2023 HCI Prelim EQ Suggested Answers

1 Post pandemic Singapore experience a shortage of skilled labour as formerly closed borders were slow to reopen and there was a surge in the demand for p rofessional services. These two factors have contributed to a shortage and rapid rise in wage ra tes. Singapore typically strives to develop its domes0g”I–c skilled labour whilst relying on the inflow of foreign skilled labour to make up for such shor0g”I”all. Singapore has recently launched a new employment pass to a0g”A–ract the top-0g”I–er foreign skilled labour, giving firms in Singapore access to skilled labour. (a) Use supply and demand analysis to explain why the above factors may have led to a shortage in skilled labour and a rapid rise in their wage rate. [ 10] (b) In the light of the sQgT↑qff global compeQgT↑qQgT↑qon for skilled labour, discuss whether the new employment pass is likely to be the most effecQgT↑qve way the Singapore government can address the shortage of skilled labour. [15] (a) Use supply and demand analysis to explain why the above factors may have led to a shortage in skilled labour and a rapid rise in their wage rate. [10] IntroducQgT↑qon Many countries face shortage of skilled labour and are grappling with the problem of rapid rise in their wage rate. R1: Low SS of skilled labour as borders were slow to reopen and rise in derived dd for skilled labour caused by surge in dd for professional services There is low supply of skilled labour as this is th e a0g““Aermath of what happened in the past few years. Many skilled workers have le0g““A in the early days of the pandemic and could not return when borders closed. This, together with formerly closed borders which were slow to reopen have contributed to a low supply of skilled workers. Simultaneously, as economic ac0g”I–vi0g”I–es increase in the post-Covid world, there is also an increase in demand for professional services leading to an increase in derived demand for skilled workers. Fig 1: Impact of Low SS with a rise in demand on steep rise in wage rate of skilled labour SS DD2 W2 W1 DD1 No of Skilled Labour Q1 Q2 Wage Rate Low SS of Skilled worker post - pandemic with no spare capacity as those who le0g““A during the pandemic has yet to return. The lack of spare capacity contributes to SS being price inelas0g”I–c. DD2 Shortage of Q1 to Q2

2 With reference to fig 1, the ini0g”I–al low supply with ini0g”I–al demand curve DD0 would give rise to an ini0g”I–al equilibrium wage rate of W1 and equilibrium quan0g”I–ty is Q1. In a post covid world, the surge in the demand for professional services would increase the demand of skilled labour rightwards from DD0 to DD1. This would result in a shortage of Q2 – Q1 at the original wage of W1. The shortage at W1 will be more severe when the extent of rise in demand is greater. (Acceptable to explain that shortage was caused by ↑SS < ↑DD: the reason for slow rise in supply is due to “formerly closed borders were slow to reopen ” – hence the pace of inflow of foreign skilled labour was reduced) R2: Price InelasQgT↑qc SS would cause wage rate to rise rapidly when demand rises. Referring to Fig 1, the severe shortage of skilled labour at W1 will result in an upward pressure on price from W1 to W2. In this case, price has also risen rapidly or more than proportionately from W1 to W2 due to price inelasticity of supply curve . Why SS of skilled labour is price inelasQgT↑qc The lack of excess (capacity) skilled labour As an a0g““Aermath of Covid-19 restric0g”I–ons, supply of skilled labour, not only has fallen but has been made more price inelas0g”I–c. There is a shortage of skilled labour (due to the slow reopening of interna0g”I–onal borders) which means that the quanQgT↑qty supply of skilled labour will not rise quickly in response to an increase in wage rate when demand increases a0g““Aer the pandemic. The situa0g”I–on is illustrated by the compe0g”I–0g”I–ve skilled labour market diagram in fig 1. As the supply for skilled labour is price inelasQgT↑qc due to the abovemen0g”I–oned reasons, their wage rate rises rapidly from W1 to W2 when demand for labour rises. Note: To a0g”A–ain Analysis marks, there must be applica0g”I–on of PES ie those that explain that rapid rise in wage rate is due to large rise in DD alone will not a0g”A–ain Analysis marks Conclusion : Given that supply of skilled labour is low in post-pandemic, t he shortage of skilled labour is caused by a rise in demand. While market forces have resulted in a rise in wage rate, it is the price inelas0g”I–city of supply of skilled labour that cause the rapid rise in their wage rate when demand for labour increases.

3 Level Descriptors Marks L3 ● Breadth & Applica0g”I–on ○ Covers 2 requirements ○ Analyses with the expected theoretical scope (e.g. demand and supply factors, Price Mechanism, PES, PED and Steep rise in wage rate) ○ Analyses entire scope as suggested by the question or/& preamble ● Depth ○ Applies relevant economic concepts or theories ○ Explains with rigour and detail ○ Explains and illustrates with relevant tool(s) of analysis (e.g. diagrams and examples ) 8-10 L2 ● Lacking in any one of the L3 criterions 5-7 L1 ● Largely irrelevant response (meaning of ques0g”I–on not properly grasped) ● Descrip0g”I–ve response with non-existent or minimal applica0g”I–on of economic concepts or theories ● Serious and pervasive conceptual errors 1-4 Post pandemic Singapore experience a shortage of skilled labour as formerly closed borders were slow to reopen and there was a surge in the demand for p rofessional services. These two factors have contributed to a shortage and rapid rise in wage ra tes. Singapore typically strives to develop its domes0g”I–c skilled labour whilst relying on the inflow of foreign skilled labour to make up for such shor0g”I”all. Singapore has recently launched a new employment pass to a0g”A–ract the top-0g”I–er foreign skilled labour, giving firms in Singapore access to skilled labour. (b) In the light of the sQgT↑qff global compeQgT↑qQgT↑qon for skilled labour, discuss whether the new employment pass is likely to be the most effecQgT↑qve way the Singapore government can address the shortage of skilled labour. [15] IntroducQgT↑qon The acute shortage of skilled labour is driving a fierce contest for talent in the post-Covid world. To be a hub of innova0g”I–on, entrepreneurship and growth, Singapore needs to tackle its skilled labour shortage problem. Post Covid Singapore’s infla0g”I–on rate is very high and if the shortage of skilled labour is not solved, rising labour cost will result in Singapore’s infla0g”I–on rate surging even higher. This essay will discuss whether the new employment pass is lik ely to be the most effec0g”I–ve way the Singapore government can address the shortage of skilled workers.

4 R1: The new employment pass can reduce the shortage of skilled workers  Introduction of the new employment pass to attract the top-tier foreign skilled labour could attract more foreign talent to Singapore, increasing its supply of skilled worker and alleviating the shortage problem. Fig 3: Inflow of foreign skilled labour can increase SS and eliminate the shortage At the original wage rate of We, Singapore faces a shortage of Q1-Q0 of skilled worker. The introduc0g”I–on of the new employment pass can cause an inflow of foreign skilled labour which can help to shi0g““A supply curve to the right from SS0 to SS1, thereby elimina0g”I–ng the shortage at We. EV1.1 : LimitaQgT↑qons of the new employment pass Singapore has certainly taken a step in the right d irec0g”I–on – however Singapore would face s0g”I–ff compe0g”I–0g”I–on from