Solving the Human Conundrum in Nairu

Vision 2024: Toward a resilient labor force that fuels a dynamic economy
Logos Consultancy Benjamin Tee | Marcus Leong | Seumas Yeo

FROST & SULLIVAN CASE CHALLENGE SINGAPORE 2014 PRELIMINARY SUBMISSION

Current State Analysis

Labor market inefficiencies are primarily responsible for NAIRUs deepening economic stagflation
Optimistic Economic Conditions
!! Strong industrial growth and consumer demand !! Growing skilled labor demand !! Strong political mandate
HOWEVER RESULT IN

Labor Market Inefficiencies

!! Poor informational efficiency !! Free mobility of labor in EU
Systemic Imbalance

Deepening Economic Stagflation

"! Negative real GDP growth "! High unemployment (9.7%)

Labor Supply Factors

"! Education & Retraining "! Immigration rate "! Participation rate "! Loss of local talent; 40,000 annually "! Low female participation rate "! Reduce brain drain by 10% annually "! Increase female participation to approx. 47.5% in 10 years

Labor Infrastructure
"! Regulation & hiring requirements "! Job & skills matching "! Automatic Stabilizers "! Proliferation of illegal foreign workers; 800,000 "! Skills mismatch among local grads "! Zero illegal foreign workers in 5 years "! Raise graduate employability to 55% in 3 years, 75% in 5 years "! Reduce supply-demand imbalance1, hence unemployment

Labor Demand

"! Wages "! Structure of the Economy

"! Wage-push inflation; foreigners favored "! Strong competition for labor between public & private sector "! Maintain wage inflation of 7-8%2 "! Reduce dependency on skilled foreign labour by 1% annually "! Balance competing demands for labour

Notes: Refer to excel model for detailed assumptions and estimates used in deriving the desired outcomes (KPIs) 1.! By increasing the rate of growth of new labor supply with respect to labor demand 2.! To ensure rising standard of living assuming GDP growth is maintained at 6%

Desired Outcome

Current Situation

Solution Mechanics & Justification

Vision 2024: Toward a resilient labor force that fuels the development of a dynamic 21st century economy
Workforce Enhancement & Retraining of Capabilities (WERC@Nairu)1
Partnership between manpower ministry and private agency To establish online labor registry of local and foreign workers to facilitate regulation of foreign workers and enhance job matching opportunities for locals ! To establish nationwide training centers catering to retraining of unskilled local workers ! !
Efficient Information Flow & Matching

Institute of Labor Market Studies (ILMS)

Independent think-tank analyzing policy impacts on labor market which provides recommendations to the civil service ! Established to analyze data on structural unemployment provided by WERC@Nairu platform ! Self-sufficient as it will leverage on grown capabilities to embark on income-generating external consulting projects !

To increase female participation in the workforce through shared parental childcare leave ! 240 days fully paid shared parental leave for each new-born ! Encourages shared burden of childcare which reduces opportunity cost of female participation in workforce ! Research2 shows that paid parental leave incentivizes women to join the workforce and increases re-entry after childbirth !

Enhance

Local Employment & Training

Women @ Work2

Employment Stability Scheme (ESS)3

! ! ! ! Tripartite Agreement (Employers, Employees & Government) To encourage worker retention during recession Creation of mandatory, individualized notional working time accounts3 where overtime pay is deposited during non-recession years Individual account is debited during recession years to keep worker employed as wages become subsidized Finance ministry will manage a low-risk and liquid mutual fund sustained by account contributions; returns on investment will aid government subsidy of wages during recession Excess will be allocated as pension payouts

Greater Workforce Participation

Enable

Encourage

!
3E framework led by:

Graduate Employability Scheme (GES)

To encourage private sector to hire local undergraduates as interns through tax subsidies ! Aims to bridge the gap between industry requirements and academic curricula ! Increases the employability and relevance of local graduates !
Notes: Refer to excel model for detailed assumptions and policy mechanics
1.! 2.! 3.!

3E Committee
Chaired by Minister of Manpower Sets strategic direction for Vision 2024 and reviews labor policy initiatives periodically ! Establishes and maintains relationships with key stakeholders ! ! !

Professional Training Scheme (PTS)

Collaboration with industry partners, universities and professional qualification bodies ! To increase the productivity of skilled local labor by providing subsidized training for in-demand skills, in accordance with economic direction ! Enhances employability of skilled professionals and reduces brain drain

Flagship policy proposal inspired by EURES jobs portal and Germanys Hartz reforms (2002-2005) Modeled after Sweden and Finlands childcare and parental welfare schemes; based on OECD research (!"#$%&'(&)*)+&*&,&--./$ Modeled after Germanys Hartz reforms (2002-2005); inspired by the Swedish pension systems defined contribution framework

Solution Framework
Vision 2024 seeks to achieve its goals via a progressive funding model and partnership with stakeholders Funding
Graduate Employability Scheme No required increase in marginal tax rate1 Women @ Work

Policy Initiatives & Objectives

Institute of Labor Market Studies WERC @ NAIRU Employment Stability Scheme Professional Training Scheme

Stakeholders

Local Workers

Foreign Workers

ENABLE
Private Investment via Equity Ownership Greater Workforce Participation

ENHANCE
Efficient Information Flow & Matching

ENCOURAGE
Local Employment & Training
Inter-Ministry Task Force

3E Committee

Governmentlinked commercial initiatives

Providing an adequate supply of relevant skilled local labor

(Supply-Side )

Market infrastructure reduces market frictions

(Market Infrastructure)

Partnership with key industries to train & retain locals

(Demand-Side )

Key Industries

Labor force that fuels development of a dynamic 21st century economy

Notes: 1. Policy initiatives will be self-sustainable due to increased tax base as a result of increased employment; refer to excel model

Institutional Framework
A coordinated inter-ministerial approach toward implementation of proposed labor policy initiatives
NAIRU Federal Government

Minister of Manpower
"! Leads Inter-ministry Taskforce "! Supervision of 3E committee "! Outlines labor policy objectives

Minister of Trade & Industry Minister for Social Affairs Minister of Finance Minister of Education

"! Manages industry partners "! Facilitate industry collaboration "! Monitors public sentiment "! Integration of foreign workers "! Supervises ESS initiative "! Implements tax subsidies "! Curriculum matching "! Manages university network

3E Committee
"! Strategic direction & review of initiatives "! Manages relationship with private agency

Inter-Ministry Task Force

"! Implementation & escalation of policy initiatives "! Coordination & contact

University Network Private Agency

"! Management of WERC@NAIRU initiative

Other Key Stakeholders

"! Acts on and manages proposed policy initiatives

"! Houses the Institute of Labor Market Studies "! Responsible for labor data collection & analysis Institute of Labor Market Studies

WERC@Nairu

Employment Stability Scheme (ESS) Professional Training Scheme (PTS)

Women @ Work Graduate Employability Scheme (GES)

Action Plan & Key Performance Indicators

Implementation timeline & guiding milestones for policy success
Key Performance Indicators
Foreign skilled labor force at 18% of total skilled New labor supply growth rate of 9% 43.5% Female participation in workforce 55% graduate employability Brain drain below 20,000 Foreign skilled labor <15% of total skilled Foreign unskilled labor <25% of total unskilled Brain drain minimized to 11,000 47.5% female participation in workforce New labor supply growth steady at 4%

0% illegal foreign workers 75% graduate employability

2014

2015
2015: Officiate industry partnerships

2016

2017

2018
2017: Fully functional ILMS research facility

2019

2020

2021

2022

2023

2024

Milestones

2016: All Phase 1 executions completed

2019: WERC@Nairu training centers nationwide 2021: Mid-term policy review & assessment 2024: 10-Yr strategic review & planning

2014: Establishment of 3E Committee

2016: Full adoption of WERC @Nairu online platform

2018: Fully functional ESS system

WERC @ Nairu (P1) GES (P1) PTS (P1)

Fully operational online infrastructure and 50% of all training centers WERC @ Nairu (P2) Industry-wide compliance with mandatory foreign labor registrations and data harnessing Extension of industry partnerships, revised university curricula

Project Workflows1

Establish industry partnerships GES (P2)

Establish partnerships with industry, universities & professional qualification bodies PTS (P2) Refine partnerships, decrease reliance on public funding for initiatives Roll out of new childcare policy initiatives Women @ Work (P2) Stakeholder consultation & policy refinement ESS (P2) Review of childcare policy initiatives Rollout of policy initiatives & subsequent review

Women @ Work (P1) ESS (P1) ILMS (P1)

Establishing institutional framework & research facility ILMS (P2) Commencement of labor research studies & undertaking of external consulting projects

Notes: 1.!

Workflows arranged in order of decreasing priority. Prioritization determined by degree of short-term observable impact and 10-year Economic Value Added (EVA)

Resource Requirements & Funding Mechanisms

3E framework initiatives are based on a self-sustaining and progressive labor policy model
Proposed Initiative Management Model Source(s) of Funding Govt Revenue Streams1
Govt Revenue Overall Impact on Generated Govt Budget (! billion)

WERC@Nairu Employment Stability Scheme Institute of Labor Market Studies Professional Training Scheme Women@Work Graduate Employability Scheme

PPP

! Government Budget ! Private Investment ! Indv. contribution to notional account ! Government budget (buffer) ! Government Budget ! External consulting projects ! Government Budget ! Government Budget ! Tax subsidies

! Subscription fees (50% stake) ! Tax revenue attributed to increased local employment ! Tax revenue attributed to worker retention ! Investment returns ! External consulting projects ! Tax revenue attributed to reduced structural unemployment ! Tax revenue attributed to productivity gains ! Tax revenue attributed to increased female participation ! Tax revenue attributed to increased graduate employability

9.31

(+)

PPP

6.61

(+)

PPP PPP Public Public

10.75 2.29 5.29 5.82

(+) (") (") (+)

Required Capital Input2

2% 8% 5% 16%

Women@Work Professional Training Scheme

!52.8 billion$
69%

Employment Stability Scheme WERC@Nairu

ILMS will require 0.03% of proposed budget

Graduate Employability Scheme Institute of Labor Market Studies

Notes: Refer to excel model of detailed breakdown of assumptions and calculations 1.! 50% of proposed initiatives are partially self-sustainable due to government-linked commercial initiatives as an alternative source of funding 2.! Proposed figure is based on a 10-year time frame, at current prices. Annual equivalent is assumed to be the amortized amount over a similar period

Impact Assessment
Impact assessment of proposals by 3E labor policy framework

!62.3 Billion
10-year Economic Value Added (EVA)

!1.27 Billion
Annual Impact on Government Budget

0.50%
Contribution to Budget Deficit1

4.9x
Multiplier Effect

Economic Impact of Labor Policy Initiatives

! Annual EVA of !6.23 billion over a period of 10 years ! Structural and cyclical unemployment will fall due to reduced informational asymmetry, incentives, and automatic stabilizers ! PTS & WERC@Nairu will increase local workforce productivity which translates into increased standard of living through higher wages ! Women@Work will reduce the opportunity cost of female participation in the workforce. Increased empowerment of women will lead to greater gender equality ! Training programmes under PTS and WERC@Nairu will reduce the degree of income disparity resulting from skewed differentials in productivity gains

Social Impact of Labor Policy Initiatives

Impact on Industry & Businesses

! WERC@Nairu will reduce employee screening costs for businesses during recruitment due to greater informational efficiency ! ESS will help businesses better manage labour demands and normalize market cyclicality

Impact on Labor Market Function

! ILMS will serve as an independent feedback mechanism, improving the efficacy of labour policies ! WERC@Nairu will reduce informational asymmetry and the supply-demand imbalance ! GES will significantly improve graduate employability and better integrate graduates into the workforce

Notes: Based on Average scenario. Refer to excel model for detailed assumptions, alternative scenarios, and assessment methodology 1. Derived % reflects the scenario where there is no assumed increase in marginal tax rate

Risk Management Strategies

Spearheaded by the 3E Committee to ensure policy oversight and actionable outcomes
Identified Issues
! Mismatch between policy goals and actual policy adoption ! Unpredictable or poor management of initiatives

Identified Issues
! Additional strain on government budget ! Lack of funding mechanisms for long term policy maintenance

Mitigation Strategies
! Clear and continual communication to facilitate compliance ! Regular policy review and renewal in accordance with strategic direction ! Sharing of managerial risks via PPP framework

Mitigation Strategies
! Sharing of financial risks via PPP framework ! Progressive funding model driven by government-linked commercial initiatives

Implementation Risks

Liquidity Risks

Identified Issues
! Business cyclicality negates the positive impact of proposed initiatives

Identified Issues

Market Risks

Political Risks

! Political resistance when trying to escalate proposed initiatives ! Poor or no follow through of policies in subsequent political term

Mitigation Strategies
! Stress testing of labor market model ! Follow-up on policy recommendations by independent think tank

Mitigation Strategies
! Early-stage stakeholder consultations to garner feedback and increase policy receptiveness ! Establish sustainable and binding partnerships that ensure industry buy-in

Logos Consultancy
Leong Yong Yi Marcus
Singapore Management University Bachelor of Science (Economics) Key Achievements: ! Former semi-professional cyclist ! University Scholars Programme (SMU) ! Semi-finalist, Singapore Public Policy Challenge 2013

Yeo Jian Wen Seumas

Singapore Management University Bachelor of Science (Economics), Master of Science (Applied Finance) Key Achievements: ! Treasurer, Team Singapura Everest 2015 ! University Scholars Programme (SMU) ! Semi-finalist, Singapore Public Policy Challenge 2013

Tee Chin Min Benjamin

Singapore Management University Bachelor of Business Management Key Achievements: ! Semi-finalist Singapore Public Policy Challenge 2013 ! Arisaig Partners Foundation Award 2013 ! Ultimate Frisbee Player & Tech Enthusiast

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