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 adoption of artificial intelligence technologies within Singapore.
Introduction
Unemployment remains a key macroeconomic concern, and Singapore is no exception. The government has used a blend of demand-side and supply-side policies, particularly in response to cyclical downturns such as the Global Financial Crisis and COVID-19, as well as structural challenges from technological disruption. While these policies have generally stabilised the labour market, they come with limitations that must be acknowledged.
Expansionary fiscal policy to address cyclical unemployment
During downturns, Singapore has relied heavily on expansionary fiscal policy to offset falling aggregate demand and reduce cyclical unemployment. When aggregate demand contracts, firms reduce production and lay off workers. To counter this, the government increases government spending, boosting aggregate demand. In response to COVID-19, the government rolled out budgets totalling over 100 billion dollars, including wage support, direct hiring and accelerated infrastructure spending. The Jobs Support Scheme subsidised a percentage of wages, lowering firms' cost of production and incentivising them to retain workers. The government also created direct employment, such as Safe Distancing Ambassadors, and brought forward infrastructure projects like MRT lines and roadworks. Through the multiplier effect, higher government spending raises national income, derived demand for labour and therefore reduces cyclical unemployment.
The stress test
The effectiveness of fiscal measures can be limited in a small, open economy. First, the fiscal multiplier in Singapore is relatively small due to high leakages, with a high marginal propensity to save and to import, so much of any increase in income is saved or spent on foreign goods. Second, some sectors may not respond to higher government spending. Tourism and aviation, badly hit by COVID-19, did not benefit directly from infrastructure spending while demand stayed depressed. Lastly, if the economy is already near full employment, expansionary fiscal policy may cause demand-pull inflation instead of job creation.
Supply-side policies to address structural unemployment
Singapore has also tackled structural unemployment, which arises when workers' skills do not match labour market demands, made more pronounced by digital disruption and automation. The government implements supply-side policies focused on retraining and skills upgrading. The SGUnited Jobs and Skills Package included schemes such as the Global Tech Talent programme, where participants undergo three months of programming training at Ngee Ann Polytechnic followed by three months of apprenticeship overseas, paying just 500 dollars thanks to heavy subsidies and receiving a 1,200 dollar monthly training allowance. These programmes raise employability and reduce structural unemployment over time.
The stress test
Completion of training does not guarantee employment, as firms may hesitate to hire mid-career switchers regardless of certification. Six months of training may not be sufficient to build deep expertise in complex fields such as data science or biotech. There is also the question of worker receptiveness, since older workers may resist change. Nevertheless, these policies raise the economy's productive capacity, shifting LRAS right, and reduce structural rigidities over the long run.
Evaluative conclusion
Singapore's policies to reduce unemployment have, on the whole, been responsive and targeted. Expansionary fiscal policy has contained cyclical unemployment during crises like COVID-19, while supply-side strategies have aimed to future-proof the workforce. However, effectiveness is not uniform across sectors and timeframes. The small multiplier, skill mismatches and uncertainty over training outcomes mean macroeconomic policy alone cannot eliminate unemployment. For more sustained success, these policies must be complemented by close coordination with industry, better career counselling and stronger employer incentives to hire and retain retrained workers.