Economic Affairs

Labour market issues go beyond slow economy

After a few years of stuttering growth and muted activity, things are finally looking up for the Singapore economy, but the job market has yet to follow suit.

A pickup in global demand has gradually lifted some trade-related sectors out of a protracted slowdown and market watchers are hopeful that the more upbeat data could point to a decisive turnaround ahead.

But the labour market remains soft. Even manufacturing, which has boomed on the back of surging electronics exports, continues to shed jobs. This is because slow economic growth is not the only factor weighing on the job market - there are deeper issues at play.


Factories have been the brightest spot in the economy this year even as other sectors continue to flounder.

Manufacturing, which makes up one-fifth of the economy, is being lifted by strong global demand for semiconductors and related equipment. The sector grew at a robust 8.1 per cent in the second quarter from a year earlier, following the 8.5 per cent expansion in the first quarter.

The pickup is showing signs of broadening out to benefit other trade-related sectors.

Non-oil re-exports - a proxy for wholesale trade services - surged 17.5 per cent last month after expanding 8.3 per cent in June.

Some economists have said that these signs point to better times ahead for the economy, which is expected to expand around 2.5 per cent this year, up from last year's 2 per cent.


However, despite these stronger figures, the labour market has been faring less well. Total employment fell for the second quarter in a row in the April to June period, with 8,400 fewer workers - not including foreign domestic workers - in jobs, according to Manpower Ministry data. The overall unemployment rate remained at 2.2 per cent, unchanged from the first quarter.

But the rates were still elevated, the ministry said, being 0.1 to 0.2 percentage point higher than a year ago.

Even the manufacturing sector, which has led growth this year, saw employment fall by 2,500 in the April to June period - the 11th consecutive quarter of decline.

Employment in construction fell for the fourth straight quarter, down by 9,500, while the service sector added 3,400 workers, excluding maids.


Part of the job market's continued weakness can be attributed to the fact that stronger growth has not lifted all industries and the overall outlook is still wobbly - even in sectors like manufacturing that have been doing better.

In addition, the lacklustre labour market is likely to keep weighing on consumer spending, so sectors that depend on local demand are unlikely to get a significant lift in the coming months.

Clusters such as construction, retail, and food and beverage continue to face headwinds. Besides slower demand, retailers are also contending with longer-term challenges like the rise of e-commerce.

Economists and government officials say the employment outlook is expected to remain lacklustre this year, due in part to uneven growth across sectors.

Singapore University of Social Sciences economist Walter Theseira says: "Firms don't add headcount unless they believe growth is sustainable and they are looking to expand capacity. I expect that business sentiment hasn't significantly improved yet, although some of the numbers are looking up."

While demand and sentiment in the electronics manufacturing segment have picked up, it remains to be seen whether the lift is sustainable, says Mr Chiou Lid Jian, general manager of ASE Singapore, part of the global Advanced Semiconductor Engineering (ASE) Group.

"The uncertainties surrounding the sustainability of long-term growth of the industry are among the reasons why we are not hiring as aggressively as we were a few years back," he adds.

United Overseas Bank economist Francis Tan previously said manufacturing has been "overly reliant on the cyclical increase in the demand for semiconductors and its surrounding services, such as precision engineering". He expects factory output growth to slow into the single digits in the coming months.

The marine and offshore engineering segment, for instance, remains weak as low oil prices have kept biting.


Economists expect stronger growth to eventually boost labour market sentiment.

"The performance of the service sector will have significant implications for job prospects for resident workers, and we saw the sector pick up in the second quarter," says DBS senior economist Irvin Seah.

The service sector - which accounts for two-thirds of the economy and employs the bulk of the resident workforce - grew 2.4 per cent in the second quarter, with all key segments growing besides food services and accommodation.

The labour market cycle typically lags service growth by about two quarters, Mr Seah adds. "The turnaround in the service sector will make the recovery more sustainable."

But with the economy also working through longer-term structural changes, any improvement will likely be muted.

"The labour market has bottomed out but it is unlikely to pick up as strongly as economic growth," Mr Seah says.

This is mainly because the economy is still in transition - some jobs will be lost permanently and workers will take time to change to new jobs. Although there are some new growth sectors, such as fintech, IT solutions, aerospace and robotics, these tend to create a small number of specialised jobs.

"That's just the nature of these industries. They suit the future economy, with an ageing population and shrinking labour force," Mr Seah adds.

In addition, the rise of automation and disruptive technologies also means that companies do not need as much manpower as they used to.

"Companies' investments in technology have borne fruit and now they require fewer foreign workers," Mr Seah says.

This is especially evident in manufacturing, where high labour costs and tighter foreign manpower regulations have pushed companies to invest significantly in machinery.

"We are still hiring but on a much more selective basis," says ASE Singapore's Mr Chiou. "In order to stay relevant in Singapore, we have to keep our labour costs down.

"We have been relentlessly driving for productivity improvement these past years such that we now require 15 to 18 per cent fewer employees to support the same revenue base. This has a direct impact on our hiring needs."


Economists have also flagged other worrying trends lurking below the headline numbers.

"What I am more concerned about, rather than headline unemployment numbers, is long-term unemployment and underemployment, which is not well tracked," says Dr Theseira.

"I expect that jobs will continue to be more specialised, and job seekers, especially displaced PMETs (professionals, managers, executives and technicians), will continue to have both specific skills and high expectations.

"Together, this means that more and more of the jobs created will require skills that our unemployed workers simply either don't have, or don't have at a high enough level to command the wages that job seekers expect."

This means both long-term unemployment and underemployment will become increasingly pressing issues.

The statistics show that long-term unemployment has been trending upwards, Dr Theseira says. Underemployment, however, is less well tracked.

DBS' Mr Seah agrees that underemployment is becoming a key concern for the resident workforce, especially with the rise of the gig economy made up of freelancers and contract workers.

Workers who lost their jobs due to restructuring may have turned to gig economy jobs and remained out of the unemployment statistics. There are an estimated 200,000 gig economy workers here.

"Although workers are in jobs, they might not be gainfully employed or they might be in unfulfilling jobs that are below their potential," Mr Seah notes. "This doesn't necessarily result in higher productivity and also doesn't help people improve their skills and ability to generate higher income."

Clearly, the issues faced by Singapore's labour market will not be easily solved by a turn in the economic cycle. There are seismic changes under way and the long-term health of the job market depends on innovative companies successfully transforming their business models, as well as workers adapting to disruption and new job paradigms.

In the meantime, with the economy far from firing on all cylinders, the ongoing trade-driven pickup in growth remains fragile.

A version of this article appeared in the print edition of The Straits Times on August 30, 2017, with the headline 'Labour market issues go beyond slow economy'. Subscribe