GDP growth occurs when there is an increase in change of real GDP from the previous year to the current year. Labor, capital, land and entrepreneurship produces GDP and the productivity of these production factors determines the quantity of real GDP. In the Singapore economic environment, the supply of land is fixed and constant, so our real GDP growth constitute and depend heavily on labor and foreign capital investments. A huge bulk of GDP generated, 71.7% comes from the services sector, based on a 2010 estimation by the CIA. Services like wholesale and retail, financial and business services most of which comes from our tourism and financial industry.
Factors and Drivers of Growth
The quantity of labor employed in an economic environment is a variable factor that affects production, therefore it is one factor that can directly influence and change real GDP. Based on a labour market report of the second quarter of 2011 released by the Ministry of Manpower, unemployment rate increased in June 2011 to levels around the same as the previous year. In an environment of increased quantity of labour (with all productivity factors remaining constant), production can then increase, thus causing growth, therefore if labour quantity remains stagnant, production will, too and therefore impedes growth. With this sharp slowdown in production output, labour productivity also fell for the first time in two years, confirms the report.
Labour Market, Demand and Supply
What constitute the quantity of labour employed in a labour market, are basically the wage relationship between demand and supply of labour and how they come to labour market equilibrium. What really drives the demand for labour may be a variety of reasons from the need for expertise to the need for expansion for corporations, but what really affects the quantity of demand is the wage rate of labour. The real wage rate is defined as the quantity of goods and services produced per hour. In the same 2011 MOM report, unit labour cost has reportedly rose 10% because of the tight labour market. To achieve labour market equilibrium, real wage rate will adjust accordingly to eliminate either a shortage or a surplus in labour, as shown in the MOM report that labour cost went up 10%. With the services sector expected to largely drive GDP for 2011 (Quek. J, 2010), and most of the labour shortages being from the same sector due to the government’s stance to control the burgeoning foreign worker population, through work levies and stricter work pass rules, reviewed a news article by The Business Times. It is conclusive that this might be the biggest cause for a slowdown in growth. With the growing bad sentiments of national immigration related job issues (Saad. I, 2011), the government has taken measures to mend the situation, especially after a eventful national parliamentary election in the year 2011 where hot button issues like immigration related job issues took center stage. "It was a combination of increasing levies, tightening entry and qualifications criteria, increasing qualifying salaries, so as to moderate foreign worker reliance and ensure foreign workers continue to complement our local workforce. We will continue to watch this front closely.” Minister of Manpower and National Development, Tan Chuan-Jin, 2011 However, due to the blanket foreign manpower restrictions across all sectors, these policies might be further tweaked and fine tuned as some sectors, particularly in the food and beverage, and construction sectors, are traditionally shunned by locals. With the onset of new and higher salary criteria that will be enforced in year 2012 based on a press release by the Ministry of Manpower on August 2011, such companies might not have sufficient time nor capability to transform into a higher productivity and yet low labour driven workforce. Therefore, specific industry targeted criteria might be introduced to ease such manpower crunch. A...