Buffers to come in handy in rocky job market

Buffers to come in handy in rocky job market

Flexible wage system may soften blow; some sectors to stay buoyant

By LYNETTE KHOO

(SINGAPORE) As the financial crisis spills over into the real economy, it comes as no surprise that economists, as well as the Monetary Authority of Singapore (MAS), expect the jobless rate to rise steadily from the 2.2 per cent seen in the third quarter.

Looking good: Wage restructuring since 2003 will allow companies to make quicker adjustments to their wage costs in the event of sudden and severe business downturns rather than resort to firing, HR consultants say
The question is how high this could rise and how wages would be hit.

The highest jobless rate projection came from CIMB-GK economist Song Seng Wun, who believes that in a worst-case scenario, the unemployment rate could hit 5-6 per cent - in which case it would beat the 4 per cent annual jobless rate seen during the Sars crisis in 2003.

OCBC economist Selena Ling says she expects the jobless rate to cross 3 per cent next year as companies turn cautious on hiring and may even be forced to retrench more aggressively should the domestic technical recession become a prolonged downturn.

Also, another worry has descended on job creation, after employment grew by 57,800 in the third quarter, from a near record of 71,400 in the second quarter and 58,600 in Q3 2007.

This may mark an inflexion point from past record-breaking years, where job gains rose by a record 234,900 in 2007, far surpassing the gains of 176,000 in 2006.

Citi economist Kit Wei Zheng notes persistently declining labour productivity growth may place pressure on employers to shed jobs in the coming quarters. ‘The brunt of the job cuts will likely come from the manufacturing sector,’ he adds. ‘Electronics in particular could lose more jobs as the cyclical downturn accelerates the structural relocation of key manufacturing operations in 2009.’

The employment cycle typically lags the growth cycle by two quarters, according to DBS economist Irvin Seah. Any job losses would hence happen only in the first half of 2009.

Some 1,900 net job losses could occur in the manufacturing sector and a net loss of 500 jobs could take place in the financial services and business services sectors each next year, Mr Seah predicts.

While economists expect job creation to slow significantly, the labour market may be able to sidestep the massive net job losses seen in past recessions.

There was a net loss of 23,000 jobs during the dotcom bubble burst between 2001 and 2002, and another 12,900 jobs during the 2003 Sars period. Singapore’s first employment contraction during the Asian financial crisis saw some 23,400 jobs slashed, Ministry of Manpower (MOM) statistics show.

This time around, job losses in the manufacturing and financial sectors may be offset by gains in other sectors, such as the construction sector and vacancies to be filled at the two upcoming integrated resorts (IRs), economists say. The flexible wage system could also come in handy.

‘There could be some buffer because Singapore’s economy is slightly diversified from manufacturing and electronics per se, towards the services sectors,’ says OCBC’s Ms Ling. ‘Plus, we have the IRs coming up from the end of next year, which have indicated that they will hire tens of thousands of workers just to staff the IRs alone.’

Despite the lack of local talent acquainted with IR operations, HR consultants are confident there is unlikely to be significant skill mismatch among those looking to join the IR industry. ‘There are avenues available for prospective employees in the IR industries to gain training,’ says Annie Yap, chief executive of The GMP Group.

‘And with the substantially vast industry involving a broad range of required disciplines from service and securities to IT and marketing, people do not necessarily start from scratch, but rather align their skills to a job that is related to a certain degree.’

Wage restructuring since 2003 - with a shift towards a higher portion of employees’ salaries becoming variable and linked to performance - will allow companies to make quicker adjustments to their wage costs in the event of sudden and severe business downturns rather than resort to firing, HR consultants say.

As at December 2007, 84 per cent of the workforce in the private sector was under some form of flexible wage system, according to MOM data.

HR consultants are not expecting big cuts in basic wages, though pay increments and bonus payments may face some pressures.

‘Although companies are gearing up to fight back through various cost-cutting mechanisms, substantial or drastic measures like wage cut, bonus freeze, etc, are not on the cards,’ says Kulshaan Singh, client strategy and growth leader at Hewitt Southeast Asia. ‘This is the time most companies are in a ‘wait-and- watch’ mode.’

He adds that some of his clients are taking ‘austerity’ measures like deferring bonus payments and salary increases, and ‘promising to revisit the decision after more clarity emerges’.

Source : Business Times - 05 Nov 2008

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