04 February 2013

Why 6.9 Million May Not Be The Worse-Case Scenario

Minister for National Development Khaw Boon Wan said that the Government's population estimate of 6.9 million by 2030 was just an estimate, not a forecast nor a target.  It was a number that the Government arrived at, based on assumptions of productivity and workforce growth rates[1].

He added that, for planning purposes, it was safer to take the more aggressive projection — the worst-case scenario — and plan infrastructural needs accordingly so that the Government would not be caught under-providing, as was the situation at the moment.

He hoped Singapore's population would not reach 6.9 million by 2030, but would be much lower.

While Mr Khaw, as Minister for National Development, might hope that the population would not reach 6.9 million by 2030, are there any situations in which the Government might hope that the population would reach 6.9 million by 2030 and 6.9 million might not be the worst-case scenario?

NPTD's model
GDP growth is equal to the sum of productivity growth and labour force growth.

What likely happened was that National Population and Talent Division worked with various combinations of the assumptions relating to GDP growth, productivity growth and labour force growth to arrive at the following projections[2]:

▪ GDP will grow at an annual compound rate of between 3 and 5 per cent between 2010 and 2020, and between 2 and 3 per cent between 2020 and 2030.

▪ Productivity will grow at an annual compound rate of between 2 and 3 per cent between 2010 and 2020, and between 1 and 2 per cent between 2020 and 2030.

▪ The labour force will grow at an annual compound rate of between 1 and 2 per cent between 2010 and 2020, and 1 per cent between 2020 and 2030.

The composition of the labour force depends on the projected total fertility rates of citizens and permanent residents, and the expected permitted net inflow of new citizens and permanent residents, and immigrant workers.

How The Market Works
In practice, however, the Government influences, but does not control, either GDP growth or productivity growth.  While Economic Development Board will try to attract investments and International Enterprise Singapore will try to drive Singapore's external economy and the Government will support their efforts with generous tax and other incentives, neither the Government nor its agencies produce or export commercial goods and services.  These are decisions made by businesses and their customers.

Similarly, productivity is the result of decisions made by businesses.

The only factor that the Government has direct control over is the size of the labour force i.e., whether to grant more new citizenship, permanent residence and immigrant worker permits.

The Government wants Singapore to progress and the economy to grow.  Business opportunities such as the integrated resorts boost economic growth and are generally welcome.  Businesses need manpower.  This is a good thing if the country needs jobs, especially jobs that require skills that the country's citizens have, but not quite so good if the labour market is tight, especially if it means more immigrant labour in a congested city state.

One further complexity is that the economy comprises both expanding businesses that need additional manpower as well as existing businesses that are being forced to cut their dependence on immigrant labour.

Recall from the preceding section that GDP growth, productivity growth and labour force growth are inter-related.  The following table shows how the GDP growth and productivity growth affect labour force growth:



GDP Growth*Productivity
Growth*
GDP Growth*
Versus
Productivity Growth*
Labour Force
Growth*
Faster
Faster
Faster
Faster
Faster
Faster
Slower
Slower
Faster
Slower
Faster
Faster
Slower
Slower
Slower
Slower
Slower
Slower
Faster
Faster
Slower
Faster
Slower
Slower
* Actual growth compared to NPTD's projections

There are three possible scenarios in which the labour force growth will exceed NPTD's projections, resulting in the population hitting 6.9 million before 2030.

Labour force growth will exceed NPTD's projections if GDP growth exceeds projections by more percentage points than productivity growth exceeds projections, regardless of the actual GDP growth or productivity growth.

If, for example, both GDP growth and productivity growth exceed NPTD's projections, the Government will be elated.  But if GDP growth exceeds projections by more percentage points than productivity growth exceeds projections, labour force growth will also exceed projections — meaning that the population will hit 6.9 million before 2030.

It is arguable whether Mr Khaw and the rest of the Government hope not to have such outcome!

It is clear that 6.9 million is not the worst-case population scenario unless the GDP growth projections are much more aggressive than the productivity growth projections, resulting in the probability of GDP growth exceeding projections being much lower than the probability of productivity growth exceeding projections.  But, are they?

Already, the people have been told to focus, not on the 6.9 million number, but the GDP growth assumptions, and their (presumably adverse) implications on their standard of living[3].  In other words, if we don't like the implications, we should aim for higher GDP growth and (if productivity doesn't improve) live with a population greater than even 6.9 million.

Why Does The Labour Force Need To Grow?
Why does GDP growth need to exceed productivity growth?  If they are equal, the labour force need not expand.

Beyond 2030
Notice that GDP growth is projected to be faster than productivity growth through to 2030.  If this continues past 2030, the labour force needs to continue growing past 2030.  6.9 million may not be the end point for Singapore's population.

Conclusion
It is clear that 6.9 million is not the worst-case scenario. The possibility that we will reach 6.9 million before 2030 is not a remote possibility, though we (the ordinary people) hope it is. Given the current Government's relentless pursuit of GDP growth at a rate faster than productivity growth, we will hit 6.9 million, if not before 2030, then shortly after.

6.9 million may not be the Government's population target, but it is the unavoidable direct result of its immigration policies to facilitate economic growth.

---------------
Notes

1. Hope We Do Not Reach 6.9 Million: Minister Khaw TODAY 3 Feb 2013.

2. Because GDP growth is equal to the sum of productivity growth and labour force growth, the three variables are not independent of one another and it is not possible to make different assumptions for all three variables.  One of NPTD's scenarios involved labour force growth of 3.3 per cent per annum, similar to that in the past three decades, but that was rejected.  The end result is a combination of growth figures that appear reasonable and politically acceptable (at least to the Government).

3. Key Figure Is Growth Rate, Not Headcount The Straits Times 30 Jan 2013.


This article was updated.

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