[SINGAPORE] The Republic's jobs market held up surprisingly well in the second quarter despite the slowing economy, but it is not all good news. There are concerns that this means businesses are still not ramping up productivity and choosing to grow by adding more workers instead.
Preliminary data from the Ministry of Manpower yesterday showed stronger job creation, fewer layoffs and a lower unemployment rate of 2 per cent, contrary to the market's expectations for unemployment to rise slightly to 2.2 per cent.
Even though the economy is estimated to have shrunk 1.1 per cent in the quarter, the only hint of this surfaced in the services sector, whose net job creation slowed to a three-year low of 15,500 jobs.
Stronger net jobs growth from the manufacturing and construction sectors pushed overall job creation to 29,200, up from the 27,200 jobs added in Q1.
Retrenchments fell to 2,000 in Q2, from 2,280 in Q1. This led a second straight quarterly decline in the number of overall layoffs, which includes early release of contract workers, to 2,300 from 2,600 in Q1. More detailed Q2 labour market data will be released in September.
Writing on the Manpower Ministry's blog yesterday, Tan Chuan-Jin, who becomes Acting Manpower Minister from today, said: "While good employment figures are always laudable, if I were to be more self-critical, I would be somewhat concerned that employers were adding jobs at a faster pace, at a time of slowing economic growth. This would dampen our labour productivity."
Bank of America Merrill Lynch economist Chua Hak Bin says 2012's labour productivity growth could turn negative as GDP growth is likely to fall below labour force growth.
The cause for concern is not job creation per se but that a pick-up in hiring as the economy slows could reflect excessive reliance on low-cost manpower, said Randolph Tan, labour economist and associate professor at UniSIM. "Employers are holding on to their workers and those who are expanding are turning to labour as a short-term measure rather than invest in longer-term capital upgrading," he added.
Citi economist Kit Wei Zheng noted that the manufacturing sector likely added a higher 4,500 jobs in Q2 than Q1's 2,000 in anticipation of higher demand after strong initial Q1 GDP estimates. And while the services sector accounted for the bulk of job creation, hiring there slowed.
Mr Kit thinks the minister's comments apply best to the low-productivity construction sector. It added 9,500 jobs in the quarter, up from 8,700 in Q1, despite tighter foreign manpower quotas.
Where the gradual effect of tightened foreign manpower policies may have seeped through is in the lower Q2 unemployment rates for Singapore residents and citizens, DBS economist Irvin Seah said.
At 2.8 per cent and 2.9 per cent respectively, these stayed above the 2 per cent overall rate but fell by 0.2 and 0.3 percentage points, slightly better than the 0.1 point improvement to the overall rate.
The surprisingly strong Q2 job numbers hold some risk of companies over-hiring in anticipation of a stronger recovery next year that may not materialise, said Dr Chua.
OCBC economist Selena Ling thinks it is not clear that falling unemployment and stronger job creation can be sustained in the second half of the year, as the global economy looks set to cool further.
She notes that official business expectations surveys yesterday pointed to waning optimism. Employers in the manufacturing sector have turned more cautious about Q3 compared to Q2.
But small and medium enterprises, which employ seven in 10 workers here, are looking to hire again, says the SBF-DP SME Index, also released yesterday. This is in line with the D&B Singapore Business Optimism Index, which yesterday showed a doubling of the financial sector's hiring optimism for Q3.
Mr Kit thinks a separate survey by Hudson, which found that only 35 per cent of employers intend to raise headcount in Q3, the lowest in nearly three years, may be more reflective of demand in cyclically sensitive sectors. If manufacturing softens in Q3 as he expects, some of the pick-up in job creation last quarter may well be reversed.
Mr Tan too, was concerned over how long Singapore's labour market will stay robust. "It would be difficult not to be affected by global economic uncertainties," he said.