Unemployment in Singapore: Microeconomic Concepts and Government Policies

This article discusses the microeconomic concepts of unemployment in Singapore, including its causes and impact. It also explores the government policies aimed at reducing unemployment in the country.

Running Head: ASSIGNMENT 1
Assignment
Name
Institution

ASSIGNMENT 2
Assignment
Introduction
In a news article “Retrenchments fall to near 7-year low, unemployment rate declines,”
the author, Rahman (2018) discusses various microeconomic concepts in Singapore. By and
large, the article discusses microeconomic events in the economy among them the demand for
labour by firms and supply of labour by individuals in Singapore. Notably, labour economics is
an important aspect in microeconomics. According to the article, the joblessness rate in
Singapore dropped down to 2 percent in the first quarter of this year from 2.1 percent in
December last year. In addition, the number of retrenchments in the country also dropped by
about 2,100. Mainly, this is attributed to a decrease in number of work permit holders in the
marine shipyard and construction industries in the country. What’s more, service sectors such as
insurance, finance, information and communications. transportation experienced an increase in
the level of employment. All in all, the employment conditions in the country have improved in
the recent past.
Economic Concepts and Models
It is imperative to note that labour economics is one of the main microeconomic
concepts. In this case, it discusses labour economics in terms of demand and supply of labour by
individuals and firms in the economy. As such, unemployment refers to the condition where
people who are able and willing to work and are actively looking for employment opportunities
cannot secure a job under the current economic conditions. Today, there are various forms of
unemployment. They comprise of frictional unemployment, cyclical unemployment and

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structural unemployment. By and large, cyclical unemployment arises due to changes in the
business cycle of the economy. As a result, the level of cyclical unemployment increases
significantly when the economy is experiencing a recession and reduces when there is economic
growth. On the other hand, frictional unemployment occurs when the individual is in between
jobs. As such, when a person leaves a current job, it takes time to get a new job, thereby
experience frictional unemployment. Contrariwise, structural employment occurs due to a
mismatch between the skills of the workers and the skills needed for a particular job.
Specifically, it arises when the skills of the workers do not correspond to the skills that
employers seek for the job. In turn, this results in structural unemployment.
Aside from these main forms of unemployment, there are other forms of unemployment
that comprise of seasonal unemployment, under-employment, natural rate of unemployment and
disguised unemployment. Seasonal unemployment occurs in industries that are seasonal such as
tourism and agriculture. When the season is off-peak, individuals working in the sector remained
unemployed until the peak season. On the other hand, underemployment occurs when people
have a job but is either temporary or part-time. Therefore, even though they would like to work
full time and exploit their skills and expertise, they do not have the opportunity to work full-time
and earn only a part time income.
Discussion of economic concepts
As noted earlier, unemployment is a major economic problem in most modern economies
today. Therefore, a reduction in the rate of unemployment within an economy is always
welcomed. According to the article, the level of unemployment in the Singaporean economy
dropped in the first quarter of this year. Additionally, the rate of retrenchment in the country has

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also reduced significantly over the past few months. By and large, unemployment in the country
is caused by various factors. Thus, the government of Singapore has initiated various
mechanisms to help keep the rate of unemployment in check and at a low rate. In turn, this has
brought about a reduction in the rate of joblessness in the country over the past few years.
Causes of unemployment
There are various causes of unemployment. Predominantly, it is caused either due to
deficiency in demand or deficiencies in the supply side. Nonetheless, it is worth pointing out that
different types of unemployment are caused by different factors. Firstly, structural
unemployment is caused by various factors in the economy. Mainly, it arises from a mismatch of
skills in the labour market arising from occupational immobility (Amadeo, 2018). Primarily, this
refers to the difficulties that exist in learning new skills required in a new industry or changes in
technology within the industry. Structural unemployment is also caused by geographical
immobilities. Precisely, this refers to the difficulties that arise due to challenges in moving across
regions to get a job. In the same way, structural changes in the economy may bring about
significant changes in the number of jobs in the economy.
In the same way, unemployment may result from high wage rate regimes in the country.
As such, when the minimum wage in the country is set at a high rate due to a competitive labour
market, the equilibrium wage rate is pushed upwards. When the wage rate are high, employers
are forced to incur expenses as wage costs. In turn, they are forced to cut down on costs by
reducing the number of employees in their workforce. In the figure below, the market wage rate
(W2) is above the equilibrium market rate (W1). At this point, the demand for labour (Q1) in

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the market is lower than the supply of labour (Q3). As a result, there is an increase in the level of
unemployment in the market that is equivalent to (Q3-Q1).
W S=AC
w2
w1
D
Q2 Q1 Q3
Source: (Economics Help, 2018).
On the other hand, cyclical unemployment is caused by demand deficiency in the
economy. This occurs mainly when the economy is operating below full capacity. Particularly,
during a recession, the aggregate demand falls significantly, thereby leads to a decline in the
overall output in the economy and, thus, a negative economic growth. A fall in output in the
economy implies that firms are forced to lay off some workers because of the reduction in the
level of production (Causes of Unemployment, n.d.). In turn, this causes an increase in the level
of joblessness in the country.
Impact of unemployment

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It is worth noting that unemployment has significant negative impacts on the economy
and society as a whole. On the individual level, a high rate of joblessness in the economy implies
that unemployed households lack the income to purchase basic needs and services. On the
economy level, a rate of unemployment means a reduction in the aggregate demand of a country.
As such, fewer households have money to purchase goods and services in the economy, and
hence, lead to a reduction in production by firms in the economy.
Government policies on unemployment
The Singaporean government has taken an active role in reducing the level of
unemployment in the country. Firstly, to reduce the rate of structural unemployment the
government has initiated training facilities across the country (Seow, 2016). These training
facilities aim at equipping the Singaporean workforce with the demand for skills in the country.
In turn, this has gone a long way in reducing the rate of unemployment in the country.
Conclusion
All in all, all factors taken into consideration, unemployment is a significant economic
problem for many economies of the world. According to the article, the Singaporean economy
has been experiencing a reduction in the rate of unemployment over the past few months. Today,
there are various forms of unemployment among them frictional, structural and cyclical
unemployment. In most cases, the unemployment in the country is caused by demand deficiency,
mismatch in skills, high wage rates, and changes in the business cycle. However, the government
has taken an active role in reducing the level of unemployment through training. In turn, this has
helped keep the unemployment rate low.

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References
Amadeo, K. (2018). Seven Causes of Unemployment. The Balance. Retrieved 13 June 2018,
from https://www.thebalance.com/causes-of-unemployment-7-main-reasons-3305596
Causes of unemployment (n.d.). Economics Help. Retrieved 13 June 2018, from
https://www.economicshelp.org/macroeconomics/unemployment/causes/
Rahman, R. (2018). Retrenchments fall to near 7-year low, unemployment rate declines. Channel
News Asia. Retrieved 13 June 2018, from
https://www.channelnewsasia.com/news/business/unemployment-singapore-
retrenchments-manpower-ministry-10181024
Seow, J. (2016). Parliament: New measures to help unemployed Singaporeans and employers
who take them on. The Straits Times. Retrieved 13 June 2018, from
https://www.straitstimes.com/singapore/manpower/new-measures-to-help-unemployed-
singaporeans-and-employers-who-take-them-on
Shafer, M. (2015). Economic Concept: Unemployment – Causes, Solutions and Myths!. Matt
Shafer. Retrieved 13 June 2018, from http://mattshafer.us/economic-concept-
unemployment-causes-solutions-and-myths/#.WyBIdyBRXIU