Productivity, technical and efficiency change in Singapore's services sector, 2005 to 2008

Abstract

The current study was motivated by statements made by the Economic Strategies Committee that Singapore's recent productivity levels in services were well below countries such as the US, Japan and Hong Kong. Massive employment of foreign workers was cited as the reason for poor productivity levels. To shed more light on Singapore's falling productivity, a nonparametric Malmquist productivity index was employed which provides measures of productivity change, technical change and efficiency change. The findings reveal that growth in Total Factor Productivity (TFP) was attributed to technical change with no improvement in efficiency change. Such results suggest that gains from TFP were input-driven rather than from a ‘best-practice’ approach such as improvements in operations or better resource allocation.

Keywords:

• total factor productivity
• technical efficiency
• Malmquist productivity index
• service sector

JEL Classification::

• D24
• L80

Notes

¹ These plans were launched in 1999, 2000 and 2001, respectively.

² The services sector contributed about 62% to GDP and employed about 77% of total employment (Singapore Department of Statistics, 2007, 2010).

³ The study period 2005 to 2008 was chosen as these were the years that showed a significant fall in productivity.

⁴ Growth for efficiency change for these two periods was 1.4% and 5.2%, respectively.

⁵ Kong and Tongzon (2006) identify this industry as ‘Catering’ which is mainly services in ‘Food and beverages’.

⁶ ‘Construction’ industry also hires considerable number of foreign workers but this industry is not covered in the study.

⁷ This majority is in terms of employment size. The proportion of establishments hiring less than 10 persons was 58% (3049 out of 5244).

⁸ The proportion of establishments hiring less than 10 persons in 2007 was 90% (17 510 out of 19 493).