Singapore's unemployment rate: How much higher could it rise?

Singapore's unemployment rate: How much higher could it rise?

Though low by international standards, Singapore’s jobless rate could increase further as the economy wrestles with similar pressures seen in other developed countries, Prime Minister Lee Hsien Loong cautioned in his May Day speech.

File photo of workers at Raffles Place. (Photo: TODAY)

SINGAPORE: As Singapore wrestles with slower economic growth and disruptive technological changes, challenges have emerged in the local labour market.

In his annual May Day speech, Prime Minister Lee Hsien Loong noted that unemployment increased last year and even with better growth in 2017, the Government expects a "steady trickle of redundancies" as the economy continues to restructure.

He added that other developed countries are seeing much higher unemployment of between 5 to 10 per cent, and as Singapore grapples with similar pressures as these mature economies, the overall unemployment rate – which stood at 2.3 per cent as of March 2017 – “will gradually go up”.

Pressures that such economies face include an ageing workforce, technological changes and a global economy that has yet to completely shake off the ills of the 2008 global financial crisis, economists told Channel NewsAsia.

Across the euro zone, the jobless rate stood at 9.5 per cent in March. The US is faring somewhat better, where although the economy remains stuck in low gear there is diminishing job market slack. The March unemployment rate came in at 4.5 per cent – the lowest since 2007.

To be sure, there are some outliers: Japan continues to see a low jobless rate of 2.8 per cent amid a falling birth rate and ageing population.

But to have zero or minimal unemployment in a functioning developed economy is “impossible”, economists said.

“In any healthy economy, there will always be people switching jobs or graduates joining the labour force so there will always be some degree of frictional unemployment,” explained Nomura economist Brian Tan. “This in itself is not a problem… because it is impossible to have a zero per cent unemployment rate, which is a common misperception.”

In addition, cyclical downturns or shifts in industries which render jobs and skills obsolete will also lead to structural unemployment, which is caused by a mismatch in the skills of a worker and those required by an employer. 

Unemployment in Singapore remains relatively low by international standards and that boils down to reasons such as having a small and educated workforce, as well as extensive planning by the Government to ensure the economy stays on the right track, according to economists.

“We have a very thoroughly planned economy and that’s why we are able to stay relevant. Even though we are a tiny city-state, we have managed to attract foreign investments that create business opportunities and jobs that are more than enough for our local labour force,” said Mr Song Seng Wun, regional economist at CIMB Research.

A sizeable proportion of foreign workers in Singapore has also provided some "buffer for unemployment", according to labour economist Walter Theseira from the Singapore University of Social Sciences (SUSS).

"In developed countries, the proportion of foreign workers is much lower, and many foreigners are also entitled to stay on in the country without work, unlike Singapore. So when people lose their jobs, they become unemployment statistics. (But) in Singapore, all non-Singaporeans who lose their jobs just go home.”

Office workers walk to the train station during evening rush hour in Singapore's financial district. (File photo: Reuters/Edgar Su)

REMAIN CAUTIOUS BUT NO REASON TO BE TOO PESSIMISTIC: ECONOMISTS

But amid expectations for the local labour market to soften further, how bad could things get?

Economists that Channel NewsAsia spoke to do not think that unemployment will return to the levels of 3.3 per cent and 4.8 per cent, last seen during the 2008 global financial crisis and the Severe Acute Respiratory Syndrome (SARS) epidemic in 2003, respectively.

"We are not in an outright recession here and there's no financial crisis brewing in the horizon so there's no reason to be too pessimistic or expect a sharp spike in the near-term unemployment rate," said OCBC Bank's treasury research and strategy head Selena Ling, who expects jobless figures to stabilise around 2.5 per cent this year.

For unemployment to hit new highs of 5 per cent or more would require a “severe recessionary situation”, said CIMB’s Mr Song.

“It would be cyclical downturns such as the 1997/1998 Asian financial crisis, the dotcom bust in 2001, the SARS outbreak in 2003 and the global financial crisis in 2008… when businesses are so afraid that they freeze hiring altogether," he added. "I don’t see that in the near future.”

Still, worries linger ahead even as recent data portray a rosier growth outlook for Singapore.

Thanks largely to an export-led rebound in the manufacturing sector, which makes up one-fifth of the economy, Singapore's gross domestic product (GDP) picked up speed in the last quarter of 2016 and the positive momentum has since extended into the first three months of 2017.

But economists have called this an "uneven recovery", given that the turnaround appears limited to just the electronics and biomedical manufacturing clusters.

"We remain very cautious and think that the labour market will continue to weaken," said Nomura's Mr Tan. "The recent pick-up in GDP is driven by certain segments within manufacturing but if you look beyond that, other parts of the economy are not doing well."

Ms Ling agreed, noting that the bulk of employment growth remains driven primarily by the services sector. "Manufacturing has not been creating net jobs so the contribution to growth over the past few months may not translate into an uptick in labour demand."

The challenges faced by the labour market are not just about decreasing job creation and rising lay-offs due to a slower economy. Instead, a bigger worry looms in the form of structural unemployment, experts said.

Unlike previous economic downturns where jobs were hard to come by, there remain employers in Singapore that struggle to fill positions, such as those in the burgeoning IT industry. This boils down to unrelenting technological developments that have widened the gap between the skill sets that workers have and the ones that employers want.

"We shouldn't discount the bigger issue of industry and technological change. When entire industries change, jobs get automated and become obsolete," said Mr Tan.

"We are starting to see rising structural unemployment, especially among the higher-skilled older PMETs (professionals, managers, executives and technicians). They have become so specialised that if the industry goes downhill and they lose their jobs, they are in trouble because their skill sets are not transferable," he added.

The Government has on several occasions flagged its concerns about growing mismatches between jobs and the skills of the labour force. Earlier this week, Manpower Minister Lim Swee Say said that a shortage of skills is likely to be the catalyst for higher unemployment in the future, rather than a lack of jobs.

Because ultimately, it all depends on how fast Singapore restructures its industries to remain competitive and the ability of its workers to develop new skills to stay relevant.

Said Dr Theseira: "It is entirely possible to have economic growth and a recovery without growth in jobs. The global economy could recover but the benefits could bypass us. It very much depends on whether the Singapore economy is positioned to take advantage of global growth, and whether Singaporeans have the right skills and interest in taking up the jobs that are created."

Source: CNA/sk

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