SINGAPORE - Wages are likely to be harder hit than employment amid the Covid-19 outbreak, although workers in the retail trade, food and beverage, and recreation sectors are most vulnerable to layoffs, the Monetary Authority of Singapore (MAS) said on Tuesday (April 28).
Labour demand will decline significantly across most sectors of the economy as overall activity falls, and employment will be most affected in industries that have been halted as a result of the coronavirus pandemic, said the central bank in its latest macroeconomic review.
Travel-related and consumer-facing service industries such as accommodation and retail trade, as well as both air and land transport, have been most affected by the pandemic.
Employment in these industries, which collectively employ close to one-fifth of Singapore's workforce, was already seeing weak growth prior to the outbreak, the MAS noted.
Across the economy, firms are likely to reduce labour costs via a combination of wage and headcount reductions as revenues shrink, it said.
Despite government support measures such as wage subsidies and loan schemes, some firms affected by the fallout from Covid-19 may still have implemented cost adjustment measures such as putting workers on no-pay leave or shorter work weeks, it said.
Some companies could also ask employees to take pay cuts, and bonuses could also be reduced in some sectors, leading to a decline in overall remuneration, it added.
The MAS said that should government support be insufficient to offset business losses, firms are likely to first turn to shorter working hours and pay reductions for employees, before turning to retrenching staff.
But overall, the sudden shock to the Singapore economy - forecast to contract by between 1 per cent and 4 per cent - is still likely to cause an increase in retrenchments and overall unemployment.
The MAS did not give any forecast figures for retrenchments but DBS Bank said on Monday it expects 45,600 layoffs this year, far higher than any of the past recessions, adding that the resident unemployment rate could rise to a seasonally adjusted 4.2 per cent.
In its report, the MAS noted that a rise in unemployment has historically been associated with higher firm closures in the next quarter, which suggests that unemployment typically spikes only when firms are about to shut.
The Government's support to business through the Jobs Support Scheme (JSS) and other measures should prevent a large spike in unemployment in the near term and in the overall picture, it highlighted.
Such support measures should also reduce the possibility of more lasting damage to the economy, which may arise through destruction of firm-specific organisational capital as well as other effects that cause a rise in structural unemployment, the MAS added.
It said that the JSS, like the schemes rolled out during the severe acute respiratory syndrome outbreak and the global financial crisis, is more sizeable, effective and timely, and should help minimise firm closures and dampen a rise in unemployment.
The MAS noted that wage cuts are likely to occur swiftly and sharply in the financial services as well as transportation and storage industries, where pay is highly responsive to changes in business cycle conditions, pointing out that transportation and storage activity is expected to be most heavily affected by virus containment measures.
The accommodation and food services industry is expected to see significant monthly wage declines because of a fall in working hours.
The high variable components in pay for the financial services as well as the community, social and personal (CSP) services industries will also contribute to overall wage falls in Singapore for the year.
But the higher demand for healthcare workers and increased bonuses from the Government to the healthcare sector should provide some support to wages in the CSP sector, the MAS said.