This paper studies the factors responsible for the secular decline of Singapore’s unemployment rate over the period 1966-2000 in an environment of low and stable inflation rates. We introduce wage bargaining and unions into a specific-factors, two-sector economy with an export sector and a non-tradable sector to obtain an endogenous natural unemployment rate. Increases in the relative export price and capital stock in the export sector are predicted to reduce structural unemploy-ment. These hypotheses could not be rejected based on structural estimations and co-integration regressions. Empirically, capital accumulation in the export sector explains most of the decline in Singapore’s unemployment rate.