Introduction
Singapore's labour market faces several challenges that could raise unemployment in the coming years. Key factors include the expansion of the Progressive Wage Model, government policies regulating foreign labour, and technological advancement driven by the Fourth Industrial Revolution. While the Progressive Wage Model aims to uplift low-wage workers through mandated wage increases and skills upgrading, it may raise unemployment if firms struggle with higher labour costs. Tighter restrictions on foreign workers, including higher levies and lower dependency ratio ceilings, may also raise production costs and lead to job losses. However, the greatest threat is likely to come from technological disruption, which causes structural unemployment, because as industries adopt automation, artificial intelligence and digitalisation, many low-skilled jobs become obsolete and displaced workers may lack the skills to move into new roles.
The expansion of the Progressive Wage Model
The expansion of the Progressive Wage Model could raise unemployment through its effect on labour costs. A useful analogy is the minimum wage, a legally mandated wage floor set above the market equilibrium wage. When a minimum wage is set above the equilibrium wage, the quantity of labour supplied rises as more workers offer their services at the higher wage, while the quantity of labour demanded falls as firms become less willing to hire. This creates a labour surplus, raising unemployment.
However, the Progressive Wage Model is not an exact replica of a pure minimum wage. Unlike a traditional wage floor, it requires workers to undergo skills upgrading and training, so higher productivity offsets the wage increase, making it less likely that employers will cut hiring. The Progressive Wage Model may therefore add some pressure, but it is unlikely to be the most significant threat to the labour market.
Policies relating to foreign workers
In the years before the COVID-19 pandemic, the government tightened foreign worker policy by raising levies and lowering the dependency ratio ceiling, aiming to reduce reliance on cheap, low-skilled foreign labour and to push firms towards automation, technology and upskilling. During the pandemic it also introduced new dormitory regulations to improve living conditions. While well intended, these measures collectively raise business costs and can lead to job losses.
An increase in production costs shifts the short-run aggregate supply curve leftward, raising the general price level and reducing national output. As firms cut back production to manage costs they may hire fewer workers, including local residents, raising the unemployment rate. However, firms can adapt through automation and restructuring, and these policies are often adjusted to economic conditions, which makes them a manageable rather than a severe long-term threat.
The Fourth Industrial Revolution
The Fourth Industrial Revolution poses the greatest challenge because of the rapid adoption of automation, artificial intelligence and digitalisation across industries. Technology is already replacing jobs in transport, retail and logistics: autonomous vehicles threaten taxi and private-hire drivers, self-checkout kiosks reduce demand for cashiers, and drones may replace parcel delivery workers. While technology also creates new roles for engineers and programmers, displaced workers may lack the skills and qualifications to take them up, producing structural unemployment, where workers cannot find jobs because of a mismatch between their skills and those that employers require.
Structural unemployment is especially concerning because it is long-term in nature. Unlike cyclical unemployment, which eases as the economy recovers, it persists unless workers retrain and upgrade their skills. It also hits lower-skilled workers disproportionately, since many in traditional sectors lack the educational background or resources to move into high-tech industries, and it can widen income inequality as high-skilled workers gain better opportunities while the displaced face lower wages or prolonged joblessness. Given the irreversible trend of technological transformation, structural unemployment from automation is likely to be the most significant threat in the coming years.
Evaluative conclusion
While several factors raise Singapore's unemployment, technological disruption from the Fourth Industrial Revolution poses the greatest long-term threat. The Progressive Wage Model may add pressure through higher labour costs, but productivity gains from skills upgrading mitigate it. Foreign worker policy raises costs and can cause job losses, but firms can adapt and the policy is adjustable. Structural unemployment from automation is persistent and significant, because displaced workers may struggle to acquire the skills new roles require. Without adequate retraining, Singapore risks a growing mismatch between labour demand and supply, making automation-driven displacement the most severe and lasting threat to employment.