Analysts say greater labour productivity needed to hit GDP growth target
- POSTED: 13 Sep 2013 20:53
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Analysts say there must be a push towards greater labour productivity for Singapore to achieve its 3 to 3.5 percent GDP growth target.
SINGAPORE : Analysts say there must be a push towards greater labour productivity for Singapore to achieve its 3 to 3.5 percent GDP growth target.
They made the comment following the release of the labour market report on Friday by the Ministry of Manpower.
The Ministry said unemployment remains low in Singapore; it also indicated that the labour market is expected to remain tight for the rest of the year.
Singapore's seasonally adjusted unemployment rate rose 2.1 percent in June 2013, up from 1.9 percent in March.
Total employment in Singapore rose by 33,700 in the second quarter of 2013, higher than the 28,900 gain in the previous quarter and 31,700 in the second quarter of 2012.
This brought total employment to 3,420,200 in June 2013, which was 4.0 percent higher than a year ago.
Data from the Ministry showed this was largely driven by jobs in the services and construction sector.
But dig a little more beneath the surface and there are some concerns.
Redundancy rates are still rising, totalling 5,200 in the first half of 2013 compared to 4,810 in the first half of last year.
Standard Chartered Bank economist Jeff Ng said: "The labour market is still much below historical trends, reflecting that the labour market is still tight.
"Cyclical unemployment which is function of short term labour demand is still strong as evidenced in the strong showing in the labour market so far.
"But what could be a concern in the medium term is the increase in structural unemployment which is due more to job mismatches than short term labour demand situation."
DBS Bank senior economist Irvin Seah said: "We're seeing retrenchment numbers rising as well as the job vacancies-to-unemployed ratio. In other words, now we're seeing less job vacancies available.
"For example in the previous quarter we usually have about 121 vacancies to 100 workers that are unemployed, now it's down to 112 to 100. So the number of job opportunities available for those unemployed will be lesser going forward."
Mr Ng said: "Short-term wise, a tight labour market doesn't impact that much but in the medium term for Singapore to achieve the upper end of its 3.5 percent growth target, I think productivity growth is a key factor especially for the labour force.
"Right now we've not see a lot in the labour productivity growth but I think the Singapore government has taken many steps to improving productivity for Singapore companies and the labour force. I think it is moving in the right direction."
Job mismatches stem from the ongoing economic restructuring as the government continues to push for less reliance on foreign workers.
Meanwhile, the government has indicated that the labour market will remain tight.
But a tighter labour market doesn't necessarily lead to higher wages either.
Mr Seah noted: "When you have higher labour costs, it means higher nominal wages and implies higher income for most Singaporean workers. But that being said, this could lead to higher cost-push inflation because companies would push the higher labour cost to consumer and this could erode the income gain.
"When the increase in inflation falls below the increase in nominal wage then we can see some real improvement in income."
And when it comes to cost competitiveness in some sectors, there are others in the region that fare better.
Mr Seah said: "In the manufacturing arena, Singapore is still facing very stiff competition from some of the regional players such as Indonesia, Malaysia Vietnam and Thailand. They still command significant cost competitiveness over Singapore.
"This tightening in foreign labour policy has led to significant increase in labour cost and eroded the margins for local manufacturers. We've seen some of the local SMEs who are in manufacturing relocating to Iskandar Malaysia in order to maintain the cost advantage."
In the short to medium term, analysts say jobs in the manufacturing sector will bear the brunt of economic restructuring. They say companies in this sector must do more to enhance productivity in order to move up the manufacturing value chain.