According to the Monetary Authority of Singapore (MAS) on Tuesday (28 April), wages will be affected more than employment due to the COVID-19 pandemic. This is despite the fact that the most vulnerable workers to layoffs are in the retail trade, food & beverage, and recreation sectors.
As stated in MAS’ latest macroeconomic review, as overall economic activity weakens in most sectors, demand for labour will drop significantly. Thus, employment in industries that have been shut down due to the pandemic will see employment affected the most.
Among the most affected are travel-related and consumer-facing service industries, such as air and land transport as well as accommodation and retail trade.
Collectively employing almost one-fifth of the country’s workforce, employment in these industries were already experiencing weak growth before the COVID-19 outbreak, MAS clarified.
As revenues fall, firms across the economy will reduce labour costs through a combination of headcount and wage reductions, MAS noted.
MAS explained that some firms that are impacted by the pandemic may have still resorted to cost adjustment measures like putting workers on no-pay leave or shorter work weeks, despite provision by the Government in measures such as wage subsidies and loan schemes.
Also, bonuses could be slashed in some industries whereas some companies could ask for workers to accept pay cuts, which lower wages in overall, MAS added.
Additionally, firms are likely to opt for shorter working hours and pay cuts for workers before resorting to retrenching staff, in the event that the Government support proves to be inadequate, according to MAS.
However, overall increases in retrenchments and unemployment may still occur due to the sudden shock to the economy. MAS’ forecast of economic contraction is between 1 per cent and 4 per cent.
Forecast figures for retrenchments were not provided by MAS but DBS released a report on Monday (27 April), predicting retrenchment figures to be 45,600 this year. This number is much higher than the previous recessions. DBS also said that seasonally adjusted resident unemployment rate could increase to a 4.2 per cent.
An increase in unemployment has historically been correlated with higher firm shut-downs in the next quarter, MAS stated. This suggests that the time when firms are about to shut is normally when unemployment increases.
In the short term and overall, large increase in unemployment should not occur with the Government’s support for businesses via the Jobs Support Scheme (JSS) and other measures in place, MAS explained.
MAS noted that these support measures can prevent the destruction of firm-specific organisational capital and other impacts that increase structural employment. Thus, the chances of lasting damage to the economy can be lowered.
Compared to the schemes introduced during SARS outbreak and the global financial crisis, the current JSS is more timely, effective, and sizable, MAS commented. This should limit the increase in unemployment by minimising firm closures.
Wage cuts are likely to quickly and sharply occur in transportation and storage industries as well as the financial services industry. Pay in these industries is very sensitive to changes in business cycle conditions. The most severely affected by virus containment measures is expected to be transportation and storage activity.
Due to the decline in working hours, accommodation and food services industry are expected to see a large drop in monthly wage.
The overall wage decline in the country for 2020 will also be driven by the high variable components in pay for the community, social, and personal (CSP) services as well as financial services industries.
Nonetheless, increased bonuses to the healthcare sector from the Government due to the increased demand for healthcare workers should provide some assistance to wages in the CSP sector, MAS affirmed.