People wearing masks at Raffles Place.
SINGAPORE: The Government should consider extending the Jobs Support Scheme (JSS) beyond August but take a more targeted approach to help struggling companies and lower-income workers, analysts interviewed by CNA said.
Under the JSS, the Government co-funds between 25 per cent and 75 per cent of the first S$4,600 of gross monthly wages paid to each Singaporean or permanent resident employee.
The measure was introduced at the first Budget in February to help companies retain employees as the COVID-19 pandemic was starting to hurt businesses. The scheme was revised in subsequent Budgets.
It is one of the main tools the Government has used to help businesses stay afloat during this crisis, the others compromise rental rebates and waivers, foreign worker levy waivers and rebates, and access to bank loans.
The JSS is set to expire after covering salaries in August, with payouts disbursed in October.
Economists expect the Government to prolong the scheme, adding that unwinding it right now will cause unemployment and business closures to spike as the country weathers through the recession.
“It’s too soon to just remove it completely, cold turkey … because I think the economy is still pretty weak,” said Bank of America economist Faiz Nagutha.
On Wednesday, Deputy Prime Minister Heng Swee Keat said the authorities are discussing further steps to improve the situation and that details will be announced soon.
“In the immediate (term) we will have to look at how we can continue to protect the livelihoods of our workers, how do we create jobs and training opportunities – that is the top priority at this stage,” said Mr Heng, who is also Finance Minister.
“And then going beyond this, we have to look at how the Singapore economy emerges stronger post COVID-19.”
HOW BAD IS THE ECONOMY?
Singapore’s data for the second quarter of this year showed the toll on the economy as the country went into a two-month circuit breaker between April and June. Dining out was prohibited, most retail shops were closed and only essential work could be done outside of the home.
Advanced estimates from the Ministry of Trade and Industry earlier this month showed that the country’s economy shrunk by 41.2 per cent in the second quarter, following a 3.3 per cent decline in the first quarter.
Employment figures released on Wednesday revealed that Singapore’s overall jobless rate rose in the second quarter to 2.9 per cent, while retrenchments more than doubled from the previous quarter to 6,700.
There were 90,500 unemployed residents in June 2020, of whom 79,600 were citizens.
And even though some business activities resumed after the end of the circuit breaker, Mr Faiz said it is still likely that in August and September, firms will be nowhere near 50 to 70 per cent of their operational capacity as the economic rebound has been “very, very gradual”.
DBS senior economist Irvin Seah said the worst has yet to come for the labour market. Even with support measures like the JSS, more businesses will either shut or let go of workers due to the prolonged pandemic that has caused a huge economic fallout.
The bank expects unemployment to hit 3.6 per cent, with 97,800 residents to be out of a job and gross domestic product to contract by 5.7 per cent by the end of this year.
Manpower Minister Josephine Teo similarly warned on Wednesday that the labour market could weaken further, particularly as Singapore is heavily reliant on the external economy, and many countries are experiencing a second wave of COVID-19 infections.
UPDATING THE JSS
Going forward, the JSS can be extended in its current form for a month or two, said Mr Faiz. After that, the Government should make it more “targeted” beyond the way it has been tiered according to industries.
It could dish out the subsidies to smaller firms, as recent news articles on returning the JSS have shown that larger multi-national corporations do not need the money, he said.
The JSS could also be limited to apply only to people whose wages are at or less than the median income, but with higher subsidies, so that lower-income workers are protected during this period, Mr Faiz added.
Mr Seah agreed, since many of the jobs that are affected are frontline ones in areas like food services and retail. These roles typically command a lower salary.
Upcoming support measures will have to protect executives in the hardest-hit sectors like aviation and hospitality as well, he added, in which they could take more than two years to recover to pre-COVID-19 levels. In these industries, the impact from the virus will hit across the board.
“You can’t say, ‘okay, I retrench all the junior level staff, and then I only keep the middle management’ … there (are) already no junior level people, then you no longer need that many managers,” said Mr Seah.
People wearing masks take an escalator at Changi Airport, following the coronavirus outbreak in Singapore March 5, 2020.
Both economists said that policymakers can afford for the JSS to continue, as Singapore had set aside S$13 billion more in the contingencies funds – on top of the S$3 billion it keeps – in case the country needs to respond to any urgent needs.
Aside from narrowing down the criteria of companies eligible for the JSS, the Government could look at moving people into new jobs – a strategy Mr Seah noticed it has focused on since the fourth Budget was read in May this year.
In a report published last month, Mr Seah wrote that the pandemic has accelerated what policymakers have been trying to achieve over the past decade – to restructure the Singapore economy.
COVID-19 has forced companies and workers reliant on low-cost, labour intensive methods of working to embrace automation, e-commerce and human-less security systems. These are concepts many organisations had no real impetus to move towards, said Mr Mark Teoh, the executive director of human capital consulting at Deloitte Southeast Asia.
Instead of trying to save jobs that will be lost eventually, the authorities are shifting resources towards creating new roles, while making the transition as painless as possible through training and job matching programmes, Mr Seah said.
These initiatives that are pushing people into in-demand jobs or up the career ladder would also help to prevent potential unemployment spikes if the JSS were to end, Mr Teoh said.
Meanwhile, other programmes like the temporary bridging loan that is available until end-March next year, will provide companies with the capital to tide through COVID-19.
However, to avoid any sudden deluge of bankruptcies and layoffs after these measures expire, the authorities will need to balance between the borrowers’ cash flow situation and mounting debts, he added.
MARKET INTERVENTION IS NECESSARY IN CRISIS
In the meantime, as Singapore continues to dole out financial support to companies, one question remains – why pump out more stimulus to keep them alive, instead of letting market forces weed out unsustainable businesses?
A review conducted by Australia’s Treasury in July warned that their country’s current version of a support subsidy scheme for businesses affected by COVID-19 would leave Australia with zombie firms and trap workers in jobs that are no longer viable, the Sydney Morning Herald reported.
This prompted the Australian government to cut the value of payments from October and introduce a tiered system that differentiates between full- and part-time workers.
Market intervention is necessary in this crisis, said CIMB Private Banking economist Song Seng Wun, as the economic fallout occurred not because of a structural change or lack of demand, but because of “a wall being in place”.
Referring to the restrictions on tourism, Mr Song said the lack of tourists – visitor arrivals to Singapore only numbered 880 in May, compared to 1.69 million in January – has ripple effects on the rest of the economy. Dining, retail and tourism industries have been severely affected.
The construction industry was also forced to halt operations during the circuit breaker and is only beginning to restart.
As per industry norm, it may take months for payment to trickle down to sub-contractors even after activities resume. Many companies will go under if the financial assistance stops.
Allowing idle firms to keep running is better than having massive unemployment, Mr Song said, adding that at least there is money flowing through the economy through consumption.
Without a lifeline, Singapore could fall into economic depression and it would take even longer for the country to recover.
In a normal economic cycle, letting the market take its course is the sensible thing to do, said Mr Seah. But the pandemic has created such a massive downturn that letting market forces decide will in turn cause very high long-term unemployment rates, and could result in social problems.
This will be exacerbated by the fact that recruitment usually lags behind economic recovery by one to two quarters.
Mr Seah explained that hiring managers tend to take a more cautious approach even when the cycle starts to improve because they want to be “doubly sure” of future earnings before they add new headcount.
Singapore might only be able to start unwinding some of its measures when some parts of the economy, like manufacturing or financial services sectors, rebound for a couple of quarters, said Mr Faiz.
“Then you can have some reassurance that there are some parts of strengths in the economy (and) be quite certain that people can find jobs in these parts of the economy.”
