Commentary: Foreign labour shortages in construction sector is a wake-up call for change
Delays and stop-work orders because of COVID-19 shows this is the right time to re-think the way we do business, says labour economist, Kelvin Seah.
SINGAPORE: For a long time, Singapore’s strategy of augmenting its workforce with a large pool of low-skilled foreign labour had served it well.
It made economic sense: Focus on what we are good at, build a high-skilled educated workforce, and complement this with low cost, low-skilled, foreign labour acquired from abroad.
This strategy helped to keep production costs down, which in turn made our goods cheap and our companies competitive in the global market. But the recent COVID-19 pandemic has exposed just how vulnerable this strategy can make us, especially when black swan events like the pandemic hit.
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Businesses in the construction sector came to a virtual halt for at least two months last year after COVID-19 swept through the worker dormitories and a circuit breaker had to be imposed.
Businesses in other sectors like F&B, cleaning, and manufacturing which relied heavily on low-skilled workers from neighbouring countries also struggled to find solutions after many of their employees were unable to return to Singapore owing to border restrictions and personal choice.
In April this year, the Ministry of National Development revealed that a large fraction of ongoing BTO projects would be delayed because of such manpower.
And most recently, CNA reported how cleanliness issues had emerged after many migrant cleaners were unable to enter Singapore.
Can we reduce our reliance on low-cost foreign labour? One suggestion is a proposal to re-introduce trade schools to boost the supply of Singaporeans working in essential areas such as construction, which rely heavily on foreign workers.
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LOW WAGES DISCOURAGES LOCALS FROM TAKING UP THE TRADE
But simply introducing trade schools is unlikely to work, unless corresponding changes are made to reinvent the way companies produce.
Having such schools does not mean that Singaporeans will automatically enrol in them. We already have vocational schools in Singapore - the Institutes of Technical Education (ITE).
Unlike the trade schools of the past, pitched at the secondary level and provided narrower training in specific trades like carpentry, plumbing, or electrical fitting, today’s ITE is a postsecondary institution providing higher-level and broader training in vocational areas like engineering, info-comm technology and hospitality.
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Such an approach is sensible given that we live in an era where jobs and industries are increasingly being disrupted.
Still, many Singaporeans may not view vocational education as their top choice, given perceptions that vocationally oriented programmes do not lead to highly-paid jobs and aspirations of progressing to managerial and higher roles.
Both the characteristics, pathways and wages of essential trades currently dominated by foreign workers will need a fundamental change if we want to attract locals.
Another major consideration lies in our manpower numbers. The construction sector, for instance, currently employs some 300,000 foreign workers. Ending our dependence on foreign labour entirely, with no changes made to current production methods, would mean that 300,000 locals have to be employed in construction.
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Where would these 300,000 locals come from? The answer: Other sectors, where they could otherwise be working in, and potentially also making impactful contributions at. In other words, redeploying Singaporeans to the construction sector potentially involves high opportunity costs.
In fact, when one considers that in 2019, Singapore had some 1 million foreigners on work permit and another 200,000 foreigners on S-pass, it becomes clear that getting such a large number of locals to take on jobs currently performed by low and mid skilled foreigners is unrealistic.
UPSKILLING AND SHIFTING TOWARDS CAPITAL-INTENSIVE, HIGH-VALUE WORK
How then can we reduce our reliance on foreign workers? A more practical approach is needed, where companies change their methods of production to be less reliant on foreign labour. At the same time, wages offered in sectors currently dominated by low-skilled foreign labour must go up to attract locals.
In Singapore’s market-driven economy, the only way to make wages more attractive is to transform how construction companies produce. Specifically, to get construction companies to go high-tech.
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Take a simple example. How might we go about digging a hole in the ground? We could have many workers, each digging the hole with their bare hands. Another option is to employ a machine, like a power trencher, and perhaps just have one worker operating it.
This logic extends to all other types of production. The point is that companies can employ a mix of capital intensive or labour intensive means to get a job done. Companies will choose the least costly method from the whole spectrum of options available.
Construction companies here have for a long time gravitated towards more labour-intensive modes even though advanced construction technologies like rebar tying and bricklaying robots and self-operating autonomous machines do exist.
And yet adoption rates for these labour-saving technologies have not been particularly high because of the lack of incentives.
The fact that construction in Singapore tends to be labour intensive had already been recognised in 2017, when then Minister for National Development Lawrence Wong remarked that existing methods are not sustainable in the long term. They are labour intensive and would lead to a "far larger pool of foreign workers than we can possibly accommodate in Singapore”, he said.
ADOPTING TECHNOLOGIES IS NOT STRAIGHTFORWARD
Why should companies bother with such technologies when they have ready access to an abundant supply of cheap foreign labour? The Government may have tried to drive change through initiatives such as the Industry Transformation Maps but this requires firms to cooperate.
Transforming our construction sector by shifting towards higher-tech ways of producing will not only allow us to reduce our reliance on foreign labour but will also lead to higher wages in the construction sector.
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Automation and machines will enable workers to become more productive. Because workers are paid according to their productivity, capital-intensive methods of production will result in commensurately higher wages in the construction sector, and turn out attractive jobs for locals.
While companies may stand to benefit in the long run as automation and newer technologies drive down production costs, many companies may nonetheless be resistant to change for three reasons. First, overhauling the entire production process might come across as a mammoth task.
Second, these labour-saving technologies don’t come cheap. Take, for instance, SAM, a bricklaying robot designed by the American-based company Construction Robotics. At a cost of US$500,000 (S$662,000), we may be looking at upfront costs in the order of a few million dollars.
Credit constrained companies may find this sheer upfront costs involved too high a price, despite the availability of government support schemes like the Enterprise Development Grant which helps defray the cost of technology adoption.
Third, companies may underestimate the long-run cost savings reaped from using these new technologies.
Finally, some companies may just feel more comfortable with the status quo. Why fix something when it isn’t broken?
Of course, companies in the construction sector would have by now realised the drawbacks of being overly reliant on foreign labour. Perhaps this is just the impetus needed for change.
While transformation towards labour saving technologies may imply higher costs for companies in the short run, it will pave the way for them to be more resistant to potential foreign labour supply disruptions in the long run.
Kelvin Seah Kah Cheng is a Senior Lecturer in the Department of Economics, National University of Singapore and a Research Affiliate at the Institute of Labour Economics (IZA).