Impact of SARS on the Economy
- Singapore’s economic outlook at the beginning of 2003 was clouded by the impending war to disarm Iraq and its impact on oil prices. The war in Iraq has now ended, and oil prices have fallen, lifting some of the uncertainties.
- However, the unexpected outbreak of the severe acute respiratory syndrome (SARS) has created a new and greater uncertainty for the economy. It has caused fear and anxiety among Singaporeans and tourists. SARS has inflicted a heavy toll on businesses. The hardest and most directly hit are the tourism and transport-related industries like airline, cruise, hotel, restaurant, travel agent, retail and taxi services, and the supporting industries. For example, tourist arrivals have seen a significant drop by 15% in March and 67% in April. As a result, hotel occupancy has declined sharply to 10 to 30%, compared to the normal level of 70% or above. Singapore Airlines, our national carrier has slashed its total capacity by 29% in April and May. Recently, a number of exhibitions including the BroadcastAsia and CommunicAsia have been cancelled which will cause severe losses to companies in this business sector. Other industries may also be indirectly affected as the different sectors in the economy are closely inter-link
- However, the unexpected outbreak of the severe acute respiratory syndrome (SARS) has created a new and greater uncertainty for the economy. It has caused fear and anxiety among Singaporeans and tourists. SARS has inflicted a heavy toll on businesses. The hardest and most directly hit are the tourism and transport-related industries like airline, cruise, hotel, restaurant, travel agent, retail and taxi services, and the supporting industries. For example, tourist arrivals have seen a significant drop by 15% in March and 67% in April. As a result, hotel occupancy has declined sharply to 10 to 30%, compared to the normal level of 70% or above. Singapore Airlines, our national carrier has slashed its total capacity by 29% in April and May. Recently, a number of exhibitions including the BroadcastAsia and CommunicAsia have been cancelled which will cause severe losses to companies in this business sector. Other industries may also be indirectly affected as the different sectors in the economy are closely inter-linked. The final outcome is that we expect the economy and employment market to weaken for the rest of the year.
Labour Market Situation
- The labour market remained weak. Total employment fell by 40,900 in 2002 and a further of 9,400 in the 1st quarter of 2003. 19,100 workers were retrenched last year and another 4,200 in the 1st quarter of 2003. The retrenchment figure is expected to rise if the SARS situation worsens. The seasonally-adjusted unemployment rate increased to 4.5% in March 2003 from the average of 4.4% in 2002. Based on the revised GDP forecast of 0.5 to 2.5%, unemployment could easily hit 5.5% later this year. Should the economic impact of SARS be prolonged, unemployment could even go beyond 5.5%. While employers should try to preserve as many jobs as possible, we have to expect more retrenchments this year, especially in the tourism and transport-related sectors.
Wage Adjustment in 2002
- Weighed down by a soft labour market and a highly uncertain global environment, total wages comprising basic wages, annual wage supplement and variable component came to a standstill in 2002, down from 1.1% growth in 2001. Basic wages for all employees rose by a record low of 1.8%. This increase was offset by a 15% reduction in variable component to a new low of 1.77 months of basic wage in 2002. These wage adjustments were in line with the recommendations of the NWC for 2002.
NWC Recommendations For 2003/2004
- SARS has severely hurt the viability of businesses and the job prospects of employees in affected companies. Thus, our immediate concern must be to help SARS affected companies tide over the difficult time and minimise job losses.
- The NWC noted that the tripartite partners had responded swiftly to the sudden and unprecedented SARS outbreak, by issuing a tripartite statement on 15 April 2003 recommending temporary cost-cutting measures that SARS-hit companies could implement to remain viable and save jobs. These measures include the implementation of a shorter work-week, temporary lay-offs and the arrangement for workers to take leave or undergo skills training and upgrading provided by the Ministry of Manpower and other agencies. Where such cost-cutting measures are not sufficient to sustain business survival or preserve jobs, companies may also consider temporary wage cuts. This tripartite approach reflects the willingness and ability of the three social partners to work together to face the crisis.
Taking note of the prevailing business environment and outlook, the NWC recommends:
Wage Cut for SARS affected industries to Save Jobs
- .In view of the severe impact of SARS on the economy, the NWC recommends that companies directly affected by the SARS outbreak implement appropriate wage cuts to survive this downturn and to save jobs. NWC urges management and executives to take the lead, for example by taking earlier or deeper wage cuts.
Wage Restructuring for Companies facing Difficult Industry Conditions
- In some industries conditions have changed drastically, for reasons other than the SARS outbreak. Companies in such industries face uncertain business prospects, fierce competition and reduced profitability, as the industry consolidates and other players cut costs and sharpen their competitive edge. If the wage structures in these companies are out of line with current market conditions, this exacerbates their problem further. Such companies should restructure their wage system without delay, reducing the fixed and seniority-based elements of pay, and converting them to productivity and profit-sharing bonuses. This will have to go significantly beyond transferring 2% from the basic wage into the Monthly Variable Component (MVC).
Wage Freeze for Most Companies
- Companies that are not directly hit by SARS but nevertheless are affected by the generally uncertain business conditions should continue with the wage standstill. The majority of companies in Singapore would fall into this category. These companies should also proceed to restructure their wage system and build up the monthly variable component as soon as possible by transferring 2% or more from the basic wage into the MVC.
Bonuses for Companies Doing Well
- A few companies are still doing well, despite the generally difficult economic climate. They should reward their workers through appropriate variable payments or special bonuses.
Restructuring Wage System for Competitiveness
- We urgently need to restructure the wage system to enhance wage flexibility and sustain labour competitiveness over the longer term. Even before the SARS outbreak, Singapore was already facing fierce competition from emerging economies like China and India which are more cost-competitive. With this SARS outbreak, there is renewed urgency to adjust our wage-costs to remain competitive.
- The ERC recommended that companies top up their MVC to 2% immediately out of their basic wages. The NWC supports this. In view of the urgency of enhancing wage flexibility, the NWC strongly urges employers and unions/workers to expedite the process by setting aside a higher percentage of basic wages of workers to achieve a higher MVC so as to strengthen our resilience in face of rapidly changing business conditions.
- All companies with seniority-based wage systems need to replace them with the Competitive Base Wage System (CBWS) recommended by the Economic Review Committee (ERC) and endorsed by the Government. The CBWS rewards workers based on the value of the jobs, their contribution, productivity, and the performance of companies.
- The NWC strongly urges companies and unions to speed up wage restructuring by narrowing the salary maximum/minimum ratio to an average of 1.5 or less, to better reflect the value of the job. They should also implement appropriate measures for employees whose salaries exceed the maximum point in the desirable salary ratio achieved or brought about, for example by reducing or freezing the maximum of salary scales.
- In this regard, the NWC proposes that the government set up a tripartite task force to drive the wage restructuring process and to report on its progress. This will build a more resilient wage structure and enhance our competitiveness. This will not only help our workforce to survive this economic downturn, but more importantly to minimise the impact on workers of future business cycles. The task force should complete its first report within 6 months.
Portable Medical Benefits
- The ERC had also recommended the introduction of portable medical benefits to address the re-employment difficulties confronting older workers and to better meet the needs of workers who are experiencing more frequent job changes and shorter employment tenure. Two schemes for inpatient medical benefits, namely the Portable Medical Benefits Scheme (PMBS) and the Transferable Medical Insurance Scheme (TMIS) have been proposed. The NWC strongly urges employers, in consultation with the unions/workers, to adopt either of the 2 schemes. Implementation of the PMBS/TMIS would provide employees with continued inpatient coverage not only when they are in employment but also when they are in-between jobs.
- The NWC strongly urges the government to continue to keep statutory costs and other charges down, as wage costs constitute only a part of the total cost of doing business in Singapore.
Application Of NWC Recommendations
- The NWC recommendations are applicable to all employees – management, executives and rank-and-file employees, unionised and non-unionised companies and in both the public and private sectors. In particular, NWC recommends non-unionised companies to also closely follow the recommendations.
- To facilitate wage negotiation, companies should share relevant information on company performance and business prospects with employees and their representatives.
- These recommendations shall apply for the period 1 July 2003 to 30 June 2004. However, in view of the rapid changes in the economic situation, the Council will reconvene to review the wage guidelines as and when the situation warrants it.
- 2003 will be a difficult year for both employers and employees. The NWC is confident that given our strong tripartite co-operation among employers, trade unions and the government, we will be able to ride the crisis and economic difficulties. The strong partnership will underpin the changes and adjustments needed to help companies stay viable and preserve jobs for workers. This will enable companies to emerge stronger to take advantage of the business opportunities when the economic environment improves. We must be confident and resolute in facing this crisis. By adopting and implementing the NWC recommendations, companies, their workers and unions will be contributing to the national effort to overcome the current adversity and to minimise hardship and social cost for workers.