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The other side of the economy

If the economy is looking so good, why does it feel so bad?


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The other side of the economy:If the economy is looking so good, why does it feel so bad? We take a look at why people in Singapore are not feeling the effects of higher economic growth.

The ratio of job vacancies to unemployed persons may have edged up throughout the year, but again, the fact remains that there are still more unemployed people than there are available jobs.

Perhaps more than economic growth or labour market numbers, a key reason for the gloomy sentiment felt by workers has to do with the pace of change and the gnawing uncertainty that comes from it.

WHEN Bernard Cruz, an HR veteran with more than 20 years of experience under his belt, left his job in March 2015 to take a break, it was always with the belief that he would return to the corporate world in the future. Since then, he has spent time travelling with family, in addition to taking on freelance consulting assignments around the region. To many, it seemed like an ideal life, having control over his own time and working on projects in a profession that he is deeply passionate about.

But he disliked the short-term nature of the assignments, where he is unable to see the fruits of his labour. "It's like a hit-and-run - you go in there for a short time, get paid, and you're out of there," he quips.

So in 2017, he decided it was time to return to full-time work. Mr Cruz reached out to headhunters he used to work with, indicating his desire for employment.

"I've been following up with them since the beginning of this year. But when I talk to them, they say: 'Bernard, I know you well, you'll be able to do the job.' But the real issue they face is that hiring managers of corporations want someone younger, even though they don't blatantly say it," he says.

Mr Cruz is 60. He believes that he still has another good seven years left in him to do one more role before calling it quits. But even though he is open to taking a pay cut, hiring managers are doubtful.

"I'm full of drive and energy within me ... The struggle that I'm feeling is the perception people have. I always tell them, just put me in front of the hiring managers, I'll be able to sell myself. But unfortunately, I'm facing an uphill task," he adds.

Labour pains

Mr Cruz's experience is, unfortunately, not an anomaly in Singapore. The economy might have performed much better than expected in 2017, but the reality is that few are feeling the gains from the recovery. He has joined the ranks of the many others here who are struggling to find jobs despite an improved economy.

Nomura economist Brian Tan says: "There's been all kinds of signs that things haven't been as good for the broader economy as what the GDP (gross domestic product) numbers would seem to imply ... It's no surprise that people don't feel that the economy is doing all that well."

ANZ Bank economist Khoon Goh notes that despite strong export-led growth this year, there has not been a corresponding pick-up in employment.

He says: "At this point, a lot of companies are not looking to immediately expand their workforce as they want to make sure the recovery can be sustained before they decide to hire or expand their workforce or production. That's why we are seeing this lag effect in the labour market."

A whole string of manpower data continues to show that the jobs situation remains dismal. The long-term unemployment rate for Singaporeans and permanent residents has been creeping up over the past few years.

In the latest third-quarter labour market report by the Ministry of Manpower released on Dec 12, it edged up to 0.8 per cent in September, from 0.7 per cent in June this year. In comparison, the rate was between 0.5 and 0.6 per cent in 2014 and 2015.

There are more jobseekers like Mr Cruz who have been out of work for a long time, and are finding it a hard slog to land a role.

Particularly those in sectors like offshore and marine, which has been hard-hit by oil prices, and construction, which was severely affected by the property market downturn, the light at the end of the tunnel keeps getting further.

Sure, there has been a faint improvement on the overall labour front - but economists concur that it will be some time before it makes a turnaround.

Mr Tan says: "There have been some signs of labour recovery in the past year, but the issue is that the improvements have been so slow that people have not quite felt it yet."

The decline in total employment in Q3 has eased compared to the preceding two quarters, but employment remains in contractionary territory.

The unemployment rate for Singaporeans ticked down slightly from 3.3 per cent in June to 3.2 per cent in September. Yet, this is still higher than what it was a year ago.

The ratio of job vacancies to unemployed persons may have edged up throughout the year, but again, the fact remains that there are still more unemployed people than there are available jobs.

The number of lay-offs seemed to have abated somewhat. The number of retrenchments in Q3 was 3,400, down from 3,640 in the previous quarter. This was lower compared to the 4,220 registered a year ago.

Yet, this is cold comfort to the 3,400 - the majority of them who are professionals, managers, executives and technicians (PMETs) - who continue to bear the brunt of economic restructuring.

With the number of unemployed people still outnumbering jobs, wage growth has not materialised and is unlikely to do so in the near term.

Bank of America Merrill Lynch economist Mohamed Faiz Nagutha explains that there is still "significant slack" in the economy, as employment numbers remain negative and redundancies continue to be high. "People don't have the 'feel good' factor as the slack is being absorbed slowly, coupled with the fact that job creation has not been very strong."

Labour statistics aside, data from sentiment-sensitive industries such as retail and food and beverage (F&B) services spending also reveals how the labour market is feeling.

Mr Nagutha points out: "If you look at the details of F&B spending, people have stopped eating at restaurants - they're eating at fast-food outlets, hawker centres instead."

The subdued spending by consumers is an indication that all is not well in the labour market.

Economists expect improvements to be felt by the labour force only in the second half of 2018 at the very earliest.

All that hype about electronics

In the past few months, there has been great fanfare about a pick-up in Singapore's economic growth, with the final GDP growth figure for 2017 upgraded to 3 to 3.5 per cent.

But as reflected in the labour market, it has so far been a jobless recovery accompanied by weak wage growth and continued retrenchments. So the question is on many people's lips is: where is the growth coming from?

It's often been repeated that Singapore's accelerated growth this year was led by manufacturing, and that in turn was primarily led by semiconductors. But if that is removed from GDP, it is a different story.

Nomura's Mr Tan notes: "Underneath that big boost from semiconductors, the broader economy has remained quite lacklustre and not particularly strong - that explains why the labour market hasn't improved all that much despite the fact that the headline GDP numbers are going up." He believes that the spillover effects from semiconductors to the rest of the economy are very limited.

Firstly, the sector is increasingly capital-intensive, high-tech and automated, with not many workers involved, he explains. It accounts for almost a quarter of industrial production and about 5 per cent of GDP, but just one per cent of employment. "It has a very outsized contribution to the economy despite the fact it hires relatively few people," he says.

Secondly, the increased adoption of the factory-less goods production model, referred to as "fabless" production, means components may be designed in Singapore but the physical product is manufactured in other countries where the cost of production is lower. Yet, this is still captured in Singapore's industrial production, in accordance with international convention.

"This suggests that the big jump in semiconductor production is not all what it seems to be. That would explain why the spillovers to the rest of the economy is quite limited as production is happening overseas," he explains.

The services sector makes up two-thirds of the economy and hire the majority of local resident labour. As such, growth in the sector matters "a lot more" to the labour market, says Bank of America Merrill Lynch's Mr Nagutha.

While there are tentative signs of broadening of growth into services like financial services and wholesale trade, a more sustained pick-up is likely to be seen only in 2018, say economists.

The great jobs mismatch

But perhaps more than economic growth or labour market numbers, a key reason for the gloomy sentiment felt by workers has to do with the pace of change and the gnawing uncertainty that comes from it.

Said ANZ's Mr Goh: "To be fair, globalisation and automation are not new. It's the speed recently that has caused more concerns as people are finding it more challenging to cope or upskill quickly. It's certainly something that's potentially weighing on sentiment."

As technology continues to shape different sectors, economists are pointing towards an increasing divide between those who have the skills for the new digital economy and those who do not.

This is an issue that governments and policymakers around the world are trying to address because of the implications on society.

Mr Goh explains: "If the middle class starts getting eroded and you end up with increasing inequality, then you end up with two camps. At one end, there will be those with the skills to benefit fully from technology and the new economy. They tend to be a smaller group of people who will control a huge proportion of the wealth.

"Then you have a long tail at the end who might feel disgruntled if they don't benefit. That's when you start to get tension, and you see populist movements rising in other countries."

Currently, the PMET group - strongly represented in the middle class - remains one of the most vulnerable groups when it comes to jobs.

Nomura's Mr Tan says that there are growing signs of structural unemployment and underemployment.

"PMETs are higher-skilled, better paid. But at the same time, there's the danger of their skills becoming too specialised and not easily transferrable," he observes.

While some churn in the labour market is inevitable when it comes to economic restructuring, his worry is that people who lost their jobs are unable to get back on their feet. The danger of people being left behind is a very real issue, Mr Tan adds.

And even if they do find jobs, his concern is whether this group of people are being forced to accept work in the gig economy - the Uber driver, for example - that do not make full use of their skills and experience.

While the Singapore government has been actively encouraging citizens to upskill and retrain over the past few years, it remains to be seen if the labour force is able to adapt and be nimble enough to thrive - not just survive.

Mr Tan notes: "The reality is that change is very hard. Even when you have all the political will and the resources to throw at the problem, it is going to be the challenge for Singapore for the next couple of years as we need to ensure that the labour force is able to make the transition to the brave new world."

Despite the daunting changes out there, not everything can be explained in terms of economic growth or skills upgrading. ANZ's Mr Goh points out issues of social mobility and perspective as possible factors that could explain the rather ho-hum sentiment in Singapore.

"When Singapore was a developing economy moving up the ranks, the path forward looked a lot clearer. You could see where things were headed and you had greater confidence because in five years time, you know that you or your children would be better off," he says.

But as Singapore becomes an advanced economy, social mobility looks like it has stalled, he adds. This has an impact on how people perceive themselves and their overall well-being.

And because Singapore has enjoyed high standards in terms of infrastructure and transport for the past few decades, people have come to expect it, he adds.

"So when things don't work, like an MRT breakdown, we will grumble and we won't feel happy - and rightly so. We want to set high standards, whereas in other countries where things break down all the time, any small improvement in public service will improve people's well-being," says Mr Goh.

What's next?

But for people like Mr Cruz, the HR veteran who has struggled to find his way back into a full-time job, all the statistics about the economy and the need to upskill mean little.

He believes there is a misfit between the policies being pushed out by above and what people on the ground feel.

"Yes, on one hand, you can say upgrade your skills. But for me, I have already upgraded all the skills that I possibly can; the only other alternative is to move away from what I've been doing for the last 20 years into something totally new. Not everyone can jump onto the e-commerce or coding bandwagon," he says.

As an HR professional who has been on the forefront of workforce trends, the fact that he never saw it coming to him was a bitter pill to swallow, Mr Cruz says.

The gig economy, where he has been freelancing as a HR consultant in the last two years, is also proving to be a tough journey. "The biggest challenge is that for every 10 jobs, there may be 100 people like me vying for it. You end up with the lowest bidder getting the job as most companies are cost-conscious. They will squeeze what they can, and you end up doing it just to keep yourself occupied even though it does not make monetary sense at the end of the day."

While Mr Cruz is one of the lucky ones who are not in so dire a situation that he can't make ends meet, the experience of being shut out for an entire year has left him frustrated. There are many of his peers in the same boat, he adds.

In the coming new year, he hopes that an opportunity will come around, even as he continues to knock on doors.

Economists say that 2018 looks to be a better year for the economy and the labour market in general - but for people like Mr Cruz, they are not holding their breath.