The first quarter domestic unemployment data for this year is the tip of the iceberg since the circuit breaker restrictions only kicked in from April to May 2020, says OCBC economist Selena Ling.
SINGAPORE: The worst may be over for Singapore’s GDP growth, but the business climate and the domestic jobs market may still face a challenging climb ahead.
Singapore’s total unemployment rate rose marginally to 2.4 per cent in the first quarter of 2020, with the Singaporean unemployment rate also increasing to 3.5 per cent and that for residents inched marginally upwards from 3.2 per cent to 3.3 per cent.
While this is much lower than the 4.8 per cent seen in the third quarter of 2003 during the post-SARS period and the 3.3 per cent in the third quarter of 2009 during the Global Financial Crisis, total employment has nevertheless already declined by 19,000 jobs – the largest quarterly contraction since SARS, which saw 24,000 jobs lost in the second quarter 2003.
The latest Monetary Authority of Singapore annual report published last week warned that certain industries or activities may be permanently impaired by the COVID-19 crisis due to various factors including shifting supply chains and consumer demand patterns. This could also translate into important implications for the labour market in the second half of 2020.
TIP OF THE ICEBERG
However, the first quarter domestic unemployment data for this year is only the tip of the iceberg since the circuit breaker restrictions only kicked in from April to May 2020.
Already many workers, especially those in the worst-hit services industries such as tourism, hospitality, retail and F&B, have reported cuts in working hours and salary reductions, if not outright retrenchments.
On the flip side, the financial services and insurance sectors still saw a net increase of 2,200 jobs in the first quarter of 2020, and may continue to hire for roles in business development, financial analysis and software development.
Still, there is a significant amount of uncertainty attached to the expected recovery trajectory for the rest of this year and how much of a fall out can be anticipated in the domestic labour market.
For instance, the International Labour Organization estimated that 5.4 per cent of global working hours – equivalent to 155 million full-time jobs – were lost in the first quarter of 2020. This could surge to 14 per cent worldwide in the second quarter, which is equivalent to 400 million full-time jobs.
Within the Asia-Pacific, the total working hour loss is estimated to be at 13.5 per cent – equivalent to 235 million full-time jobs – in the second quarter.
For the global travel and tourism industry, employment losses are expected to top 100.2 million jobs this year due to the COVID-19 pandemic, with the Asia-Pacific market likely to see the biggest decline of approximately 63.4 million jobs.
Many workers were put on temporary leave while remaining technically employed, whereas others were being pushed into unemployment and inactivity.
PRESSURES REMAIN AHEAD
Singapore is unlikely to be immune to these forces.
Labour market indicators typically lag the economic cycle so it is likely that as business cost-cutting intensifies and closures rise, especially as the Budget measures phase out later this year, layoffs may increase even if the Singapore economy bottoms out in the second quarter.
That said, the SGUnited package to create up to 100,000 jobs and traineeships may go some way to mitigating a potential fall out in the domestic labour market, but it may provide only short-term relief.
The unemployment rate is likely to rise in the coming months and quarters, especially if the global and domestic demand rebound falters after the re-opening of economies.
Singapore’s hiring outlook for the third quarter is actually the weakest since 2009, with 38 per cent of firms polled tipping a reduction in headcount compared to the second quarter of 2020, according to a Manpower survey.
Anecdotally, the tourism sector remains a key area of concern, especially with the recent announcement by Resorts World Singapore to lay off a portion of its more than 7,000 employees, with market speculation that more job losses are in the pipeline.
SHOULD THE JSS BE EXTENDED?
So what can be done to head off a potential labour market crunch?
Admittedly, much has already been done through the four consecutive Budgets amounting to nearly S$100 billion, equivalent to 20 per cent of GDP, given the unprecedented nature of the COVID-19 pandemic.
Swift policy intervention in the form of a myriad of measures ranging from the Jobs Support Scheme (JSS) to rental rebates and cash handouts to individuals has helped.
Now that Singapore, like many other economies globally, is restarting its economic engine after the circuit breaker, a legitimate concern would be if a premature withdrawal or consolidation of the “whatever it takes” approach of government stimulus and interventions would risk destabilising the labour market.
However, finding the right balance and sequencing of policy interventions will be key.
The Government may choose to extend the JSS beyond the current expiry date, albeit possibly with tiered and less generous calibrated terms to wean firms off the wage subsidy as the Singapore economy reopens for business and recovers.
Looking elsewhere in the world, global policymakers are also having a similar line of thought.
The US is considering extending its unemployment benefits, albeit at a lower scale, from the current US$600 to US$450 per week.
Australia will also decide how to adjust the JobKeeper payment of AUD$1,500 per fortnight per employee, if the business has suffered a turnover decline of more than 50 per cent, in phases from Sep 27 onwards so they will not suddenly be removed.
Meanwhile, the UK has also extended its Coronavirus Jobs Retention Scheme, which is a furlough scheme, from May to October where workers who have been placed on leave will receive 80 per cent of their pay up to 2,500 pounds per month.
What is clear is that the jobs focus is likely to remain a priority in Singapore as reflected by the establishment of the National Jobs Council. The ongoing SkillsFuture month which will run until Aug 16, for instance, is also targeting jobseekers and encouraging employers’ awareness and participation in the SGUnited Jobs and Skills initiatives.
However, stemming the tide of retrenchments and unemployment in Singapore may require going beyond an extension of the JSS to find a sustainable solution that achieves the right policy balance while continuing to support the vulnerable.
If demand conditions do not improve, the current wage subsidy may be simply delaying the inevitable for some local workers.
GOING BEYOND JSS
Other policy options include unemployment insurance, which is already seeing an ongoing debate over it, and a minimum wage in addition to the current Progressive Wage Model.
While policymakers are keeping an open mind, there are concerns about whether displaced workers may be disincentivised from getting re-employed if there is unemployment insurance available as well as the willingness of employers to then pay retrenchment benefits.
The proponents of unemployment insurance would cite that prolonged unemployment could contribute to skills erosion and hence workers need a safety net against it.
As former chair of the Federal Reserve Janet Yellen warned, long-term unemployment can make any worker progressively less employable, even after the economy strengthens.
Let’s take a look at the statistics to help us decide if we need long-term policy changes to protect the unemployed or some additional effort to cushion the impact of COVID-19.
Singapore historically has a relatively low unemployment rate and while it has increased with COVID-19, it is nevertheless a far cry from the double-digit unemployment rates seen in some other countries.
Hiring intentions have clearly subsided with the ratio of job vacancies to unemployed persons also falling to a decade low of 0.71.
A significant proportion in the fall in the number of people employed year-to-date were borne by foreigners, according to the Ministry of Manpower, which suggests that foreign workers remain a safety valve to be turned up or down depending on the economic circumstances .
Although, the ratio of job vacancies to unemployed persons is the lowest in a decade, at the crux of the matter Singapore’s long-term unemployment rate is relatively low and stable at 0.9 per cent suggesting that time may still be on our side.
The jury is still out on this, but nevertheless, the need to support vulnerable groups and engender fair market outcomes is a necessary and enviable task which would require continued collective dialogue and accepting some out-of-the-box thinking to find an equitable and sustainable solution.
With digital disruption and the likelihood that many industries could take months, if not years, to recover, this will probably be a long-haul journey.
An ageing population may face increasing challenges to stay employable and employed in jobs of the future.
Hence, there may be a need to have a more granular view of where the jobs are at risk, with particular focus for the gig economy and freelance workers, while allowing for more flexibility to cross-deploy workers from industries and firms at-risk to where there is still labour demand and facilitate the skills training necessary for the transition.
The global experience has illustrated how the accommodation, F&B and retail sectors bore the brunt of the loss of jobs due to COVID-19 related lockdowns, whereas the accelerated shift into digital platforms and work-from-home arrangements has created a greater demand for labour in the information and communications technology (ICT) sector and digital economy, for example.
Reskilling workers at the speed required to manage economic dislocations will require jobseekers, employers, and training institutions to work ever more closely together in a concerted approach.
In return for the financial assistance given during the COVID-19 pandemic, local employers should also step up their game and commit to invest in worker training and upskilling efforts to ensure that the workforce is future-proof for the next crisis.
To achieve these aims, continued and targeted assistance to small and medium-sized enterprises, who employ the bulk of the domestic labour force, may be necessary for a longer duration.
Selena Ling is Head of Treasury Research and Strategy at OCBC Bank.