What the future is like for our youth

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In an interview with The Independent Singapore, academic Donald Low peers into the looking glass and sees some significant challenges for our youths.

You talked about the kind of future Singapore youths are likely to face on TV recently. Can you elaborate?

Yes, I said that I was not very optimistic about the future of Singapore’s youths – not because I think they are less intelligent, capable or creative than my generation, but because the context has changed, and will continue to change, dramatically. Singapore’s social contract is based on two things – affordable housing and good jobs. On housing, I don’t see how today’s youth can afford housing as easily as their parents’ generation could. In the past decade, housing prices have risen much faster than wages have. I think it’s going to be very difficult for a polytechnic graduate starting work today to aspire to the same kind of housing that his/her parents were able to achieve by age 35 or 40. And if they do attain the same kind of housing as their parents did, it’s probably because they received substantial help from their parents to buy their first flat or they were heavily leveraged, which of course creates problems down the road.

The second, more substantive point I made was that I think good, stable, middle income jobs might not be as easily available as before. Again, this is not because our youths have become less capable. Rather it’s because of how rapid technological change will reshape the workplace. In the last two decades, the jobs that have disappeared in advanced economies as a result of technology were not the highest or lowest-paying ones. Instead, automation, mechanisation and the ICT revolution have displaced middle-income jobs – secretaries, data entry clerks, factory workers in assembly lines, bank tellers, and many semi-skilled manufacturing jobs. They have all been replaced by computers or robots. Meanwhile, the new jobs created by the likes of Google, Facebook and Twitter are unlikely to be as numerous as the jobs we will lose in manufacturing as a result of technological advances.

This phenomenon – where the top is doing very well because they possess the skills to work with machines and computers, the bottom are holding even because their jobs can’t be easily automated (to understand why this is, watch http://www.youtube.com/watch?v=gy5g33S0Gzo), and the middle are being squeezed by technology – is called job polarization. Economists believe it’s one of the main factors driving rising inequality across the rich world. And this trend will accelerate, making it harder for middle-skilled, young Singaporeans to do as well as their parents’ generation.

[fvplayer src=”http://youtube.com/watch?v=gy5g33S0Gzo”]

If we look ahead and ask what kinds of skills will be most in demand, I would say that it’s the ability to work with very powerful, intelligent machines. Even among the most skilled workers – doctors, computer engineers, lawyers, bankers, accountants, even university professors – the ones who will do the best are not those who rely only on their own experience or skills, but those who can take advantage of the advances in ICT technologies, big data and robotics. We’d all prefer to go to the specialist or surgeon who can tap on the latest medical knowledge or the most advanced machines in the operating theatre than one who relies on knowledge or machines from the days when he attended medical school. Also, thanks to big data and the internet, we will soon be able to measure the performance of these highly skilled professionals, and sieve out the top performers from the rest. This will hasten the spread of what economists call ‘winner-take-all’ markets, where a small difference in performance leads to very large differences in reward. For instance, why would anyone want to listen to me give a lecture if they can go online and listen to Michael Sandel or Paul Krugman? Already, we don’t bother watching the Malaysian football league because we’d all rather watch the Spanish league or the Premier league. Imagine this phenomenon spread to many more industries.

What all this means is that “average is over”. This is the title of recent book by the American economist Tyler Cowen. Cowen argues that in the ‘winner-take-all’ markets of the future, our economies will be dominated by a “cognitive elite” that’s probably 10-15% of the workforce. This cognitive elite will be made up of people who can leverage machines and computers to scale and serve large numbers of customers. For the rest, some might do quite well providing high-end services to this top 10-15%, while the rest, he thinks, will probably see their incomes stagnate.

This future is not necessarily one where there won’t be any jobs. There will still be jobs in the service sectors that remain highly dependent on labour inputs – health, education and government. But it does mean that the most productive sectors of the economy – the ones with the highest value-added – will not create many middle-skilled jobs. Furthermore, since wages can only rise as fast as productivity growth, we may be looking at a future where the bulk of the workforce sees their wages grow quite slowly – if at all – while the top 10-15% enjoys outsized gains, i.e. a future of rising inequality.

During the TV show, a number of youths asked questions. What do you make of those questions?

The questions suggest to me that there is a deep unease and uncertainty about the future they face. I think their concerns are at least partly justified. The “middle class promise” that the government was able to deliver on in previous decades is largely over, because of the technological and economic forces I described earlier.

In Singapore’s context, land is really the most important binding constraint. Rising housing prices – which are to some extent unavoidable given inherent scarcity of land – benefit existing house owners, but they represent a significant burden on future generations. The Singapore government often demonises the welfare state as something which requires future generations to pay for the debts incurred by the current generation, and that these intergenerational transfers of wealth are unsustainable and inefficient. I would argue that in putting housing at the heart of Singapore’s social contract, we are also passing a financial burden on future generations because when a retiree tries to monetise the capital gains on his home, it’s the next generation that has to pay the higher house price. So isn’t that a form of intergenerational transfer?

Between worrying about the costs of housing, pursuing their careers, and starting a family, is it any surprise to us that many younger Singaporeans have decided to forego the last goal? Of course, any number of government-commissioned surveys will tell you that young people still want to get married and have children. But that’s mistaking their wish for what would happen in reality.

Do you think our youths understand what is in store for them?

I think they do. That’s why our fertility rates are so low. I see low fertility rates as a sign that young people are not particularly optimistic or confident about their futures. A low fertility rate is not necessarily a bad thing as long as society is able to adapt to a future with a much older citizen population, and it is able to absorb and assimilate a relatively large number of immigrants. People my generation will also have to work longer – and be encouraged and financially supported by the state to do so – than what we thought when we first started working.

You mingle with both international and local students as part of your job at the LKY School of Public Policy. What differences, if any, do you see?

The trends I describe are not unique to Singapore; they are broadly descriptive of the trends in much of East Asia – certainly in the developed parts.

Do Singapore youths talk about leaving Singapore as one of the options? 

Yes, but that’s hardly surprising. Even my contemporaries and I talk about retiring to somewhere far more affordable than Singapore. And mind you, these are well-to-do Singaporeans.

What all this points to is that we really need a more robust welfare system that gives Singaporeans much greater assurance of income when they are unemployed, old or sick. The low fertility rate and the desire of even well-to-do Singaporeans to retire somewhere else are signs that the state needs to craft a new social contract with Singaporeans, that it needs to develop more mechanisms to pool risks and give Singaporeans security. The argument that we cannot afford all these because the population is ageing is mostly a bogeyman. It is partly because we don’t have a proper welfare system that the population is ageing as rapidly as it is. This has also been the experience in much of East Asia – where the relative absence of social security led to falling fertility rates and eventually, rapid ageing.