Tharman’s remarks in the context of the evolving foreign talent policy
Recently, Finance Minister Tharman stirred up a ruckus when he defended the foreign talent scheme by citing how Taiwanese wages had flattened over the last decade due to its closed door policy. Popular blogger Lucky Tan rebutted Tharman here and here, primarily by turning Tharman’s argument on its head: Tharman essentially put the cart before the horse; the reason why Taiwan’s not attracting foreign talent is precisely because of stagnant wages which had flatlined over the past ten years, not the other way round.
This point is echoed by Taiwan’s deputy Labour minister:
It is not the government’s policies that have led to the brain drain, but Taiwan’s “comparatively low wage levels,” which have failed to retain local talent or attract professionals from overseas, Pan said.
While the average starting pay for new graduates in Taiwan is between NT$20,000 and NT$30,000, “a Taiwanese college graduate may earn NT$50,000, NT$60,000 or even NT$70,000 if they work in Singapore,” he said.
“The problem lies with enterprises who are unwilling to raise salaries for their staff members,” Pan said.
The facts on the ground
But first, let’s establish the facts. Is it the case that nominal wages have stagnated in Taiwan for many years? The answer appears to be yes. Official statistics from Taiwan show that the average monthly earnings for all industries in 2011 was NT$45,642 compared to NT$42,685 in 2004, with a cumulative increase of only 7%. Breaking down the monthly earning stats by industry shows that the slow wage growth is prevalent for all industries and not just manufacturing which might be expected if the hollowing-out of manufacturing jobs to China is the main reason for the overall wage stagnation. Assuming an annual 2% inflation rate over 7 years, nominal earnings growth have to exceed 14.9% in order to keep pace with the cost of living, something which Taiwan’s workers did not achieve.
By contrast, average nominal monthly earnings growth for all industries in Singapore from 2005 to 2010 showed a cumulative increase of 18.7%, much higher than Taiwan’s wage growth. Breaking down the earnings growth by industry shows that all industries have seen double-digit % wage increases. Comparing the wage growth by industry with Taiwan’s, its readily apparent that wage growth was much higher for all sectors in Singapore.
Apart from the data, it is recognised by Taiwanese economists that wage stagnation and rising inequality has become part of a long-term change in Taiwan’s wage structure (although it’s notable that they themselves were unable to explain the trend, only that structural under-employment due to mismatch of skills was likely not the reason why). Some possible explanations for the Taiwanese wage stagnation include increasing competition with a rising China on all fronts, increasing political uncertainty given China’s increasing military might and political influence deterring investors setting foot on Taiwan (this point is somewhat substantiated by observations that Taiwan’s direct investment abroad by local investors has outstripped foreign direct investment). But otherwise, I personally have no idea why wages have flatlined in Taiwan.
Tharman’s remarks in the context of the evolving FT policy
But let me steer the discussion back to the foreign talent policy. While Tharman somewhat disingenuously cited the lack of talent to defend the foreign talent policy, it is quite apparent to long-time policy watchers that the PAP government had broadly (and stealthily) expanded the definition of previously what was classed as “foreign talent” to include foreign labourers, fresh graduates educated from Singapore’s universities and other middle-class white collar jobs which Singaporean workers could fill. Previously, foreign influx was justified on two grounds; that Singapore lacked some specific skill-sets which some foreigners genuinely had at the high end, and that low-skilled foreign labourers were in Singapore to do jobs no Singaporean wanted to do.
As TOC writer Chua Suntong has pointed out on numerous occasions firstly here, then here, here and here, the PAP has at least 1997 indicated that it was willing to bring in foreign workers because of a chronic low birth rate:
SINGAPORE needs more foreigners to sustain economic growth as it cannot produce enough people for the workforce each year, said Home Affairs Minister Wong Kan Seng.
Speaking to The Straits Times this week, he said that while 56,400 babies were needed last year, only 46,700 were born.
This meant that Singaporeans had an average 1.7 babies per woman, which fell short of the 2.1 each family needed to replace itself.
Although the situation was better than in 1986, when the fertility rate hit a low of 1.4, there was still a shortfall of 9,700 last year.
These figures showed that Singaporeans could not even replace themselves, let alone increase population growth.
Mr Wong said: “Since Singapore cannot produce enough people to come into the workforce each year, we need foreigners to sustain economic growth.”
– ST, 13th Sept 1997, Too few babies born, says Wong Kan Seng
Side-note: The pre-1997 foreign talent policy is likely to have been instrumental in worsening income inequality amongst the disparate social classes in Singapore. I recall reading some literature (which I currently cannot identify) a few years back which explained competitive salaries set due to the need to bring in talented foreigners to staff managerial and professional positions in Singapore had the effect of raising wages for their Singaporean counterparts whereas the continuing influx of low-skilled workers from neighbouring impoverished countries had served only to depress the wage growth of low-skilled Singaporeans.
Since then the floodgates were gradually prised opened. Policy-makers calibrated the foreign worker influx according to expectations of economic growth. Foreign population annual growth peaked in 2007-2008 after then MM Lee Kuan Yew declared Singapore was entering a golden period of prosperity. While the pre-1997 foreign talent policy widened inequality, the post-1997 foreign talent policy slowed wage growth for the median earners.
However strikingly, throughout the same period, PAP ministers, MPs and apologists never gave up the talking point that Singapore needed to draw in talent for both the high end jobs which no Singaporean could do and the low-end ones which few Singaporeans were willing to. They only added the additional talking point that foreigners were needed because of the low birth rate. This was crucial to the PAP’s arguments, because if they had conceded that the foreign talent policy had become a pro-foreign worker policy they would have lost the debate in the eyes of the electorate because that would mean admitting their presence depresses wage growth in Singapore.
But what has all of this got to do with Tharman’s comments on Taiwan’s foreign talent policy? If one interprets Tharman’s remarks as alluding to “foreign talent” as understood by the PAP pre-1997, they become much less controversial. Indeed this is something which Taiwan’s own Government Information Office recognised last year on its brain drain to China:
Concerned with this issue, President Ma Ying-jeou called a National Security Council (NSC) meeting in early April to hear from scholars and experts. In summary, they warned him that Taiwan is encountering a talent deficit crisis.
The Chinese are not stingy in paying headhunters or offering a generous salary, at least four to five times higher than that in Taiwan. They also provide housing to reduce worries and ease the transition. Once the executives are lured away, the industrial professionals will inevitably follow. If the industrial talent pool leaves, where will Taiwan be?
The Central News Agency reported that Wong Chi-huey, president of Academia Sinica (Taiwan), told the Legislative Yuan that 62 people have retired and 61 have resigned from his institution in the past five years. Among these people, half of them were recruited by organizations in Hong Kong, Singapore and China.
The higher pay offered in the prosperous regions of China is a strong magnet for Taiwan’s professional workforce who are the target of Chinese recruitment companies. Taiwan has a serious shortage of upper level professionals and needs to study how to neutralize China’s magnet attraction.
However, it is somewhat telling that Tharman had reverted to the pre-1997 definition of foreign talent to answer the question on whether the government had specifically overprojected the need for foreign graduates (read: foreign students who are educated in Singapore’s universities and whose skills are no different from local graduates) and whose numbers depresses white collar wage growth. Because, truth be told, it’s the only defense (however misleading it might be) the PAP has left for its “foreign-talent”-turned-“foreign-worker” scheme, apart from the “low-birth rate” argument.