INDUSTRIAL RESTRUCTURING AND HOLLOWING OUT

Abstract

The restructuring of Singapore's economy away from labour-intensive to high value-added industries began in the early 1970s. Increased competition from neighbouring countries rich in land and labour was one of the major forces behind Singapore's move towards skill and capital-intensive and high value-added activities. Various tax incentives and financing schemes were introduced by the government to encourage companies to upgrade and automate their operations and to attract new high value-added industries. Furthermore, land and labour constraints have also led Singapore to venture into the region. Although this regionalization policy is able to alleviate Singapore's constraints, it has also created some problems for her. As Singapore regionalizes, a "hollowing out" effect may be created in her economy, manifesting its impact on the Gross Domestic Product (GDP) and employment share of manufacturing. This may arise clue to a relocation of labour-intensive industries to the region without a corresponding inflow of capital and skill-intensive industries. In addition, older and lower skilled workers who are not equipped with the requisite skills for these skill-intensive and high technology industries may find themselves out of jobs. This phenomenon has been termed the structural unemployment problem, which is basically a mismatch between the jobs and the skill levels of workers. Nevertheless, these problems can be generalized as a "hollowing out" problem which this academic exercise will look into in greater detail.