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 sh