Labor Producitivity and Quality Change in Singapore: Achievements in 1974-2011 and Prospects for the Next Two Decades

Labor productivity growth in Singapore that has grown at a rate of over 3.0 percent per year since 1970s considerably slowed down to 0.5 percent on average per annum in the latter half of the 2000s. The purpose of this paper is to ask, first, to what extent Singapore’s labor productivity performance is explained by the changes in the characteristics composition of its workforce, and then, what the prospect may hold. Using our newly constructed cross-classified labor dataset, we estimate a volume index of quality-adjusted labor input and an aggregate measure of labor quality change in the Singaporean economy for the period of 1974–2011. Having understood the current dynamics of the workforce, we further project labor productivity and potential economic growth for the coming two decades. In this paper, workers are distinguished by the five characteristic dimensions: gender, educational attainment, age, employment status, and residency. Our findings establish the role of labor quality changes in Singapore’s economic growth as highly significant over the long run. During the period of 1974–2011, labor quality improved at a rate of 2.19 percent on average per annum, accounting for 37 percent of labor input growth to the 6.78 percent average yearly economic growth. Our estimates of recent labor quality growth, however, are considerably lower than what have been shown in some previous studies. Moreover, our projections suggest that its prospect in the foreseeable future remains bleak. The downward trend of labor quality growth since the mid-2000s is mainly due to the sharp increase in the number of low-skilled foreign workers. For the next …