Responses to Labour Constraint on the Singapore Economy: A CGE Modelling Approach

Abstract

As a city state and an export-oriented economy, Singapore constantly experiences labour shortages. Although Singapore government tackles this problem by an encouraging migrant worker policy, labour constraint imposes a serious threat to the sustainable growth of the Singapore economy. This study employs the updated Singaporean input-output tables and a Computable General Equilibrium (CGE) model to gauge the long-run effects of a negative shock in labour supply as well as selected three policy responses. The simulation results suggest the effectiveness of all proposed reactions: while an increase in capital and a change in economic structure largely offset the negative effect of labour supply shock, an increase in technological efficiency induces sizeable economic growth.