Middle class families and aspirations have long been an integral part of Singapore’s culture. But against a backdrop of employment issues and lower global growth, there may be less incentive to step up in society.
By: Argee Abadines
Good jobs are rare these days, especially in Singapore. A combination of the forces of globalisation, and a weakening domestic economy, have wreaked havoc on the country’s hard-working middle classes. The complaints of many families are that the advancement of technology and education means people are more skilled and expect a return on this investment, but the jobs are going to foreigners because they are willing to accept lower pay.
It is basic economics; as the supply of middle-class, educated and aspirational employees increases, the well-paying jobs these people seek and compete for will be harder to land. And where job security and mobility used to be the key defining factors for Singapore’s middle-income groups, National University of Singapore (NUS) sociologist Tan Ern Ser says such luxuries are on the decline.
There are fewer new jobs and more people to catch in the social safety net
These worries abound thanks to a lack of new jobs being created, fewer promotions, and the slow rise of wages in general. This leaves many middle class Singaporeans feeling stuck in their current jobs, hoping that the economy improves. Some are starting to consider finding work abroad.
The thing is that the rich will continue to be rich because they have the money, the connections and the financial know-how to lessen their taxes and protect their wealth. Meanwhile, the poor get assistance and social nets from the Singaporean government. In this set-up it is the middle class who bear the brunt of the increase in taxes; their contribution is needed to subsidise the lower income groups. But in the current climate, Singapore’s policymakers need to support this under-pressure group or risk them losing their status altogether.
Fewer people will want to move up the social strata, feeling less connected to society as a result
One implication of a weakening middle-class is that the lower income group will have less aspiration to improve their position. After all, they know that it is harder to sustain life on that level and may prefer to stay in the lower income group knowing that the government has their back. Singapore has quite a high gini coefficient and worse, taxes and other transfers do not do much to reduce income inequality. As such, a growing population in the lower income bracket puts pressure on the resources of the government and decreases the resources available for growth and innovation.
According to Singapore Management University economics professor Ho Kong Weng, another implication of a weakening Singaporean middle class is that they have less sense of belonging to their nation. This loss of national identity threatens the national fabric of the country when middle-class families make up the backbone of society. If this situation were to spiral, less nationalism could lead to a brain drain and weaker engagement in nation-building activities. Only sound economic policies that cater to all income groups will strengthen a sense of belongingness and unity.
The government is looking to manage job competition from expats
According to Deputy Prime Minister Tharman Shanmugaratnam, every S$1 that a middle-income family pays in tax, whether directly or indirectly, they get back at least S$2 in subsidies in education, healthcare, and retirement. He compared it with Finland where the return on their tax is around S$1.30. This makes it seems that Singaporeans get a better deal, but unlike Finland, Singapore is a popular destination for expats.
This increases competition for jobs and depresses salaries as companies prefer to hire foreigners. Not only are they willing to be paid less than local graduates, but unlike their local competitors, they do not feel entitled to a well-paying job just because they went to a good university. Optimism of this kind may once have been possible, but companies today have to remain competitive as slowing world trade and economic activity hit their profit margins.
The government is aware of the problem and has put in place provisions to limit foreign labour hiring with its Fair Consideration Framework. This forces companies to prioritise Singaporeans when recruiting for jobs and creates incentives to boost innovation and productivity. If all goes well, this should pay off.
Larger efforts to grow the economy will be needed
At the same time, industry and political leaders will need to look to working with China on increasing regional and global trade. The ASEAN bloc will also have a role to play, allowing Singapore to boost its exports to other member nations and lessening the impact of an increasingly protectionist America under Trump.
In Japan, a developed nation comparable to Singapore, a similar pattern has unfolded. And according to strategist Kenichi Ohmae, few of the middle-class income group have stepped up to the next strata. Instead, most of Japan’s middle-class population went down to the lower groups. This phenomenon is known as the ‘M-shaped Society.’
Other nations face the same problems, and the results are worrying
Taiwan is also on the same trend as polarisation between wealthy and low-income groups grows, and the impact of an ageing population is felt in the export-reliant economy. Hong Kong’s name can also be added to this list, and the divide between groups there is particularly significant. The outcome seen overseas is that middle-class families are facing huge falls in their income, with some even dropping into situations of poverty. Could Singapore go the same way?
Clearly, the problems the island-nation is facing are not unique. The challenge is, therefore, to put ideas and systems in place which ensure the trust of the middle class in their future. And they must not only see the benefits of moving up in income status but have the right tools and environment to be able to do so.
Article was first published in ASEAN Today. Republished with permission.