The Monetary Authority of Singapore (MAS) expects a rise in job losses as the local economy grapples with the fallout from the ongoing COVID-19 crisis. In its latest half-yearly report released today, MAS said even with the slew of measures aimed at saving jobs, the “abrupt pullback” in economic activity will weigh heavily on labour demand across broad swathes of the Singapore economy this year. “Slack in the labour market will increase, even as businesses make adjustments by reducing working hours and putting employees on no-pay leave.” Some firms will also reduce workers’ salaries, according to the central bank, noting that wages will likely “bear the brunt” of these adjustments in the near term.
Resident Unemployment to Rise
MAS noted that labour market conditions had already softened prior to the novel coronavirus outbreak. But with global and local measures aimed at halting the spread of the virus resulting in the stoppage of many economic activities, this will feed back into the domestic labour market given the sharp fall in demand for workers, it said. Against this backdrop, the Government has prescribed a slew of aid to help employers and workers. Steps have also been taken to boost job creation, such as the SGUnited Jobs initiative, which aims to create about 10,000 jobs over the next year.
Still, MAS said retrenchments and unemployment are expected to head north. “Notwithstanding the large financial buffer provided by the Government, as well as labour market adjustments on the intensive front, the large, abrupt shock to the Singapore economy is still likely to cause retrenchments and unemployment to rise,” it said in its 132-page report, adding that firms that were already in a weak financial position before the virus outbreak “are more likely to retrench”. Overall, the combination of a pullback in hiring and rise in retrenchments will likely cause an increase in the resident unemployment rate. However, a cyclical easing of the growth rate of the resident labour force as workers withdraw due to fewer job opportunities, will dampen part of the increase in the resident unemployment rate, it added.
The MAS report also shed light on the industries where employment is expected to be most severely affected. These are industries that have experienced a “sudden stop” due to the stricter measures in place, it said. They include travel-related industries such as air transport and accommodation, as well as domestic consumer-facing services like land transport, retail trade, food services and other personal services. Workers in retail trade, food and beverage (F&B) and recreation services are “most vulnerable” to lay-offs, according to the central bank’s report. Employment growth will also weaken in the trade-related sector as external demand declines, MAS said. There could also be negative knock-on effects on employment in the maritime and aviation industries, as goods and services trade decline in tandem with weaker global growth. In the financial and insurance services sector, MAS expects job gains to likely be muted as lending slows and financial market turmoil dampens sentiment-sensitive activities.
Overall, headcount is only expected to “discernibly expand in a handful of industries” such as construction, healthcare and public administration and education, said the central bank. This largely reflects ongoing public infrastructure projects, as well as government measures such as the SGUnited Jobs Initiative, it added.
In the near term, MAS said wages, rather than employment, will “bear the brunt” of the negative shock. “As revenues shrink, firms are likely to reduce labour costs via a combination of reductions to wages and headcount,” it wrote in the report. “Notwithstanding the Government’s support measures, some firms affected by the fallout from COVID-19 may still have to undertake labour cost adjustment measures such as putting workers on shorter work weeks or no-pay leave. “This could occur as wage subsidies and other support may still be insufficient to cover revenue losses for some firms,” it added.
Alternatively, some firms may ask workers to take pay cuts. A decline in overall remuneration in some sectors could also occur through bonus reductions. MAS added that nominal wage declines are likely to occur “swiftly and sharply” in the transportation and storage, and financial services industries. This is because remuneration in these industries is highly responsive to changes in business cycle conditions.