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Labour market expected to rebound amid weak, uneven recovery: MAS
SINGAPORE'S reopening of the economy should result in labour market improvements before the year's end. But recovery is likely to be weak, long-drawn and uneven, with elevated levels of resident unemployment lasting into 2021.
This is according to the latest review of macroeconomic conditions by the Monetary Authority of Singapore (MAS), released on Wednesday.
Local employment is expected to rebound more strongly than foreign employment, partly due to government subsidies for hiring locals.
But the MAS expects pandemic unemployment to decline more gradually than it did following the Global Financial Crisis. It also expects wage growth to remain dampened for the rest of the year, and possibly into 2021.
Supporting the anticipated, near-term rebound is a sharp recovery in domestic consumption in the third quarter. The report noted that retail and F&B sales staged a "V-shaped" recovery in June and July, and - with the exception of the catered food segment - continued to rise in August. Construction activities have also gradually resumed in the second half of the year.
MAS expects firms in these sectors to have recalled their employees back to work to meet the rise in demand. Many of these workers were placed on shortened work weeks or temporary layoffs during the height of the "circuit-breaker" measures instead of being retrenched.
In the second quarter of 2020, the number of such workers soared past 80,000, more than triple the previous peak of 26,500 during the first quarter of 2009. This likely helped stave off retrenchments, even as firms saw their revenues plummet.
While improvements are expected, Singapore's labour market is set for a long and difficult recovery.
The MAS report noted that from the experience of other OECD and Asian economies, employment tends to pick up strongly in the month or two after an economy emerges from a lockdown, but then "fades" thereafter. This was the case even in economies that saw a low number of cases during the second wave of infections.
Several factors could weigh on the recovery, as identified in the report.
First, the labour market is likely to remain weak in sectors battered by the pandemic. Travel-related sectors like air transport, accommodation, and the arts, entertainment & recreation employ about 6 per cent of the workforce, and are likely to remain subdued for an extended period of time. More workers may also have to be retrenched.
The downturn in these sectors will have spillover effects to the rest of the economy and weigh on segments directly dependent on them. For example, taxis and private-hire car services will see "sizeable" income shortfalls from the dearth of international travellers.
Second, Covid-19 has induced shifts in consumption patterns that have ramifications for labour demand. Remote-working arrangements could lessen the need for domestic transportation services and even reduce participation in social and recreational activities that are labour-intensive.
Consumers could switch to goods like laptops and computers that allow them to engage in home entertainment as well as order groceries and merchandise online. But this is unlikely to generate enough labour demand to compensate for the falloff in labour-intensive sectors.
Third, significant uncertainty overhangs the macroeconomic outlook next year. Many sectors could see weaker-than-expected activity.
The labour market could also be affected by the impact as well as the tapering of government interventions. Even in better-performing industries, job growth could ease, as government incentives in 2020 could have swayed firms to bring forward their hiring plans.
Individuals under government-supported traineeships and temporary industry attachments may also add to the number of unemployed workers, when they begin their search for permanent roles after completing their training stints.
Fourth, Covid-19 could exacerbate skills mismatches, due to the adoption of manpower-saving processes and technologies. This could accelerate structural declines in labour demand for low and mid-skilled services jobs. At the same time, new labour demand could come mainly from the modern services sector, where jobs may require more intensive cognitive and ICT skills.
"All in, the resident unemployment rate is forecast to only edge down gradually next year," said the MAS in its report. "In turn, it is expected to weigh on wages for the rest of this year and possibly into 2021."