Tight labour market to get even tighter

Some economists are predicting that the clarion call to labour-starved bosses to be more productive will sound louder this new year because there are now fewer housewives and retirees to woo back to work.

Labour force participation rates among women and older folk climbed to new highs in 2014 - 58.6 per cent for women and 68.4 per cent for men aged 55 to 64. Economists say these levels are about the limit already, which means the last sources of such workers for employers may soon be depleted.

United Overseas Bank's Francis Tan said: "The government has done all it can to help companies bring back these workers, but there's still not enough of them. It's going to be harder because this pool is drying up."

He added that when the demand for part-time workers picks up in the months ahead, the reality of there being fewer housewives and retirees returning to the job market will probably sink in.

The timing can hardly be worse. Economists expect that even more hands are needed on deck this year, in an already tight labour market, to help out with Singapore's 50th birthday bash; other major events on the calendar, such as the South-east Asian Games, will also create job vacancies.

CIMB's Song Sen Wun said that shops, restaurants and hotels would need to hire more workers to cope with the increased business.

Elaine Ng, managing partner of HRBS, a human-resource consultancy firm, added: "In the retail sector, humans are still needed to serve the customers; machines can't be employed."

But where are the bosses going to get the extra workers when even housewives and older Singaporeans are hard to come by?

The economy has been in full employment, making workers scarce. The last available official figures pointed to a 2 per cent jobless rate last September; economists and professional recruiters such as Adecco believe that the unemployment rate would remain largely the same this year and even beyond.

OCBC Bank's Selena Ling said: "If the global recovery pans out while the supply-side policy curbs remain intact, then the unemployment rate will stay at historically low levels in the near term."

The government has said that there would be no more drastic curbs on the import of foreign workers, but levies on these workers have been raised to levels that have deterred hiring - and there is still one more increase in the levy to come this July.

Tightening the tap on foreign workers is a key move to restructure the economy and raise productivity. Ng Wei Wen of ANZ Bank said that such supply-side restructuring moves would continue to pose a big challenge to businesses in 2015.

CIMB's Mr Song said that many small and mid-sized firms (SMEs) are not up to it, with DBS Bank's Irving Seah expecting more firms being forced to close shop or lay off workers this year.

Restructuring has made many workers redundant, though they have been able to land jobs quickly because there have still been many openings. The number of laid-off workers jumped from 2,410 in the second quarter of last year to 3,500 in the third quarter, the latest figures from the Ministry of Manpower show. More than half of these redundancies (58 per cent) were in services.

But the labour crunch is likely to stick around, with employers having fewer sources of workers.

UOB's Mr Tan, noting that the push to rehire housewives and retirees and to boost productivity was the government's answer to the labour shortage, said that employers have only one avenue left - which is to raise productivity.

The government aims to double productivity growth to 2-3 per cent yearly by 2020, but has had little progress to report in the last five years; Mr Tan and DBS's Mr Seah separately estimated that overall productivity growth was zero during the period.

CIMB's Mr Song said: "The big companies have responded to the productivity drive and pulled up their socks, but many SMEs - and SMEs make up the bulk of the numbers - have not made much progress."

The productivity lag caught the attention of Prime Minister Lee Hsien Loong, who lamented in his new year message that productivity growth had been weak for the third year in a row, and that in the first nine months of 2014, it was minus 0.5 per cent.

"We must do better," he declared, and asked for effort to be put into helping companies and workers upgrade and become more productive.

The poor productivity performance would have put a lid on sharp pay hikes; salary increases have stayed pretty tame despite an over-stretched labour market and relatively high inflation: The nominal median monthly income for full-time resident workers rose just 1.8 per cent over the year in June 2014.

Economists and human-resource practitioners say high costs and greater competition in a slow-growing economy have also played a part to moderate wage rises.

HRBS's Ms Ng, who predicts wage hikes of 4 to 5 per cent this year, said: "Employers, though facing a tight labour market, are not going to price themselves out of the market and solve this problem by increasing salaries of their workers unduly."

Productivity must thus rise to support real wage increases - and this reality is likely to hit home this year because employers will have few solutions to their labour shortage.

Still, many companies - the SMEs in particular - remain trapped in a vicious cycle. They have not been able to spare the workers for training and upgrading because they have already been so short-handed, and there is a limit to the degree they can automate, especially in the services sector.

A tighter labour market is not necessarily going to help; it may give companies an even bigger headache. But they have little choice. The alternative is to pull down the shop shutters.

This article was first published on January 6, 2015. Get The Business Times for more stories.