Subdued wage growth amid gradual labour market recovery: MAS

Subdued wage growth amid gradual labour market recovery: MAS

Singapore’s labour market “may have reached a turning point” amid better economic prospects but with the recovery likely to be gradual, wage pressures will not accelerate in the near term, the central bank said.

Workers cross the road in the central business district of Singapore. (File photo: AFP/Simin Wang)

SINGAPORE: While there are signs of improvement in the local labour market, the recovery will likely be gradual with resident wage growth expected to increase only slightly in the near term, the Monetary Authority of Singapore (MAS) said on Friday (Oct 27).

In its biannual macroeconomic review, the central bank said the job market “may have reached a turning point” following several quarters of weakness. It cited a couple of indicators that pointed to an improvement in the labour market, in line with the “modest pick-up in hiring” in some external-oriented sectors.

For instance, overall retrenchments moderated to 7,640 in the first six months of 2017, from 9,660 in the second half of 2016. Over the same period, overall job vacancy rate edged up for the first time since the first half of 2014.

While overall employment in the first half of the year contracted further by 14,100, MAS said it was largely due to job losses in the low-skilled foreign workforce from the construction and marine and offshore engineering sectors. Excluding these sectors, net job gains were comparable to the same period a year ago.

MAS also noted that vacancies for the professionals, managers, executives and technicians (PMETs) have shown a “slight improvement” in the first half of 2017, compared to the same period last year – thanks to the growth recovery in external-oriented services.

“This group had experienced a rise in retrenchments since 2010 and could potentially see higher re-entry rates alongside the pickup in vacancies,” it added.

Moving forward, overall labour demand is expected to improve on the back of hiring in the modern services and community, social & personal (CSP) services, as well as for the year-end festivities.

Excluding the construction and transport equipment industries, which are likely to continue shedding workers, net overall job gains in 2017 are likely to be in line with last year.

Still, the MAS said “previously accumulated slack in the labour market will take time to be absorbed”.

As a result, the overall and resident unemployment rates will likely remain close to its current level in the near term.

Wage pressures are thus unlikely to build up rapidly, even as the improvement in productivity growth continues into next year, the central bank added.

The report, which contains MAS’ take on Singapore’s economic performance and outlook, said resident wage growth is expected to increase only slightly in the second half of 2017 and remain somewhat below its historical average into 2018.

JOB MARKET RECOVERY – HOW LONG MORE?

Also released on Friday, preliminary data from the Manpower Ministry showed a decline in the overall and citizen unemployment rates, while the resident unemployment rate remained unchanged.

Retrenchments were unchanged over the quarter, and remained lower than the same period a year ago. Total employment continued to fall but at a slower pace, thanks to continued job growth in services.

While Singapore’s GDP growth has accelerated over the past two quarters, the job market has yet to follow suit in the speed of recovery.

This lag between the recovery in the labour market and the real economy is “normal”, said Nomura economist Brian Tan.

“Even though there’s been a pick-up in demand, you need to wait until firms become more comfortable with the idea that the pick-up is sustainable before they start hiring. Besides, it takes time to find workers as well.”

But there are also other issues at play.

For one, some sectors in the economy continue to flounder, such as the construction sector and the marine and offshore engineering cluster where job losses persist.

With the Singapore economy in transition, the issue of structural unemployment – caused by a mismatch between the skills of workers and those required by employers – could also hinder the pace of recovery in the labour market.

“Skills mismatch remains a growing problem. There are job vacancies but some workers don’t have the skills to take on these new and high-growth jobs, such as those in the IT sector,” Mr Tan told Channel NewsAsia.

As such, the Nomura economist said he remains “agnostic” on whether the local job market has reached a turning point.

“The labour market will take time to recover and see the accumulated slack gradually whittle down. Hence, wage growth may be quite slow in picking up,” he added.

Source: CNA/sk

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