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MAS MACRO-ECONOMIC REVIEW

MAS flags risk of 'emerging slack' in Singapore labour market

But economists deem monetary policy too blunt a tool to tighten slack; govt policies and workers should do that job instead, they say

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Singapore's current labour market is invoking memories of the financial crisis years of 2008-09.

Singapore

SINGAPORE'S current labour market is invoking memories of the financial crisis years of 2008-09.

The tightness indicator for the market turned negative in the first half of this year - the first time this had happened since 2009. The mismatch between job seekers and job openings in 2015 also approached the level last seen in 2009, according to the Monetary Authority of Singapore (MAS) in its latest biannual review.

In the review published on Tuesday, MAS said there is an "emerging slack" in the labour market.

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For the first half of 2016, the labour market pressure indicator - a summary statistic which captures the extent of labour market tightness using 31 indicators - turned negative for the first time since 2009.

This is a result of weak turnover in the market, said MAS. "The seasonally adjusted resignation rate reached its lowest level since Q2 2009, with the recruitment rate trending down as well," said the report.

Another set of data called the mismatch index (MI) got economists talking.

Mismatch in the labour market happens when there is a large share of unemployed workers and a small share of vacancies in one sub-market, and vice versa in others, said MAS.

For the year 2015, the MI (which looks at the discrepancies between the share of job seekers and job openings) edged just above 0.15, a level last reached in 2008. An MI value of 0 indicates no mismatch, while 1 denotes the maximum mismatch.

MAS's findings add to a recent string of official data that painted an increasingly dim outlook for Singapore's labour market.

For example, the trend seen from MAS's labour market pressure indicator echoed that shown by the Ministry of Manpower's (MOM) data. There were fewer vacancies than job seekers in Q2 - for the first time since 2012.

MOM also stated that the resident unemployment rate reached 3 per cent in June, exceeding the range of 2.6-2.9 per cent for the first time in the past five years.

But though MAS data seemed to show certain trends edging towards levels seen in 2008-09, economists noted that there's a significant difference in how these trends are playing out in the labour market.

Cyclical pressures weighed on the labour market in the financial crisis years, whereas this time around, structural ones resulting from Singapore's economic restructuring and changing global trade flows are adding to cyclical pressures.

"The whole business environment is not as favourable for investments anymore," said Dennis Tan, Singapore macro-strategist at Barclays. "You thus have to zoom in on specific sectors to see how jobs can be created."

Economists said these developments will be closely watched by the central bank.

For one thing, labour market woes may depress consumer sentiment, thereby suppressing inflationary pressures - one of the main indicators that MAS looks at for policy guidance.

Then there are their effects on business costs. As unit business costs move lower, the relatively elevated Singapore dollar real effective exchange rate will weigh on competitiveness of firms here.

ANZ economist Ng Weiwen said: "During these times, it might be good to move the S$NEER (Singapore dollar nominal effective exchange rate) policy band down so that it can be in line with growth fundamentals."

But the general consensus among economists that BT spoke to was that MAS should not interfere in structural problems in the labour market, and instead leave it to the more direct government polices to do the work, especially when the mismatch is contributing to the slack.

"If you use monetary tools to compensate for the structural weakness out there, that's too blunt," Edward Lee, head of Asean economic research at Standard Chartered, told BT.

"Certain careers, segments, industries are disappearing, and new ones are popping up. That is not something that monetary policy can address individually," said Nomura economist Brian Tan.

Instead, he sees the MAS focus on labour market woes as a clarion call to all segments of the economy to deal with these issues.

Mr Tan said: "MAS wants the economy to know that every one needs to make a significant shift in how things are done to get Singapore out of this slump. That's a crucial issue the Committee on the Future Economy must address."

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