Why is unemployment rising in Singapore

Repost from ST Toh Yong Chuan

1 WHY IS UNEMPLOYMENT RISING?

The unemployment rate crept up from 2.2 per cent last December to 2.3 per cent in March, hitting the highest level since December 2009.

Back then, Singapore was recovering from the global financial crisis. This year, on the other hand, economists are upbeat about prospects after stronger-than-expected growth last year.

The rate, which is calculated over three-month blocks, measures the percentage of people who can and want to work, but cannot find employment.

There are three key types of unemployment.

The first is frictional unemployment. This happens when workers change jobs. To put it in perspective, this is not a big worry. There are always workers changing jobs, regardless of the state of the economy.

This is why economists regard full employment as when all who want to work can find work at prevailing wage rates. Full employment does not mean zero unemployment.

What is more worrying is the second type of unemployment, one that is caused by business cycles. The easiest way to understand this is to look at the oil and gas sector, which constitutes about 5 per cent of Singapore's gross domestic product (GDP). Singapore is one of the largest oil trading and refinery centres in the world.

About three to five years ago, when oil prices hovered at US$100 a barrel, the sector was booming and workers were enjoying fat bonuses.

But now, with oil prices down to about US$50 a barrel, workers in the sector are being laid off.

But while the oil and gas sector is battered, the economy as a whole is still growing.

Singapore's GDP grew 2 per cent last year. Cyclical unemployment alone cannot explain the unemployment rate creeping up.

STRUCTURAL CHANGES HIT HOME

There is a third cause at play - structural unemployment.

This happens when workers are displaced by fundamental and irreversible shifts in the economy.

My grandfather was a charcoal trader who ran a thriving business in the Chinatown area in the 1950s and 1960s.

By the 1970s, people were moving to Housing Board flats and switching to bottled gas for cooking.

The charcoal business dwindled. My father could not earn a living delivering charcoal for my grandfather, so he had to find other work.

This story is far from isolated.

The story of Singapore's economic progress is a continuous tale of structural changes, from the hotchpotch of factories that sprang up in Jurong in the 1960s to becoming the world's largest producer of hard disks in the 1980s, to becoming a global financial centre.

If workers cannot adapt as jobs in the economy change, structural unemployment will take root.

It is almost impossible, from a statistical point of view, to break down unemployment rates according to whether they are frictional, cyclical or structural.

But what is known is that structural unemployment is a big deal in Singapore. If it is not dealt with, the ranks of jobless workers will swell.

Labour economist Randolph Tan, a nominated Member of Parliament, points to another source pushing unemployment rates higher.

"For any advanced economy operating at the frontiers of technology, the intensity of global competition alone would have produced a greater impact on the labour market of any country, let alone one as small as ours," says the associate professor at the Singapore University of Social Sciences.

Some economists have come up with the concept of "natural rate of unemployment". This happens when the economy is at full employment but there are still unemployed workers because of frictional and structural causes.

This concept is theoretical because it is impossible to compute the natural rate. In the United States, the natural rate is estimated to be around 5 per cent, according to media reports.

This concept has drawn debate because it suggests that a certain level of unemployment is okay. In Singapore, even at the height of the 2009 global financial crisis, the quarterly unemployment rate hit only 3.3 per cent at its worst. It will be a stretch to convince anyone that a 5 per cent natural rate of unemployment is natural, much less okay.

Still, this must have weighed heavily on Prime Minister Lee Hsien Loong when he warned at the May Day Rally: "In the other developed countries, typically, unemployment rate is between 5 and 10 per cent, much higher.

"If you look forward and ask me what I expect, I would say, honestly, our unemployment rate will gradually tend to creep up."

2 WHY AREN'T PEOPLE IN JOBS EVEN THOUGH THESE ARE BEING CREATED?

Besides unemployment data, the Ministry of Manpower (MOM) also regularly releases job vacancy data.

This set of data may not draw as much attention as unemployment numbers, but it is equally important as it shows where the unfilled jobs are.

As at December last year, there were 47,600 job vacancies to be filled, a four-year low. That works out to 77 job openings for every 100 jobseekers.

The available jobs include professional jobs such as teaching and blue-collar ones, like being a security guard.

Theoretically, 77 of the 100 jobseekers could have taken up the jobs on offer, cutting the number to 23. But this is not happening for various reasons. The jobseekers may find the pay or working conditions unattractive, or they lack the skills or experience.

Manpower Minister Lim Swee Say has two explanations: "Missed matches", where the jobseekers do not know where the openings are; and "mismatches", where the jobseekers do not have the right skills.

The Government is tackling both. Missed matches are easier to solve, but mismatches are harder.

Singapore University of Social Sciences economist Walter Theseira says that jobseekers can fall into three categories: those who cannot find the jobs, those who are not hireable as they lack skills or experience, and those who do not want the jobs because of poor pay, conditions and prospects.

"Most retrenched professionals, managers and executives would not want to become a private-hire driver unless they had no other choice, but there are plenty of those jobs right now," he says.

It will take time for jobseekers to pick up skills and experience to fill the vacancies, assuming that they are open to picking up new skills or to switching sectors.

I have asked retrenched workers: "Are you open to jobs looking after the elderly? The sector is growing and it is a meaningful job."

I do not always get enthusiastic replies. Not everyone finds the job appealing. A human resource consultant explains: "Some people see bathing and cleaning frail people as a maid's job."

3 WHAT CAN EMPLOYERS AND WORKERS DO?

At his May Day Rally, Prime Minister Lee Hsien Loong put it to jobseekers like this: "Please be open and flexible when looking for new jobs. Be willing to try something new, not just new jobs with new employers, but also new careers in different industries."

He added: "Take up courses, reskill and if you get a job offer, consider it carefully."

The Prime Minister has more or less said what workers can do.

He has outlined three key strategies on the jobs front: creating new jobs, finding alternative jobs for displaced workers, and training workers to grow in their jobs to prepare for the future.

When it comes to offering jobs, the ball is entirely in the employers' court.

Singapore National Employers Federation president Robert Yap says: "Demand for workers has fallen due to the slower economy. There are a few schemes that can help during this general slowdown in hiring."

The schemes that will help employers include cutting red tape, keeping the labour market flexible and lowering business costs, he adds.

Unionists say that besides offering jobs, employers can also do something else: Treat workers properly if they have to let them go.

How Surbana sacked its staff in January comes to mind on what employers should not do. The infrastructure consultancy, which is owned by Temasek Holdings, was rapped by Manpower Minister Lim Swee Say in Parliament in February for publicly labelling the 54 employees it axed as "poor performers".

Workers who have to be let go should be told early, says union leader Abdul Samad Abdul Wahab.

"If you have the luxury of time, you have a choice of which sector you want to go to. But if you lay off workers with three to four months' notice, that is a bit unfair for them," says the general secretary of the Union of Power and Gas Employees.