Strengthening protection for workers is good, so too is getting the timing right

During the Budget Debate earlier this year, the government announced that it would make significant amendments to the Employment Act by the end of the year.

The amendments, which were tabled in Parliament last month, include the extension of coverage of the Act to all professionals, managers and executives (or PMEs), the expansion of what constitutes unfair dismissal to include cases of forced resignations, and the taking over of adjudication of such disputes by the Employment Claims Tribunal (ECT).

The labour movement has been instrumental in pushing for greater protection for PMEs for several years now.

While the Amendment Bill is a welcome move to address concerns about the number of PMEs which have been unable to access union support in disputes such as unfair dismissal, it is also important to appreciate the challenges from the perspective of employers.

For those operating in a competitive environment where it is important to be responsive to developments in the global landscape, having the operational flexibility and nimbleness to move quickly to deal with changes is a necessity rather than a luxury.

A situation in which employers are overwhelmed by the burden of employment legislation would be counter-productive and is definitely not in the interests of workers.

In tweaking the law, it is also useful to consider how the global financial crisis a decade ago affected the labour market here, leading to the near doubling of the number of long term unemployed between 2008 and 2009.

Although the number has since dropped, there has been a pronounced difference in the profiles of the main group of unemployed and the long-term unemployed, with the latter distinguished by a high proportion of degree holders.

Since 2016, the number of long-term unemployed has increased.

The recession also made it harder for those who have lost their jobs to find a new one. At its worst, the quarterly rate of re-entry into employment of those made redundant plunged by close to 25 percentage points between 2008 and 2009.

While the re-entry rate recovered after the crisis, since 2016, the rate has again weakened visibly. At the beginning of this year, it actually touched lows reached during the last recession, even though retrenchments have been nowhere near the peak seen during the crisis.

Increasing labour market protection could end up benefitting those already employed at the expense of those who are seeking work.

In several industries, the number of businesses which have ceased operations has increased in recent years.

These had followed an increase in new business formations about two years earlier and coincided with a decline in employment re-entry rates.

Overall, labour movement leaders, policy makers and academics believe that the labour market is confronting rising mismatches.

When the cause of mismatches is skills inadequacy, increasing labour market protection for the affected group may actually lead to worse outcomes.

The disruptive effects of the intensifying global economic competition on society that we are currently witnessing is shaped by the uneven distribution of future-ready skills across different segments of the population.

Singapore is particularly vulnerable because of the fact that the foundations upon which our labour market performance has been built — namely a highly skilled, disciplined and adaptable workforce — are at risk of being eroded.

Although unemployment has so far remained relatively low, this may not remain true for long should re-entry rates worsen and mismatches persist.

Under these conditions, and keeping in mind that the risk of a downturn could be elevated due to international economic developments beyond our control, the question is whether the changes being made to the Employment Act come at the right time.

Between imposing restrictions on labour market flexibility going into a downturn, or coming out of one, it would be better to do so coming out of one, because to do so going into one would lead to a policy bind when it comes time to try to implement policies to stave off any possible rise in unemployment, since there are not many such policies available and they do not work well even at the best of times, let alone when the economy is in a downturn.

Put bluntly, it is not going to be easy to handle labour market weakness in the next downturn, and it may complicate matters to have the added inflexibility of these legislative amendments.

Of course, this really depends on whether one believes the next downturn is around the corner.

Just to make clear, I am in no way suggesting that the amendments to the Employment Act will lead directly to higher unemployment.

On the contrary, I believe they are progressive and will eventually elevate Singapore’s labour market to meet the needs of a more highly-skilled workforce in time to come.

Increased protection for workers is important, and the amended law certainly does not bring us anyway near to the levels of labour market inflexibility seen in countries like Luxembourg, Mexico and until recently, France.

Up until last year, France had been acknowledged as having had one of the most inflexible employment frameworks in the world.

The fact that the current French administration has pushed through changes which challenge a long tradition of worker protection speaks volumes about the concerns that 21st century leaders have on how to address unemployment issues in a rapidly developing global economic order.

Such examples from other advanced economies show clearly that excessively complex labour laws do have a cost for doing business and could ultimately lead to a worsening unemployment situation.

Their experiences have also shown that while it is easy to tighten the legal requirements on employers which strengthen workers’ rights, it is not easy to make adjustments even when they are shown to have imposed a drag on the economy.

Of course, despite the expansion of coverage, the fact that there are caps on the amounts of claims for cases handled by the ECT imposes limits on the actual impact of the changes.

But the actual monetary value of potential claim is only one aspect of the challenge faced by employers.

The imposition of the same requirements on all employers, regardless of the industry in which they are operating and the difficulties they face in hiring workers with the necessary skills sets, could make it harder for struggling employers to make the necessary adjustments when economic conditions worsen.

Flexibility in hiring and worker protection need not be antithetical.

Workers do benefit from flexible hiring arrangements.

At the same time, employers should be held responsible for ensuring their workers have fair working conditions.

While employers are always attracted to cheap labour, they also want reliable access to the skills needed to support their business operations.

Enlightened employers will know that in a global marketplace for skills, a framework that is unfavourable to workers will not be sustainable. For that reason, these amendments will not be regarded negatively by employers.

In conclusion, while strengthening employment protection for workers is an important ongoing effort, preserving flexibility in the labour market should also be valued.

The changes in the Amendment Bill do hold employers to certain basic standards and constrain errant employment practices in a way that would benefit not just workers but also employers themselves in the long run. However, the amendments to the Act are coming at a time when the labour market is undergoing significant changes caused by external factors. We cannot rule out the possibility that one outcome of these changes would be a higher general level of unemployment. In the course of navigating the transition to the future economy, the most important priorities should be to reassure employers and workers that the employment framework will continue to support the creation of good jobs.

ABOUT THE AUTHOR:

Associate Professor Randolph Tan, a former Nominated Member of Parliament, is Director of the Centre for Applied Research at the Singapore University of Social Sciences.