Governance of a City-State
A Rejoinder To The Economics of Migration

By Damien Huang

SINGAPORE is almost being held to ransom by the issue of immigration and foreign workers, with the general public wary of their impact their numbers have on infrastructure and way of life while business associations and employers threaten to leave the country if foreign worker restrictions are not relaxed.

While the government has made it clear it is trying to counter the falling demographic dividend with many baby boomers retiring, the primary determinant that drives migration across countries comes from inter-country wage differentials – that wages here are much higher than their countries of origin, and relatively poorer people in those countries seek to come here in search of (relatively) higher wages.

Transient workers

Transient (temporary) workers are typically work permit holders in unskilled and S-Pass holders in semi-skilled jobs. Their lower wages have contributed to lower inflation. This wage differential both internally and regionally, however, can work against us:

– Lower wages paid make foreign labour attractive but businesses are less efficient than would be socially desirable if they must rely on (relatively) cheap labour for survival.

– Lower wages paid compared to places like Kuala Lumpur and Hong Kong (where minimum wages are imposed for all workers) mean that better migrant labour will self-select into those economies.

– The overlap of wages in the different pass levels with wages of residents mean that even when wage floors are set and adjusted, (e.g. S-Pass increase from $1,800 to $2,000 in 2011 still puts them in the same wage band as polytechnic graduates) employers may still employ foreigner workers through illegal means like phantom workers and salary payback.

Socially, transient workers often stay within their own communities and have limited contact with locals. Opportunities for conflict are limited and so are reported incidents. Their impact on demand for infrastructure and transport is also marginal.


Immigrants on the other hand, are skilled professionals attracted to Singapore for  factors like better healthcare, quality of life and education etc. While working age adults may be the actual migrants, family reunion allowances allow their children and their parents to come on long-term passes. The increased demand for housing, transport and other amenities such as places in schools is non-trivial, driving up relative prices and congestion.

Having an ageing population may make immigrants the answer towards improving old-age support ratios, but government finances are hardly strained because Singapore’s CPF is a defined contribution system, meaning that retirees draw down based on how much they have in their own accounts, instead of pensions that create the immigrant welfare scare in places like the UK and the US. This makes the support ratio a weak argument for increased immigration.

Our society is also made more unequal because the relative resources that these immigrants possess make them a wedge between our middle class and its ambitions, impeding social mobility. Recent research in Germany1 also shows that migrants in large enough numbers reduce their likelihood of integration, creating further tension between locals and new immigrants who have clear social and cultural differences not directly integrable as the government would like to believe.

Policy Prescriptions

The question for policy now is which type do we need, foreign workers or immigrants? To answer that, consider how they complement or substitute residents in the labour market, and how we can compensate those made worse within the constraint that the population target does not change. Contrary to the population White Paper’s position, which advocated a sustained increase in immigrants, their overall social and cultural impact judging by the flood of negative reactions to the paper make it an unwise move.

In addition to the social and cultural impact of immigrants, they eventually age, which delays the problem of the ageing workforce whilst making it bigger, not solving it. Foreign transient workers with their smaller relative impact on infrastructure and taking jobs shunned by locals make them a better choice to match workforce shortages.

Transient workers also form a constantly rejuvenated workforce replaced by younger compatriots when they return home. In a certain sense, our transient workforce never ages. Low wage workers will suffer in the short term, but a pigouvian tax (an estimated compensation of the externalities they cause) based on the levies can be used as a transfer to supplement their income while moves should be made to increase the wages of both locals and work permit holders in the longer run to attract better foreign workers and reduce the need to supplement wages at the lower end.

Employers should also be prevented from substituting jobs with S-Pass holders not just through quotas and levies but through an assessment of the need for these workers in the local population. This can be done through schemes that reward points according to skills in demand, education levels and language skills etc, with a view of increasing training for these skills (and thereby productivity and wages), again for the longer term. One such way could be apprenticeship schemes via polytechnics and ITEs.

Having dealt with the flow of migrants and alleviating their negative externalities, we should also address four other key issues for the long-run:

1. Systematic loopholes will still allow employers to bring in foreign labour on parallel programmes like internships and on-the-job training programmes that do not pay the full wages. Thus, a need to clamp down on such offences to make sure that local employees are not substituted with migrant labour by misusing the pass system.

2. Simplifying the Work Pass system into lesser and easier understood categories will make it less lucrative for agents in migrant-sending countries to exploit potential migrants if they can do it themselves.

3. Equalising wage differentials between local and migrant labour will be the most equitable and efficient outcome eventually as employees are then paid based on their marginal productivities. We will also be weeding out inefficient companies while signalling and thus attracting the most qualified to Singapore.

4. Finally, there is a need to adopt objective measures and prevent special interest groups from politicising and capturing the issue. Employers will always want access to cheap labour while no one wants to live behind a foreign worker dormitory (a NIMBY* problem).

This is not to say that all immigration should stop, but that each individual applicant be assessed on his or her merits, including how they would fit into life in Singapore. Treating it as a number to be filled up every year degrades what it means to be a Singaporean.


Damien Huang has an MSc Applied Economics from SMU and is a Research Associate at the Lee Kuan Yew School of Public Policy.

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[1] Danzer, Alexander M. and Yaman, Firat, Do Ethnic Enclaves Impede Immigrants’ Integration? Evidence from a Quasi-Experimental Social-Interaction Approach (December 13, 2012). CESifo Working Paper Series No. 4022. Available at SSRN:

*NIMBY: Not-in-my-backyard


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