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Rethink some of Singapore’s approaches towards employment and wages to ride out crisis

The National Wages Council (NWC) reconvened last month to review the wage and employment guidelines it issued in March and is expected to release its updated recommendations in September.

Many businesses will not survive a long recession if they remain static and rely only on government support, write the authors.

Many businesses will not survive a long recession if they remain static and rely only on government support, write the authors.

The National Wages Council (NWC) reconvened last month to review the wage and employment guidelines it issued in March and is expected to release its updated recommendations in September.

The last time the NWC — comprising employer, employee and government representatives — convened twice within the same year was in the wake of the 2009 Global Financial Crisis.

Singapore’s overall unemployment rate in 2009 reached a peak of 3.3 per cent. In July, the unemployment rate hit a decade high of 2.9 per cent.

The Government has set aside approximately 20 per cent of GDP for various Covid-19 support measures. With no immediate end to the pandemic, the current level of government spending is not sustainable.

There is a heavy burden on the NWC now to deal with the ongoing crisis.  We believe that it is an opportune time to rethink some of Singapore’s approaches towards employment and wages.

WAGE ADJUSTMENTS

The most immediate step is wage adjustment. Wages account for a significant portion of business costs and unfortunately, the existing mechanisms of reducing the Annual Variable and Monthly Variable components are generally ineffective.

Both AVC and MVC exist to allow for a fair and transparent wage agreement between businesses and workers in which salaries would rise and fall in tandem with the business performance.

Yet the MVC seldom exceeds the recommended 10 per cent of the wage cost on a monthly basis as employees generally resist having a high percentage of their pay based on variable components.

A reduction of 10 per cent of the wage cost alone is not enough to deal with the current Covid-19 crisis and a deeper cut may be required.

We propose that the NWC should aim to increase the proportion of MVC to the wage cost gradually to 25 per cent. Of course, NWC must continue to assure Singapore workers that their MVC will be restored once the crisis is over.

We think that this crisis must prompt both companies and workers alike to accept the necessity of having a higher variable component of wages so as to allow for greater and fairer wage responsiveness in both economic upturns and recessions.

CPF AS A POLICY TOOL

Varying the Central Provident Fund (CPF) contribution rates remains as a powerful policy tool that has yet to be utilised in this crisis.

The first step is to reduce employers’ contribution rate. While unpopular, similar measures were taken during significant economy downturns in 1986, 1999 and 2003 before the cuts were gradually restored.

Another tool is the lowering of the salary ceiling for CPF contributions from the current S$6,000 to a lower sum. This would again help reduce overall wage cost.

Finally, in 2010, for 1.5 years, the Government used past reserves to help pay 9 per cent of employers’ CPF contribution rate.

This measure prevented a fall in overall income to employees but yet provided relief to employers. However, given the significant drawdown on the reserves for existing support measures, we believe that it is unlikely that an additional blanket wage subsidy measure would materalise.

RETHINKING EMPLOYMENT FLEXIBILITY 

NWC chairman Peter Seah has hinted at promoting greater employment flexibility in allowing workers to take on second jobs which is currently contractually forbidden by many companies. These will provide workers more options to supplement their incomes if they choose to do so.

There is a case to be made for businesses to adopt similar flexibility in their workforce using labour sharing.

This is a model in which excess manpower is essentially loaned to other companies that are not as badly affected during a downturn or recession.

For instance, when the pandemic first struck in China early this year, workers from badly affected industries such as restaurants and entertainment were loaned to other businesses which saw a surge in demand.

Many workers were redeployed to supermarkets and e-commerce companies with minimal training. The workers’ original workplaces continued to provide benefits such as insurance and medical coverage while the new, temporary employers paid their wages, typically on an hourly basis.

When the Chinese economy gradually recovered and life returned to normal, the workers returned to their old jobs. 

We have seen similar ad-hoc arrangements today in Singapore such as the redeployment of Singapore Airlines staff as Safe Distancing Ambassadors and even taxi drivers as e-commerce delivery providers to deal with the demand surges during the circuit breaker period.

A nationwide system of labour sharing can be institutionalised across companies to coordinate labour-sharing arrangements and ultimately retain overall employment level.

This would include guidelines on how the employer CPF contributions should be split, if at all, between the two employers.

Labour-sharing is not for all professions and this should not be seen as reducing labour to a common commodity in which firms deliberately depress wages or shirk away from full employment benefits.

Safeguards such as government oversight, NWC guidelines for original and temporary employers and clear contractual obligations can mitigate abuses of the system. Equally important is the need for some fiscal incentives to encourage labour sharing.

REBALANCING THE WORKFORCE WITH WAGE SUPPLEMENTS

The Jobs Growth Incentive, announced as part of the additional measures unveiled by Deputy Prime Minister Heng Swee Keat on Aug 17, will subsidise up to 50 per cent of new hirers’ salaries for 12 months.

This is a strong signal to encourage companies to hire new workers wherever possible. However, in a depressed economy, existing companies may struggle today to keep their original workforce, yet alone expand their manpower.

Hence, it is opportune to expose new graduates and excess labour alike to industries which traditionally lack manpower due to its unattractiveness.

For instance, despite being an island-state sitting among some of the busiest sea routes, surprisingly few Singaporeans desire to be part of the maritime and marine industries.

Emerging industries such as cyber security and data analytics similarly lack manpower.

Apart from the retraining efforts, the Government should enhance wage supplements or even introduce transition bonus for locals to shift to these industries.

The Government’s traditional approach to wage supplements has been to support low wage workers within selected industries such as cleaning and security services.

However, we believe that having a more targeted wage supplement approach towards critical and emerging industries for a period of time may be a more viable policy tool to rebalance our workforce.

When the NWC met in March, there was still guarded optimism that the impact of the pandemic could be mitigated with government subsidies and wage support to keep businesses alive and retain sufficient skilled workers to support a possible end-2020 recovery.

Today, with the pandemic still raging on in many countries, a sustained recovery is only possible from 2021, if not later.

Many businesses will not survive a long recession if they remain static and rely only on government support.

Albert Einstein had previously reflected that "we cannot solve our problems with the same thinking we used when we created them".

This crisis, while painful, has afforded us an opportunity to reset and revive the economy with better protection and flexibility for our workers. We should make the best use of it.

 

ABOUT THE AUTHORS:

Chew Soon Beng is Adjunct Senior Fellow at the S. Rajaratnam School of International Studies, Nanyang Technological University (NTU), where he was previously professor of Economics and Industrial Relations. Wong Kuo Yheu Keith is pursuing a Masters of Public Administration at NTU’s Nanyang Centre for Public Administration.

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