2019 GCE A Levels H2 Paper 2 Questions and Suggested Answers (Q5a)

The 2019 GCE A levels Paper 2 (9757/02) is a rather surprising paper in the sense that all essay questions are of 10/15 mark split, and there are no 25 mark full question. This departs from the past year papers where at least there would be at least one 25 mark full question on microeconomics and macroeconomics section.

Apart from the skills-based approach that I have espoused in showcasing content to the examiners, I also see an increased tendency for examiners to test the "newer" addition to the syllabus such as question 5a:

Explain what is meant by inclusive growth and sustainable growth (10)

Suggested Answer:

Inclusive growth refers to economic growth which allows the low-skilled workers to be productively employed, thereby leading to a fall in income inequity. Sustainable growth refers to economic growth which can be achieved without causing significant economic problems such as environmental degradation and resource depletion, which could hamper future economic growth prospects.

For inclusive growth in the case of Singapore, the focus is on education and training rather than income redistribution as the main approach to reducing the skills gap between high-skilled and low-skilled workers, which addresses the root cause of the income gap. It is widely recognised that the income gap in Singapore is rising due to the forces of globalisation, technological advances and economic restructuring. Globalisation, which refers to increased flows of trade and investment among economies, has led to multi-national corporations relocating their operations to lower-cost destinations such as Thailand and Vietnam. For example, certain disk-drive and engineering equipment parts have been out-sourced or off-shored to overseas manufacturing, which resulted in retrenchment of low-skilled workers. Furthermore, the increased usage of labour-saving automation such as self-serving cashier machines has displaced the jobs of low-skilled workers, as part of the restructuring of the economy towards a manpower-lean economy. Consequently, there had been high structural unemployment of low-skilled workers. To reduce the skills gap and hence the income gap, it is imperative that the government introduce education and training schemes to allow displaced workers to possess the requisite skills and knowledge to work in higher value but labour intensive, service-oriented industries such as tourism and hospitality, consequently achieving economic growth. Furthermore, low-skilled workers who faced stagnating wages due to low labour productivity can upgrade their skills to either move to high value jobs or operating more efficient equipment so that their labour productivity (i.e. value of output per man hour) rises. When the labour productivity rises, the unit labour costs for firms will fall, which allows for wage increases without hurting cost competitiveness of the firm. This will hence improve the wages of low-skilled workers and hence reduce income inequity. More importantly, the fall in unit labour costs and rise in productive capacity from improved skills will increase both the short-run and long-run aggregate supply, thereby resulting in actual and potential growth.

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In the above diagram , the rise in aggregate supply (rightwards and downward shift) leads to both a rise in actual growth from Y0 to Y1 and a rise in potential growth from Yf0 ot Yf1.

For sustainable growth, the main focus is on environmental sustainability as failure to do so will curtail economic growth in the long-run. For example, if economic growth led to environment externalities such as pollution and global warming, it would reduce labour productivity which will decrease economic growth. Also, if economic growth led to depletion of non-renewable resources, there will be less resources available for future economic growth. Therefore, governments intervene in the markets to achieve sustainable growth. There are two main mechanisms to achieve this: pricing and limits. To achieve true pricing of goods with environmental externalities such as electricity generation, the government can impose a tax to ensure that the polluting firms internalise the negative externalities. While this may increase industrial cost of production and hence affect the cost and price competitiveness of goods produced in the economy in short-run, it will improve the health and productivity of workers in the long-run, thereby achieving higher future economic growth. Furthermore, limits should be placed on resource harvesting such as wild plants or fishes so that they will not be depleted and conserved for future economic growth. While this may lead a slower growth in the present, it will lead to a higher level of economic growth in the future.

To conclude, the concepts of inclusive economic growth and sustainable economic growth is opposed to the growth-at-all-costs strategy which appears to achieve higher short-run economic growth at the expense of long-run economic growth. In other words, the pursuit of economic growth should take into consideration of environmental sustainability and inclusion of low-skilled workers, in order for economic growth to continue in the future.