Sir, the CPF changes are fundamental and have long-term impact and benefits. They affect every employee, which means almost everybody in Singapore.
Sir, trade unions have been bearing the heaviest duty of explaining the changes to the ground. After the Prime Minister's National Day Rally speech, 38 of our 64 unions have held discussions by yesterday. My colleagues from the unions have mentioned the ground feedback in Parliament yesterday, and more will do so. I will not repeat what they say. Rather, I will address the question whether our wages are out of line.
In the short term, two groups of people would appear to feel the impact more. They would say they are hit harder. One group is the employees in the 50-55 years age group. The others are the middle-income employees. Yet the changes are aimed at helping them. Let me explain.
I have watched retrenchments carefully over 22 years. My conclusion is that older workers are more vulnerable to retrenchments. They take longer to find a new job. When they do, they took substantial cuts in pay. Data from the Ministry of Manpower clearly shows this. I have asked the Clerk of Parliament to circulate some tables and charts, which I believe Members now have before them. [Copies of tables and charts distributed to hon. Members.]
From the Labour Force Survey of June 2002, those in the 50-59 years age group have the highest rate of retrenchment at about 29 per 1,000. They took almost 22 weeks to find a new job, and three-quarters of them took pay cuts. The charts clearly show that this group is the hardest hit of all the groups that suffered retrenchment.
Throughout the years, manufacturing has borne the brunt of retrenchments. The restructuring is still on-going and it will continue in the future as in any dynamic economy. We become uncompetitive in lower-end manufacturing and these are relocated. But the pace of relocation has gone up. Until recently, most of the relocations were to neighbouring countries, especially Malaysia.
From the data obtained from unionised companies, in 1999, out of 7,635 jobs lost, 21% or 1,636 were due to relocation. This is taken purely from our unions. 36 of these jobs went to China, but 1,392 went to Malaysia. So in 1999, when companies relocated, they went to neighbouring countries, particularly Malaysia.
The picture changed dramatically in 2002. Job losses due to relocation rose to 30%, from 21% up to 30%. Out of 2,343 jobs lost due to relocation, 1,060 went to China and only 221 to Malaysia. Therefore, the preferred location now is China because of the more competitive operating environment there due to lower wage costs and lower land costs.
In recent years, retrenchments in services have risen. This is most marked in the financial services sector. Jobs were lost because of mergers and acquisitions, deletion of jobs through the use of technology, and outsourcing of work to cheaper locations. The mergers arose from consolidation of our banks in preparation for the liberalisation of the financial services sector because of global multi-lateral discussions.
Recently, there has also been a significant increase in retrenchment of professional, managerial, executive and technical staff. About 20% of those retrenched in the past five years are diploma or degree holders. The proportion is much higher in recent quarters, as highlighted by the Prime Minister yesterday, as much as 43%.
What do we make of these separate pieces of information? Are our wages too high? Our GDP per capita matches those of developed countries, indicating that our wage levels are at or near their levels. I have also circulated a chart on the per capita GDP of different countries. You would see from the chart that we rank among the developed countries.
But our wage costs in manufacturing are not high compared to the United States and Australia. According to the IMD World Competitiveness Yearbook 2003, the total hourly compensation for manufacturing workers is US$20.32 for the US and US$13.82 for Australia. Ours is only US$7.78. So for manufacturing, our wage costs are lower than United States and Australia.
However, the US and Australia do different kinds of manufacturing. They are of higher value added. Much of our manufacturing work is lower value added compared to theirs. Because of their own high cost environment, they shifted these factories to other countries that are cheaper, including Singapore, and we have been doing those. But just as we do lower value added manufacturing activities compared to US, so do our neighbouring countries, those that are lower valued added, compared to ours, because their wage costs are lower. For example, in Malaysia, the hourly rate is US$2.78 and in China, it is US$0.59. But one thing that has happened, in recent years, is that our neighbours have been catching up on skills and ability and, therefore, they attract lower value added manufacturing from us far more quickly. They can do it efficiently and at lower cost. Hence, the relocations. We cannot compete with Malaysia or China in lower wage costs, nor do we wish to. We do not want to earn those kinds of wages. But we do have workers now in relatively low value added manufacturing jobs. If these factories relocate, what would our workers do? They are our older workers. There are two ways. One, move up the ladder. Two, move sideways into another job. The CPF cut will keep the factories here a little longer, giving us more time to adjust.
When we move up to higher value added activities, we need more skilled workers. You take, for example, Philips. Philips used to employ thousands of production workers in Toa Payoh. Today, Philips still employs thousands, but the production workers are mostly in Batam. At Toa Payoh, the majority are engineers.
Can our workers retrenched from the manufacturing sector be converted to engineers? The sad truth is, no, most of them cannot. So we buy some time, through trimming our wage costs, and all other costs. And we have to retrain them for other jobs. That is why retraining is so important. As my colleague, Mr Raymond Lim, said earlier, this is something that we have been stressing on year after year, and have been doing more and more each year. So far from being asleep, we have been very much awake, alive to the dangers that our workers face. Many of the jobs that retrenched workers will have to take will be those that are occupied currently by foreign workers. I hope that our workers will consider them. Other jobs will come from new manufacturing investments, because one-third of those jobs require lower skills.
But in order to match those looking for work and employers looking for workers, we have to bridge a gap of expectations. On the one hand, workers have certain expectations of wages. They also have family needs that have to be taken into account. On the other hand, the employers expect workers to fit into production patterns. I think that the gap really is in these specific areas. So, we have to make a special effort to bridge this gap. The NTUC and the Ministry of Manpower are doing so. I would urge Members of this House, if they can play their part to match these retrenched workers into jobs, they would be doing them a far greater service than by arguing against any cuts or adjustments in CPF.
When we move up in manufacturing, we compete against the developed countries. How does the cost of our engineers here compare with engineers in developed countries? According to the IMD World Competitiveness Yearbook 2003, annual wages of our engineers are higher than many developed countries. Let me cite just a few: Singapore, US$80,000; Australia, US$55,000; France, US$77,000; Netherlands, US$67,000; United Kingdom, US$75,000; and United States, US$92,000. Ours is US$80,000.
So the wages of our engineers are higher than most developed countries. Not only are they well within the top 20% of wage earners in Singapore, they are drawing first world wages. I think it would take some time for people to absorb this fact because many people, including Members of Parliament, were wondering whether the 80th percentile wage in Singapore of $3,700 per month is correct. Those who asked me, I referred them to the CPF's annual report. They made their calculations and they found that the Prime Minister's figure was indeed correct, and that many people who thought themselves poor belonged to the top 20% of Singaporeans. Many Singaporeans, who can relate to these wages, will now know that they are not earning third world wages - they are earning first world wages! Today, with this kind of wages, we have to compete with the first world, as well as the third world.
But the message here is: we have to attract higher value added activities here. To do that, we will need to do many other things, and there must be more reasons for them to find it worth their while to invest here in Singapore. But, at the same time, we have to recognise that our wages cannot be so out of line and that is why if the CPF changes appear to fall harder on the higher middle income, this is one good reason why it should be so, because we cannot price ourselves out of the world market. I do not know how the PERC obtained its figures. But looking at the data that was provided by the IMD World Competitiveness Yearbook 2003, I think, perhaps, PERC was looking at the types of activities that they think Singapore is most suited for, and where do we stand in global competition to attract them here to Singapore.
Let me now turn to services. This sector has been growing faster than manufacturing. But we have to contend with at least two factors - competition from the region and competition from developed countries.
It is quite clear that back-end work will increasingly be outsourced. Let me cite an example. On 17th December 2002, Neptune Orient Lines announced an eight-year contract with Accenture Consulting. Accenture Consulting would take over responsibility for the NOL Group's accounts payable, accounts receivable and accounts reconciliation processes. Accenture has a sizeable practice in Singapore. Now comes the interesting part. What they would do for NOL would not be done in Singapore, but in Shanghai.
So, for lower level work in services, we cannot compete with China, India or the Philippines. So we have to go up to higher value added services. It means that we will have to do the kind of services that developed countries do. Here, our wage levels are similar to Australia, New Zealand and Ireland. I am talking about wages in services. The IMD World Competitiveness Yearbook 2003 shows that the annual wages of a department manager are $37,100 for Singapore, $38,600 for Australia, $34,200 for New Zealand, and $44,900 for Ireland. All these, again, in US dollars. So, our wage level for a department manager is of a similar level as some of these developed countries.
Those in the US at US$69,000 and the United Kingdom at US$47,000, they earn more. But our productivity level in services is significantly lower. Our productivity per person in services is only US$36,100. It is comparable to those of Australia at about US$39,300, but it is much lower than the United States at US$73,900 or the United Kingdom at US$50,300.
So, clearly, if we hope to grow the services sector, we will have to improve our productivity.
There are many factors in productivity, but the key factor is a higher volume of business. In other words, we have to look at the revenue part of the equation. That is what the economic strategy of Government addresses. There is a lot more outlined in the Economic Review Committee's recommendations that many commentators have given credit for. It is now for the employers to show that they are doing their part. As Heng Chee How said yesterday, employers have a lot to do, and workers want to see them doing it. They want to see, for example, the Singapore Business Federation and business Chambers going out to get business, and bringing in more investments. As Raymond Lim says, there are some signals that what the CPF changes are meant for are working. Because some companies say that they will stay in Singapore, some companies say that they will expand their business in Singapore, and some companies say that there will be new investments in Singapore.
But we need to do a lot more and workers will feel a lot more comforted if they can see not just Government, unions and workers playing their part but also employers doing a lot more to show that they are bringing in the business, and raising the productivity of the each sector, be it manufacturing or in services. In services, by making ourselves competitive, the business will come. And for that, the CPF changes play an important part - a signal that in the long term, Singapore, its workers and its unions are prepared to make sure that the wage levels are commensurate with the level of economic activity. Then they will come. Then there will be more revenue. And if the employers also show their part to be seen bringing in business, then Singapore will thrive.
In the meantime, what we do is to stem the outflow of jobs in both manufacturing and services by tackling our costs.
Sir, on this note, I support the measures.
Annex A
Annex B
Annex C
Annex D
Annex E
Annex F
Annex G
Annex H
Annex I
