NYJC H2 ECON ESSAY QN4

4. “Singapore's unemployment rate rose to 2.1 pe r cent in June from 1.9 per cent in March 2011. The Ministry of Manpower (MOM) said 1,500 workers were retrenched and 400 had their contracts terminated prematurely, resulting in a total of 1,900 workers being made redundant in the second quarter of 2011. Adapted from www.todayonline.com (a) Explain possible causes of unemployment in Singapore. [10] (b) Assess the view that the Singapore government should focus on achieving low unemployment as its main macroeconomic goal. [15] Suggested Answer (a) Explain possible causes of unemployment in Singapore. [10] Synopsis Answer requires students to discuss the causes of unemployment in Singapore. As the time period is not stated, students may discuss the types of unemployment that Singapore faced both past and present. The types of Unemployment should include cyclical, structural and frictional. For each type, there is a need to explain what it is and reasons why it occured! 1. Intro In recent years, Singapore has been experiencing three main types of unemployment namely frictional, cyclical and structural unemployment 2. Types of Unemployment Explain the types of unemployment and reasons they occurred. a. Frictional Unemployment Frictional unemployment is transitional unemployment due to people moving between jobs: For example, newly redundant workers or workers entering the labour market (such as university graduates) may take time to find appropriate jobs at wage rates they are prepared to accept. Many are unemployed for a short time whilst involved in job search. Imperfect information in the labour market may make frictional unemployment worse if the jobless are unaware of the available employment opportunities. This type of unemployment is common in all countries inclusive of Singapore. b. Cyclical Unemployment Cyclical unemployment is involuntary unemployment due to a lack of aggregate demand for goods and services. This is also known as Keynesian "demand deficient" unemployment and is associated with the transition of the economy through the business cycle. When there is an economic recession we expect to see a rising level of unemployment because of plant closures and worker lay-offs. This is due to a fall in demand leading to a contraction in output across many industries. Sources of Cyclical Unemployment i. Recession of Trading partner Singapore is a small and open economy and hi ghly dependent on trade – trade(X+M) is almost 4 times of GDP. Singapore is affected significantly by external demand especially in the US, rather then by domestic demand as the domestic market is small. Singapore being trade dependent saw rising cyclical unemployment during the global economic crisis of 2008 as well as during 2001 where its major trading partner USA

faced terrorism attacks. This reduced trade with Singapore due to the contraction of the US economy. With a fall in e xports (Singapore’s exports cons ists of export of tourism services, export of biomedical services, e ducation and semiconducto rs etc), this is resulted in a fall in Singapore’s AD ( draw) and hence national output, leading to a rise in unemployment rate c. Structual Unemployment Structural unemployment occurs due to the structural changes within an economy. This type of unemployment occurs when there is a mismatch of skills due to the changing structure of the economy. Sources of Structural Unemployment i. Automation Automation can cause structural unemployment as people are made unemployed because of capital-labour substitution (which reduces the demand for labour). Many of the unemployed from low skills industry have found it difficult to gain re-employment without an investment in re-training. This problem is one of occupational immobility. ii. Loss in Competitiveness Singapore’s loss in competitiveness in the ma nufacturing industries due to competition from low-cost emerging countries that have entered world market for investments and trade has changed Singapore’s economic structure permanently. e.g. China for manufacturing and India for IT software has permanently reduced the demand for Singapore’s manufacturing exports and hence caused structural unemployment iii. Outsourcing. Outsourcing of jobs to devel oping countries such as China, India, Vietnam resulted in unemployment among the unskilled, older and low-educated workers. vi. Changing comparative advantage Structural unemployment in Singapore is common as the country moves from industry to industry due to its changing comparative advantage. As the country moves from the secondary to the tertiary sector, labour finds itself with a mismatch between their skills and the requirements of the new job. 3. Conclusion At anyone time unemployment in Singapore could be due to a combination of the different types of unemployment. It is crucial to know the type of unemployment so that appropriate measures can be used to deal with them. The most problematic of Singapore’s unemployment would be cyclical unemployment due to Spore being trade dependent; solutions that the government dishes out are usually temporary as it is unable to address the root cause of the problem . Suggested Marking Scheme Level Descriptors Marks L3 Good explanation of causes of unemployment with detailed analysis. Displayed ability to choose the relevant causes pertaining to Singapore context 7-10 L2 Some explanation of causes of unemployment. Must relate to the case of Singapore. All 3 types of unemployment to be discussed. 5-6 L1 Superficial explanation of the causes of unemployment. 1 – 4

(b) Assess the view that the Singapore g overnment should focus on achieving low unemployment as its main macroeconomic goal. [15] Suggested Answer Synopsis Answer requires students to understand the macroeconomic goals of a government and discuss if unemployment should be made the main goal. Students should explain the benefits of making unemployment the main goal. The explanation would include the achieving of complementary goals such as achieving growth. Answer should question if low unemployment should be made the main goal. Other goals should be explored and where appropriate, answers should explain how attainment of other goals may lead to the complementary as well as conflicting goal of unemployment. 1. Intro The macroeconomic goals of a government would include: achieving stable and sustainable growth, low inflation, full em ployment, a favourable BOP and a stable exchange rate. 2. Why should the government pursue the goal of low unemployment? a. Low Unemployment can lead to economic growth o Lower unemployment  Increase disposable income and hence increase consumption  increase NY  increase in growth & mat SOL b. Low Unemployment & Equity o Low unemployment  more people have income hence improve equity c. Reduce wastage of resource o Low unemployment  better utilization of limited resources this is important as resources are scarce 3. What are the problems of pursuing low unemployment? a. Possible conflicts between low unemployment and Inflation o There is a possibility that demand side policies designed to attain low unemployment may result in in flation. This is depicted by the Philip’s curve (draw) which explains the inverse relation between inflation and unemployment. b. Possible conflicts between lo w unemployment and favourable BOP o With lower unemployment, there would be rising disposable income. This may result in incr eased imports and hence have a worsening impact of the trade balance and thus BOP. 4. Are there other objectives the Singapore government should pursue? Currently, one of the main macro problem faci ng Singapore is inflation as well as stable growth. Attempting to attain these objectives could enable the attainment of