Will Singapore escape mass unemployment?

Dismal growth is hurting the economy but the jobs situation offers glimmers of hope, says RBS.

Singapore is experiencing one of the sharpest growth declines in Asia, and yet unemployment is trending downward.

The island nation has been creating new jobs from the increased tourist arrivals from China following its travel policy relaxation.

In fact, the strength of the services sector as a whole has helped offset employment shedding from the other sectors like manufacturing and logistics -- a trend it shares with the rest of Asian economies. Need more convincing that Singapore's job outlook will not be a total catastrophe?

Here's more from RBS:

Two features stand out. The first feature is that unemployment rates have continued to trend lower through 2011 despite a steep deterioration in the growth momentum in the latter part of the year. The decline has been most pronounced in Hong Kong and Singapore but other countries including Korea, Malaysia, Philippines and Taiwan have not been far behind either. In all countries, we estimate that unemployment rates to be below their long term trend. And this decline is not associated with falling labour participation rates but rather new job creation. Labour participation rates have either remained stable or even risen marginally. The second feature is that job vacancies
relative to workers available is high further validating the tightness of regional labour markets.

Apart from the fact that expectations that economic activity will not collapse similar to 2008 and 2009, we believe that the re-orientation of growth towards the services has resulted in new job creation. Growth in services employment has outpaced that in manufacturing in most reporting countries. Within services, employment even in industries such as retail and wholesale trade, hospitality and professional/social services rose markedly. By contrast, employment stagnated in industries such as transportation and logistics – these industries are ancillary to manufacturing and related to global economic conditions in turn. Though not uniformly so, we note a rise in construction employment, a phenomenon that can be attributed to real estate sector activity and spending based fiscal policies in the region.

Country specific factors have also played an important role. One of the most formidable developments has been a marked rise in intra-regional tourism. Specifically, liberalisation of tourism rules in China to permit individual travel as opposed to group travel has had a significant impact on growth and hiring in the hospitality and retail trade sectors. The main beneficiary countries include Hong Kong, Singapore and Taiwan. In Hong Kong and Singapore, tourist arrivals in 2011 amounted to 13mn and 40mn, the highest on record. In Taiwan, tourist arrivals have doubled over the last five years resulting in a similar increase the share of tourism revenues in GDP. Meanwhile, the rapid growth of the business process outsourcing industry has significantly strengthened employment in the country. According to available statistics, the sector has directly and indirectly added around 250,000 jobs each year. This is a significant number considering that that annual growth in labour supply is only around 1mn.

We believe this shift in the composition of employment will also improve the stability of the labour market. Typically, the services sector is not scalable like the manufacturing sector and linkages with developed country growth are weaker. In any case, labour market prospects appear more favourable in the region than in most others

Whether this labour market tightness is currently having an impact on price pressures or not is unclear in the absence of economy wide unit labour cost data. Nonetheless, wage trends in most countries show that wage growth in services to be faster than in manufacturing. Considered in relation to services sector output per worker, the prognosis is that economy wide unit labour costs are rising. Hong Kong and Singapore are probably facing the most aggressive increases. In Hong Kong, real wage growth appears to be running ahead of GDP per capita, albeit this is a nascent development. Economy wide unit labour cost data is available for Singapore and in Q3 2011 (the
latest period for which data is available), the index was only a shade below its previous peak.

In aggregate, the tightness of labour markets points to a continuation of relatively buoyant domestic demand conditions and inflation. Typically, tight labour markets feed through inflation both directly via augmenting demand pressures and indirectly, via enhancing the pass-through of higher commodity prices. Indeed, in most countries,
core inflation has remained sticky with the moderate correction largely due to base effects. This stickiness will in turn limit the degree to which monetary policy can be eased. We reiterate our long standing that the scope to cut policy rates is either nonexistent or limited to 25bp-50bp.