Logistics

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Another point worth mentioning is the time taken for the increase in government’s spending to help businesses and Singaporean households. The effectiveness is limited, firstly by time restraints, as an increase in government expenditure (G) does not instantly cause a shift in the short-run aggregate supply (SRAS). This is because supply-side policies subsidised by the government, including retraining and upgrading of skills, take time for workers to learn. Though the government launched the Skills Programme for Upgrading and Resilience (SPUR) which provided higher course fee support for companies and individuals and absentee payrolls for companies that send their workers for training, with course fee subsidies increased from 80% to 90% including all specialist and advanced diplomas offered by polytechnics, time taken to master these skills may mean that employees are unable to secure their jobs if the economy faces an even worse recession. Productivity should also rise with these supply-side policies put in place in time, otherwise the upward sloping range of the AS curve will not shift left due to a reduced cost of production, and businesses will instead layoff more workers to cut profit losses and hence be ineffective in reducing unemployment in Singapore.

The SPUR scheme is also not fool-proof, and requires workers to have the aptitude, age and attitude for learning new skills. Without one of the three, it will be difficult for productivity to rise as desired as workers may not be able to internalize skills learnt and hence curb structural unemployment in Singapore. Also, the increase in government expenditure during the recession, coupled with tax rebates, imposes a severe strain on government budge, and thus in 2009, the government had to draw upon its past reserves to put forth this budget. This meant less money in the state coffers and if we do not recover from the recession quickly, our limited reserves may be exhausted in the long run and place our government at risk of not being able to finance our debts.

However, given the dire economic conditions as set out upon by the recession, while the budget may be limited in reducing unemployment, it has supply-side effects that can help to improve the economy’s productive capacity in the long run. Also, any increase in the AD through government expenditure to improve our economic conditions and reduce cyclical unemployment is better than none at all. As such, the government’s policy in reducing unemployment can still be considered rather effective.