Ground sentiment remains skeptical about the utility of hiring foreign talent
One common concern Singaporean shave is the sense that foreign talents do not compete on a level playing field with our local graduates.
Some are frustrated with how foreign companies seem to favor hiring their own nationals, perhaps even simply going through the regulatory motions with a designated candidate already in mind. Others point to how international companies place a greater weight on qualifications acquired from their home countries. Yet others flag how the foreign hires are favored because they are willing to work for lower salaries than the prevailing market rate.
The Ministry has tried to address some of these issues. The Fair Consideration Framework[1] is designed to arrest discriminatory job advertising. MoM has also instituted foreign worker quotas and levies for S Passes,[2] and the points-based COMPASS for assessing EP hires.[3] And, ostensibly, the raised salary cap was an effort to keep foreign talent earnings in line with PMET wages.[4]
It is unclear whether these strategies have been successful. Between 2014 and 2021, TAFEP received an average of 379 complaints a year, but only a third warranted additional investigations, and a mere 41 were found in breach of guidelines.[5] If there is no underreporting, this seems to suggest that most alleged cases have no merit. Yet the concern about unfair foreign competition in the workplace remains.
Part of the reason is that the various restrictions on hiring foreigners do not appear to have contained their increase. The skilled foreign workforce has steadily increased over the 2010s,[6]and it took the shock of COVID-19 before we saw a scaling back. One resident Is poke to even shared that it was only during this period that he was meaningfully considered for jobs he had long been qualified for. Another resident shared her belief that the salary cap may have inadvertently led to accelerated pay rises for the foreign hires at her workplace, as her company chose to pay foreign workers slightly more, rather than incur the additional costs of firing and hiring anew local.[7]
Leveling the salary for foreign versus local hires through a CPF escrow
Existing solutions to spur local hiring appear to be targeting only symptoms.[8] But the reason favoring the hiring of a foreign talent is that, without CPF, foreign hires are simply cheaper.
There are good reasons why the government may not wish to offer CPF for foreigners. After all, the system was designed and meant for locals. Incorporating potentially transient accountholders into the system could also mess with actuarial assumptions and the goal of stable long-term returns. Enfolding foreigners into CPF could turn into a unnecessary logistical and financial nightmare.
But there is a simpler solution: We can set aside the CPF-equivalent payouts into individual-specific accounts, under an escrow, which will be returned to the foreign worker once they depart. We will not be shortchanging them in any way, other than a modest amount of forgone returns.
If this is a significant concern, we could place the escrowed principal in an ultra-safe, highly-liquid asset, such as Singapore Government Securities, which offer a market interest rate. No additional management of the funds would be required, beyond tracking the accountholders and their balances, and disbursing the amounts when the worker leaves the country for good (a small administration fee may be levied for this purpose, annually).
Other jurisdictions with large foreign worker populations, such as Saudi Arabia and the UAE, already have schemes in place that are similar.[9] This approach will go along way toward rebalancing the wage differential between the foreign and local workforce.
[1] MOM (2024),Fair Consideration Framework, Singapore: Ministry of Manpower.
[2] MOM (2024),Foreign Worker Quota and Levy Requirements, Singapore: Ministry of Manpower.
[3] MOM (2024),Eligibility for Employment Pass, Singapore: Ministry of Manpower.
[4] EDB (2024),“Salary Threshold for New Employment Pass Applicants to be Raised to $5,600from 2025,” Press Release, May 9.
[5] Hansard (2021)95(38): Sep 14.
[6] See: https://www.statista.com/statistics/966458/skilled-foreign-workforce-numbers-singapore/.
[7] One reason for this may be that employers frequently retain some buffer in the wage setting process. These are known as efficiency wages. See Krueger, A.B. & L.H. Summers (1988),“Efficiency Wages and the Inter-Industry Wage Structure,” Econometrica56(2): 259–93.
[8] These either operate on the quantity dimension—as would apply to local hire quotas or stipulations for a minimum duration that job ads need to be posted—or the price dimension, such as a minimum qualifying salary.
[9] Sayen, G., J. Matthews-Taylor, C. O’Connell-Schizas & J. Leader(2018),“End of Service Gratuity in the UAE and KSA—Limiting Your Liability When Your Employee Leaves,” BakerMcKenzie Client Alert, Dec.
