Singapore’s labour market could bottom out by end-2020, but uneven recovery may widen income gap: Analysts
SINGAPORE: Singapore’s labour market is likely to bottom out by the end of this year, but the recovery will be uneven, said economists.
According to figures released on Friday (Oct 30), the country’s unemployment rate rose to 3.6 per cent in September from 3.4 per cent in August.
The number of layoffs this year added up to 20,450 so far. Total employment shrank by another 26,900 in the third quarter after a record decline of 103,800 in the preceding quarter.
While the overall unemployment rate went up, it rose at a slower rate compared to previous months, and local employment grew by about 50,000.
On a quarter-on-quarter seasonally adjusted basis, the Singapore economy expanded by 7.9 per cent in the third quarter, rebounding from the 13.2 per cent contraction in the preceding quarter.
READ: Singapore's third-quarter GDP shrinks at slower pace of 7% after economy gradually reopens following circuit breaker
These figures show that the unemployment rate is close to reaching its peak - likely to be in the fourth quarter, said DBS senior economist Irvin Seah.
Labour numbers typically lag behind the growth cycle by about one to two quarters, he said.
Although unemployment has gone up, he added that the “pace of deterioration in the labour market is moderating”, especially as policy measures on creating jobs and preventing job losses have been gathering momentum. Job losses in the coming months will be less than the previous two quarters, said Mr Seah.
Still, growth in the labour market may not come so soon, economists cautioned. They expect the labour market to stabilise but stay sluggish after it hits bottom.
"Until ... something like the vaccine can make a difference is widely available (then) some of these labour-intensive sectors will have a bit more confidence in hiring workers again," said Bank of America economist Faiz Nagutha.
"Employers will remain cautious in their hiring - they will only start to increase their headcount when they see more pronounced improvement in their business earnings," added Mr Seah, who thinks conditions will flatline until the middle of next year.
The Monetary Authority of Singapore also warned on Wednesday that recovery in the jobs market would be protracted, and there would be further strain to labour demand going into 2021.
READ: COVID-19 downturn to be more prolonged than past recessions, slow recovery for jobs market: MAS
Analysts expect that the labour market will rebound unevenly - or what is known as a “K-shaped” recovery. Sectors that have been resilient will continue to hire, while the rest shed their workforce.
For instance, industries like technology, pharmaceuticals, financial services and electronics have outperformed the economy, largely due to demand for work-from-home tools and services as well as active pharmaceutical ingredients.
A DBS report released on Wednesday projected that while GDP growth for this year is expected to come in at -6.0 per cent, performance across sectors is considerably disparate, from -34.0 per cent in the hotels and restaurants sector to 7.5 per cent in financial services.
Employment data also highlighted the disparate nature of the economic impact.
Jobs were lost in nearly all industries in the second quarter of this year, but employment contracted much less in sectors that were stable, and even went up in the insurance and electronics manufacturing.
Unfortunately, the industries that are doing better right now are ones that are less labour intensive and might not be able to absorb that many workers who lost their jobs, said Mr Nagutha.
On the other hand, industries that have been badly affected mostly hire front-facing workers that command a lower salary, said Mr Seah, who called the pandemic a “highly regressive event”.
He referred to a separate report he and his colleagues published in August, which looked at the income earned by 1.2 million DBS retail customers. They found that 26 per cent of Singaporeans and permanent residents aged between 25 and 70 saw their incomes fall by at least 10 per cent in May.
Those earning S$2,999 or less made up 49 per cent - the largest percentage - of customers whose income fell by at least 10 per cent. Among this group, about one in two saw their incomes declining by more than half.
Sector-wise, the bank found that 81 per cent, 76 per cent and 50 per cent of customers in the aviation, hospitality and food services sectors respectively saw their incomes cut in May as compared to the average 24 per cent of customers in other sectors.
A K-shaped recovery could cause the income gap to widen and stall gains made by low-wage workers in the past five years, said Mr Nagutha.
He noted that between 2014 and 2019, the wages of residents in the bottom 20th percentile in Singapore grew at a faster rate of 4.4 per cent than those earning a median wage, which grew at 3.8 per cent.
READ: Income growth slows in Singapore; median salary now above S$4,500: MOM report
“This process could stagnate, or even reverse itself,” Mr Nagutha said.
Even if demand for dining out or shopping returns at substantial levels, many workers may not get their old jobs back.
For one, there have been caps on capacity, he said, citing safe distancing measures in place at food outlets.
“So at best, restaurants are in fact 60 per cent of what they used to do, 70 per cent of what they used to do. So you still have the 30 per cent,” he said.
“Perhaps you kept the workers because of the jobs support that the Government gave, and that’s going to wind down. Do you redo your math and say ‘okay, maybe do I still need the 30 per cent excess that I kept’. You may continue to shed that even as you are getting more people in.”
Businesses might also be reluctant to hire for fear of a new round of restrictions if there is another surge in COVID-19 cases.
Given that the pandemic has accelerated the use of technology, these labour-intensive businesses might have adopted digital tools and services that are able to replace some workers.
But observers said authorities have taken note of the gaps in the jobs market. One of the main priorities under the S$100 billion COVID-19 stimulus package has been to save jobs and introduce new ones.
More than S$21 billion has been given out so far under the Jobs Support Scheme - a 17-month wage subsidy programme to help firms stay afloat and encourage them to keep their employees.
Another wage subsidy scheme, the Jobs Growth Incentive which is aimed at encouraging firms to hire more locals started in September.
Without these handouts, the number of layoffs could have ballooned much more than what it is today, the analysts said.
There is also the SGUnited Jobs and Skills package aimed at creating more than 100,000 job and training openings, particularly for those who have been laid off.
READ: More than 2,100 opportunities available in logistics sector under SGUnited programme
“If we look at the kinds of opportunities available, especially when the skills do not match those that are in line with the changing trends … the Government is trying to address this (skills gap) with various training opportunities,” HL Bank’s senior treasury strategist Jeff Ng said.
Singapore also has the competitive advantage to tap global economic trends, he added, pointing to the development of 5G technology, as well as the country’s position in the growing Asia-Pacific region - particularly China, which saw its GDP expand by 4.9 per cent in the third quarter while most other economies contracted.
READ: China's economic recovery quickens in Q3 as consumption returns
However, he said the challenge remains in whether workers here have the right skills to cope with changes that are coming on quickly.
“I think during normal times, there could be a slow transition from the lower value-added economy towards a more higher value-added one, and definitely there's a lot of time for workers to slowly train and adapt to these changing conditions,” Mr Ng said.
“But at this current moment … the pace of change (is) at least five to 10 times more.”
Mr Nagutha said that the Government could in the meantime, dole out more financial assistance to those who are unemployed so that there is better job matching.
“We certainly do not want to encourage people to stop looking for jobs and stay unemployed, but we also want to make sure that people don't feel rushed into taking anything and everything that comes along," he said.
“If you wait for one more month, and you can get a better job, a better fit, you should be waiting for one more month,” he added, suggesting that such a policy could be time-bound to prevent abuse.
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