Assess the degree to which Singapore should depend on the productivity drive to achieve its macroeconomic goals.

In 2010, the Economic Strategies Committee recommended that Singapore focus on productivity-driven growth. While productivity rose initially, productivity growth was negative in 2014 and 2015. In response, the Singapore budget 2015 has extended the existing policies to drive productivity growth such as the Productivity and Innovation Credit (PIC) scheme.

Assess the degree to which Singapore should depend on the productivity drive to achieve its macroeconomic goals. [25]


Singapore generally aims for

1.  Low inflation of 2-3%

·    Important to maintain high purchasing power and export competitiveness

2. Sustained and inclusive growth

·    Currently 2- 3% considered good growth

·    ‘Inclusive’ – growth without increase in income inequality

3. Low unemployment

·    Unemployment has been kept low in recent years at 1.9-2.1%

·    Strive to be at full employment

4. Healthy BOP

·    Generally surplus position to accumulate foreign exchange reserves which allows us to conduct exchange rate policy, reflection of healthy trade


Figure 25: Increase in LRAS while economy is already at near full employment level




01 Low inflation

·       Given that Singapore is already operating at full or near full employment level, any increase in AD would likely bring about demand-pull inflation.

·      Measures to increase productivity will help to increase productive capacity, shifting LRAS to the right. This will shift full employment level outwards, and reduce demand-pull inflation.

02 Sustained economic growth

·      Given that Singapore currently faces a supply bottleneck (we have been operating at near full employment level for awhile – 2.1% unemployment rate), it is hard to achieve any further increase in economic growth, and inflation will occur instead.

·      Thus, measures to increase productivity can increase LRAS, shifts full employment level, and allow for greater growth (illustrated in Figure 25)

04 Healthy BOP

·       Policies to increase productivity can lower cost of production, which can make prices of exports cheaper, increasing exports competitiveness. 

·       An increase in demand for exports, will improve the current account, therefore improving BOP


03 Inclusive growth

·      Measures to increase productivity include subsidies and grants to upgrade skills of existing workers, or send them for training. These include policies like Productivity and Innovation Credit, where 40% cash grant or 400% tax write off is given for firms who invest in workers training.

·      When low-skilled workers gain more skills, they can command for higher wages, reducing income inequity


Limitations of productivity drive

·      It is not easy to increase productivity. Policies like the Productivity and Innovation Credit may not see certain success.

·      Results from training of workers may not always translate to an actual increase in work productivity.

·      Schemes like that are often subject to abuse, for example, many reported cases of firms using PIC to buy IT equipment without actual contribution to work productivity. Results of productivity drive has been mediocre at best, with some years having a dip in labour productivity despite productivity drive.

·      Productivity drive may not be able to immediately address certain macroeconomic aims at specific times

Ø  Sudden increase in cyclical unemployment due to global recession – cannot be addressed simply by policies to increase productivity (resilience package included a slew of policies to reduce cyclical unemployment)

·      Productivity drive also doesn’t directly deal with the problem of imported inflation – for that we have the modest and gradual appreciation of the SGD



Productivity drive is important as it can help Singapore address many of its macroeconomic aims. Given that we wish to move away from our reliance on importing cheap low-skilled foreign labour to achieve higher growth, productivity drive is the necessary alternative. However, this alone cannot help to address all the issues that the Singapore economy is facing and has to be complemented with other policies, should the need arise.