Less efficient sectors taking on more workers hits productivity

Less efficient sectors taking on more workers hits productivity

THE lacklustre labour productivity numbers can be attributed partly to the fact that less efficient sectors have been employing a growing share of the workforce, a new study showed.

A Ministry of Trade and Industry (MTI) report out yesterday said increasing numbers of less-skilled workers taken on in industries such as construction, food and beverage and retail services - the laggards in terms of improving output per worker - are affecting productivity numbers for the overall economy.

The Government has set a target of 2 per cent to 3 per cent productivity growth per year over a 10-year period to 2019. Productivity rose 2.6 per cent a year on average from 2009 to last year, reversing a decline of 1 per cent a year in the previous five years.

However, most of the gains could be attributed to a strong rebound in 2010 following the global financial crisis. If 2010 is excluded, productivity growth has averaged only 0.3 per cent a year.

However, the performance of export-oriented sectors in the period differed significantly from their domestically oriented counterparts, the report noted.

Between 2010 and last year, labour productivity in export-oriented industries grew 2.2 per cent a year on average, driven by the biomedical manufacturing, precision engineering and transport engineering clusters.

But productivity in domestically oriented sectors fell 0.1 per cent a year on average over the same period, with the sharpest decline seen in the retail trade segment.

This "should not come as a surprise, as exporting firms have to constantly improve their products and processes in order to compete globally", the MTI report said.

Less productive, domestically oriented sectors - such as construction and food and beverage services - employed a growing share of the workforce over the 2009 to 2014 period, the study also showed.

This weighed down overall labour productivity growth, which is calculated by measuring value added per worker.

The MTI offered a few possible reasons for this - first, that employment growth in the construction sector was boosted by a ramp-up in building work in recent years.

A growing number of previously economically inactive older workers and less-educated people have also entered the workforce.

As barriers to entry in some less productive sectors are lower, workers might have found it easier to gain employment in these industries.

The health-care and social services sector - classified under "other services industries" - has also hired a growing number of workers to cater to the needs of the country's population.

The report also noted that improvements in capital intensity - which mean increasing the amount of technology or machines that each worker has to work with - as well as improving the quality of labour helped to boost labour productivity growth.

However, contributions from both these factors have declined in recent years.

The study concluded that Singapore must "press on with efforts to restructure the economy towards more productive sectors".

This entails equipping the workforce with skills to take on higher value-added jobs, while helping companies invest in capital and improve business processes.

CIMB economist Song Seng Wun said Singapore's ongoing efforts to restructure the economy and raise productivity are still a work in progress.

Labour productivity contracted 0.8 per cent last year, a reversal from 2013's 0.3 per cent uptick.

"This flip-flop in productivity growth over the past four years suggests there is still plenty of work to be done," said Mr Song.


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