The government's presence is evident in four key aspects of the labour market. Firstly, the system of industrial relations is unique because of the “symbiotic” relationship between the labour movement and the dominant political party, the People's Action Party (PAP). It has also evolved, to use the phrase of Lee (1985), from one of confrontation to one of consensus building. Secondly, a form of wage policy is practised in Singapore as the National Wages Council (NWC) recommends across-the-board nominal wage increases for the entire economy every year. These wage guidelines are not mandatory but are followed by the public sector (by far the largest employer) and widely implemented in the private sector. Thirdly, the Singapore market is also unique in that there is a sizeable presence of temporary foreign labour. While these foreign workers can be freely repatriated as demand falls, the inflow of these workers is controlled by the issue of work permits and employment contracts. The government, therefore, effectively controls the intake of foreign workers into the country. The fourth feature of government involvement in the labour market is in manpower training. Education in Singapore at all levels is very heavily regulated by the Ministry of Education. There are very few private primary or secondary schools and no private tertiary institutions. The government, therefore, is largely responsible for the training of the labour force and for its skill composition.

The labour market is at the core of the challenges facing the Singapore economy today. As was pointed out in the previous chapter, high labour costs have been a contributing factor to the 1985–86 recession. Having recognized this, the government and the trade union leaders have had to persuade the grass-roots to accept a period of wage restraint so as to lower labour costs. At the same time, there was a one-shot reduction in total labour cost when the employer's contribution to the Central Provident Fund was lowered from 25 to 10%, which effectively lowered total labour cost by about 12%.