Lee said structural unemployment will increasingly be a problem as the workforce grows older and competition from China and India heats up.

Singapore's unemployment rate fell from 4.5 percent at end-June to 3.4 percent at end-September -- its lowest level in five years -- as strong economic growth in the first half of 2004 created more jobs.

"We would be wrong to think that we have permanently solved our unemployment problem," Lee said in a speech at the launch of a programme to encourage workers to continually upgrade their skills through training and education.

"I believe that structural unemployment will increasingly be a problem, and our unemployment rate is not likely to go down to 1-2 percent like in the late 1980s and early 1990s."

He said competition from China and India, both upgrading their economies, has altered the competitive landscape for Singapore, Southeast Asia's most advanced economy.

The city-state must now upgrade its capabilities to adapt to the changes and this requires workers, especially the older ones, to improve their skills in order to find jobs in new industries that may emerge.

"Unless the displaced workers can learn these new skills, they will not be re-employed and our structural employment will go up," Lee said, adding that older workers were the most vulnerable.

Lee said older workers must be prepared to learn new skills or even retrain and switch industries.

Under a skills development fund, the government earmarks S$100 million (US$60 million) annually to retrain workers and help them fit into new jobs.

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