs created(%)

in 2004

Inter-industry jobs created(%) in

2000

Inter-industry jobs created(%)

in 2004

Increase in final demand in


in 1995


in 1995


in 2000

21

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. Increase in final demand

in


in 2004


in 2004 Electronics 31.34 68.66 Finance 36.64 63.36 Construction 60.60 39.40 Others 64.65 35.35

22


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

Share of total jobs (%) created in 2004 in

Intra-industry Inter-industry


Own industry

Manufacturing sector

Services sector

Petrochem 23.46 10.96 51.83 Electric 32.05 10.08 47.62 Electronic 31.34 8.88 50.21 Commerce 44.48 5.08 43.15 Comms 40.63 9.30 42.31 Finance 36.64 4.24 50.52

23


The employment spill-over effect within the services sector is higher as compared to that within the manufacturing sector

Share of total jobs (%) created in 2004 in

Intra-industry Inter-industry


Own industry

Manufacturing sector

Services sector

Petrochem 23.46 10.96 51.83 Electric 32.05 10.08 47.62 Electronic 31.34 8.88 50.21 Commerce 44.48 5.08 43.15 Comms 40.63 9.30 42.31 Finance 36.64 4.24 50.52

24

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

(4) Change in share of total jobs created in (1995 and 2000)

(5) Change in share of total jobs created in (2000 and 2004) Increase

in final demand in

Own industry

Manufactur-ing sector

Services sector

Own industry

Manufactur-ing sector

Services sector

Textile -13.59 2.67 9.03 -3.57 -0.36 3.43 Petrochem -16.67 2.74 11.30 1.40 -0.38 -0.31 Fab Metal -7.02 1.09 4.99 -2.52 -0.47 2.82 Mach -5.15 1.61 3.04 -1.07 -0.25 1.36 Electric -10.66 1.48 7.68 -6.83 0.17 5.82 Electronic -18.12 2.21 13.48 -4.33 -0.28 4.22 Medical -12.35 1.55 8.97 -0.04 -0.39 0.64 Finance -7.60 0.23 7.09 0.09 -0.27 0.57 RE & Biz 2.23 -0.16 -1.49 1.55 -0.52 -0.38 CSPS -5.49 0.97 3.52 1.50 -0.08 -0.73

25

Structural changes in employment creation

Column (4) Change in share of total

jobs created in (1995 & 2000)

Column (5) Change in share of total

jobs created in (2000 & 2004) Increase in

final demand in

Own industry

Mfg sector

Services sector

Own industry

Mfg sector

Services sector

Petrochem -16.67 2.74 11.30 1.40 -0.38 -0.31 Electronic -18.12 2.21 13.48 -4.33 -0.28 4.22 Medical -12.35 1.55 8.97 -0.04 -0.39 0.64 Commerce -9.51 0.91 7.55 -0.73 -0.05 0.97 Comms -10.29 1.80 7.29 -0.85 0.91 0.26

Generally, the effects of the restructuring process on employment seem to be levelling off to a steady state equilibrium

26

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

27

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

28

Thank you

29

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

[1] Legislators,

Senior Officials

and Managers

[2] Professionals

[3] Technicians

and Associate Professionals

[4] Non-

Production Workers

(Combining [1], [2] and

[3])

[5] Clerical Workers

[6] Service

Workers

[7] Production Craftsmen

and Related Workers

[8] Plant and Machine

Operators and

Assemblers

[9] Cleaners, Labourers

and Related Workers

Overall -2.60 2.26 4.58 1.62 -2.13 -2.04 -8.59 -11.85 11.42

Manufacturing 2.05 8.59 8.66 6.53 0.06 14.22 -6.20 -11.26 24.39 Wholesale and Retail Trade

-0.03 -13.58 -14.76 -6.86 8.07 23.48 2.85 -11.88 18.10

Hotels and Restaurants

1.94 33.19 9.40 6.48 -5.12 -4.46 36.80 -15.47 -0.52

Transport, Storage and

Communications -10.02 61.80 -4.68 -4.75 2.55 -9.09 44.40 43.50 10.16

Financial Intermediation

-1.59 1.61 0.34 -0.09 0.49 -9.31 -35.35 2.18 14.37

Real Estate, Renting and

Business Activities

-15.31 19.78 3.18 2.66 -3.34 -35.46 -85.28 -29.41 -31.14

Community, Social and

Personal Services -1.68 -9.08 -1.74 -4.63 0.36 12.00 29.76 -14.51 17.08

Agriculture, Mining &

Quarrying and Utilities

-11.10 -2.07 7.06 1.51 -2.59 -6.04 -20.58 6.25 3.37

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

Documents

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