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Do Real Wages Matter in an Open Economy? The Case of Singapore: 1966-1987

Richard Disney and Soo Kiang Ho

Oxford Economic Papers, 1990, vol. 42, issue 3, 635-57

Abstract: Singapore is generally regarded as a small open economy which has pursued a successful export-oriented strategy. Government policy towards the labour market has been of crucial importance. This paper describes these policies and derives and estimates employment equations for both traded and non- traded sectors. As expected, traded sector employment is highly responsive to the level of the real wage in Singapore, as well as to the level of demand in Singapore's export markets. This result does not carry over to the non-traded sector, hinting at some degree of segmentation in the labour market. The impact on employment of legislation designed to encourage foreign investment, and the effect of the policy of high wage rises adopted after 1979 in order to stimulate productivity growth, ar respectively estimated and simulated using the derived employment equation. Copyright 1990 by Royal Economic Society.

Date: 1990
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