The Impact of DRC Reduction On Local Retailers

It was announced by the Singapore government that from 1 January 2020, the Dependency Ratio Ceiling (DRC) would be lowered from the current 40 per cent for the retail sector, to 38 per cent. The DRC will be further reduced to 35 per cent from 1 January 2021. This will force the local retailers to transform in a bid to reduce their dependency on foreign workers. With guidance from your economics tutor in economics tuition, discuss the impact of the reduction in DRC on local retailers. You may sign up for economics tuition with a reputable economics tutor should you need help with the subject.

Foreign Worker Quota

Foreign worker quota is computed based on the company’s total local workforce. The local workforce comprises Singaporeans and Permanent Residents in the company. For example, if a local retailer has 60 employees who are Singaporeans and Permanent Residents, the company is allowed to employ up to 40 foreign workers based on a DRC of 40 per cent, including Work Permit holders and S Pass holders. It is important to note that Employment Pass holders will not take up foreign worker quota. This is obviously a reflection of Singapore government’s objective to restrict the number of low-skilled foreign workers while attracting foreign talents, professionals with higher qualifications and specialised skills. In consultation with your economics tutor in your economics tuition class, explain why the government’s objective to restrict low-skilled foreign workers while attracting foreign talents with higher qualifications.

With DRC reduced from 40 per cent to 38 per cent from 1 January 2020, the same local retailer will only be allowed to employ up to 36 foreign workers with the same local workforce of 60. This will be further reduced to 32 based on DRC of 35 per cent from 1 January 2021. You may discuss with your economics tutor in economics tuition the possible solutions for local retailers.

Impact on Local Retailers and Possible Solutions

Retail sector is cited by Finance Minister Heng Swee Keat as “very labour-intensive”. Even before the tightening of foreign worker quota, the local retailers had been facing critical manpower shortage. Generally, Singaporeans are reluctant to join the retail sector, due to the long working hours and relatively low pay. The reduction in foreign worker quota may force local retailers to increase the pay in order to attract more locals to join them. Foreign workers (Work Permit and S Pass holders) are subject to a levy ranging from $300 to $800 per person per month. In addition, employers are responsible for their air tickets to and from Singapore during the period of employment, as well as full medical expenses, regardless whether they are incurred by work-related illnesses or injuries. Given all these, it may be less costly for local retailers to employ locals instead of foreign workers. In discussion with your economics tutor in your economics tuition class, compare the cost and benefit of employing locals and foreign workers. Mr Edmund Quek is an experienced economics tutor renowned for his ability to incorporate real world events into his economics tuition. To learn more about this economics tutor and his economics tuition, please visit www.economicscafe.com.sg.

Some have cited digital transformation as the solution to the problem. Some local retailers have adopted cashless payment to free up manpower to manage the cashier counters, among other digital solutions like automation and robotics to save manpower. Others are looking at improving productivity to alleviate the manpower shortage. However, technology is not the solution for all local retailers due to the huge capital outlay required, especially those companies that are not qualified for government grants. There is also a limit to how many headcounts the local retailers can cut as retail is a service-oriented sector. Compared with other sectors, technology like automation and robotics may have limited applications in retail.

Linda Geng

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