2023 HCI Prelim Paper 2 Answers

1 Q1 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 professional services. These two factors have contributed to a shortage and rapid rise in wage rates. Singapore typically strives to develop its domestic skilled labour whilst relying on the inflow of foreign skilled labour to make up for such shortfall. Singapore has recently launched a new employment pass to attract the top -tier 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 stiff global competition for skilled labour, discuss whether the new employment pass is likely to be the most effective 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] Introduction 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 the after math of what happened in the past few years. Many skilled workers have left 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 activities 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 left during the pandemic has yet to return. The lack of spare capacity contributes to SS being price inelastic. DD2 Shortage of Q1 to Q2

2 With reference to fig 1, the initial low supply with initial demand curve DD0 would give rise to an initial equilibrium wage rate of W1 and equilibrium quantity 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 forei gn skilled labour was reduced) R2: Price Inelastic SS would cause wage rate to rise rapidly when demand rises. Referring to Fig 1, t he 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 inelastic The lack of excess (capacity) skilled labour As an aftermath of Covid-19 restrictions, supply of skilled labour, not only has fallen but has been made more price inelastic. There is a shortage of skilled labour (due to the slow reopening of international borders) which means that the quantity supply of skilled labour will not rise quickly in response to an increase in wage rate when demand increases after the pandemic. The situation is illustrated by the competitive skilled labour market diagram in fig 1. As the supply for skilled labour is price inelastic due to the abovementioned reasons, their wage rate rises rapidly from W1 to W2 when demand for labour rises. Note: To attain Analysis marks, there must be application of PES ie those that explain that rapid rise in wage rate is due to large rise in DD alone will not attain Analysis marks Conclusion: Given that supply of skilled labour is low in post-pandemic, the 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 inelasticity 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 & Application ○ 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 question not properly grasped) ● Descriptive response with non-existent or minimal application 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 professional services. These two factors have contributed to a shortage and rapid rise in wage rates. Sin gapore typically strives to develop its domestic skilled labour whilst relying on the inflow of foreign skilled labour to make up for such shortfall. Singapore has recently launched a new employment pass to attract the top -tier foreign skilled labour, giving firms in Singapore access to skilled labour. (b) In the light of the stiff global competition for skilled labour, discuss whether the new employment pass is likely to be the most effective way the Singapore government can address the shortage of skilled labour. [15] Introduction The acute shortage of skilled labour is driving a fierce contest for talent in the post-Covid world. To be a hub of innovation, entrepreneurship and growth, Singapore needs to tackle its skilled labour shortage problem. Post Covid Singapore’s inflation rate is very high and if the shortage of skilled labour is not solved, rising labour cost will result in Singapore’s inflation rate surging even higher. This essay will discuss whether the new employment pass is likely to be the most effective 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 introduction of the new employment pass can cause an inflow of foreign skilled labour which can help to shift supply curve to the right from SS0 to SS1, thereby eliminating the shortage at We. EV1.1: Limitations of the new employment pass Singapore has certainly taken a step in the right direction – however Singapore would face stiff competition from other cities in attracting global top skilled labour. UK, the UAE and Thailand are doing a lot to attract foreign talents as well. For examp le, Thailand is allowing 10 year passes for foreig