Resident labour force participation rate predicted to rise at a slower pace

Here are 3 reasons why.

According to the Monetary Authority of Singapore, in all, labour supply is likely to become more constrained on several fronts. 

Apart from tighter foreign labour policy across the skills spectrum and a slower increase in the resident population, the resident labour force participation rate (LFPR) is also expected to rise at a slower pace over the next few years.

First, according to MOM’s Comprehensive Labour Force Survey 2012, the number of economically inactive
residents who intend to rejoin the labour force in the next two years fell in 2011–12. (Chart 3.29) This portends a slower rate of increase in the resident labour force in 2013–14 following the sharp rise in recent years.

Second, recent increases in the participation rate could partially reflect the effects of temporary measures such
as the Special Employment Credit (SEC) and Wage Credit Scheme (WCS).

These subsidies for hiring Singaporeans have likely boosted the demand for locals. However, the SEC and WCS will cease in 2016 and 2015 respectively, with a dampening effect on the extent of future LFPR increases.

Third, the rapid ageing of the resident population will pose a significant drag on the overall LFPR in the near
term. From around the middle of this decade, the share of the resident population aged 55 and above will rise at a considerably faster pace than before as the bulk of the baby boomers begin to move into this age
group.

The shift in the resident population to older age groups, where participation rates are markedly lower, has already exerted a negative drag on the resident LFPR since the mid-2000s.

Thus, while the LFPR is likely to rise further over the next few years due to secular forces, such as improved
educational attainment and more flexible part-time work opportunities, the pace of increase is expected to slow due to demographics and policy-related changes.

This will become an additional binding resource constraint on the pace of growth in the economy.