Context: In its Recent Economic Developments Statement of December 2019, the Monetary Authority of Singapore indicated that unemployment was expected to increase, largely due to weak external demand and the rapid advancement and adoption of artificial intelligence technologies within Singapore.
Introduction
Unemployment refers to a situation where individuals who are actively seeking employment are unable to find work. In Singapore's case, the MAS highlighted two major contributing factors to rising unemployment in 2019, weak external demand and the rapid adoption of artificial intelligence (AI) technologies. These can be linked respectively to cyclical unemployment and structural unemployment, both of which can push up the overall unemployment rate.
Weak external demand leading to cyclical unemployment
One primary contributor was the deterioration of global trade conditions, most notably due to the US-China trade war. As the world's two largest economies imposed rounds of tariffs on each other's goods, business and consumer confidence fell in both countries, reducing spending and incomes. Singapore, a small and open economy highly dependent on trade, was inevitably affected. Both the United States and China are among Singapore's largest trading partners, so as their economies slowed, demand for Singapore's exports declined, lowering net exports, a key component of aggregate demand (AD). Poor global sentiment likely also caused foreign direct investment into Singapore to fall, reducing investment. With a simultaneous fall in both net exports and investment, AD shifted leftward, reducing real national income. As national output contracts, firms cut back on production and reduce hiring to contain costs, raising cyclical unemployment, which is caused by a lack of demand for goods and services. Workers in export-driven sectors or in industries supported by foreign investment may be retrenched or unable to secure new jobs.
Technological displacement and structural unemployment
The second factor is the rapid development and deployment of AI technologies across industries. While such advances bring long-term productivity gains, they often cause short- to medium-term labour market disruption if the workforce is not adequately prepared. AI technologies have increasingly replaced labour in routine and repetitive functions. The development of autonomous vehicles poses a direct threat to bus drivers, truck drivers and delivery personnel, while AI chatbots and robotic process automation have begun replacing roles in customer service and administrative work. Although technological progress also creates new jobs such as software engineers, data analysts and robotics technicians, these typically require different and higher-order skill sets. Workers displaced by automation may lack the qualifications to fill the new jobs, leading to structural unemployment, which arises from a mismatch between the skills of job seekers and the requirements of available jobs. If digital transformation is not accompanied by effective retraining and reskilling, a segment of the workforce, particularly older or lower-skilled workers, risks being left behind.
Conclusion
The rise in Singapore's unemployment rate in 2019 can be traced to two distinct yet significant factors. Weak external demand, exacerbated by the US-China trade war, reduced export and investment activity, lowering aggregate demand and raising cyclical unemployment. At the same time, the rapid adoption of AI technologies led to structural unemployment, as workers displaced by automation found it difficult to secure employment in newly emerging industries.