Wed. Jan 19th, 2022

When Singapore enters its worst recession since it gained independence, it’s baffling to see malls full to the brim, the stock market demonstrating resilience and property prices and car prices rising. Covid-19 has decimated the world economy, and yet in Singapore, apart from certain sectors such as F&B entertainment, tourism and travel-related industries, it seems that the recession has not yet settled. really despite a record 41.2% drop in Singapore’s annualized GDP figures in the second quarter of 2020. Were it not for the employment support plan implemented by the Singapore government, unemployment would be higher than it would be today. I know it’s possible for many to read this idea thinking I’m stating what’s obvious, but let’s really dig deeper to really understand how the job market works to better predict where it’s going to go.

Let’s understand employment from an economic perspective to really understand the job market.

In a typical job market, there are employers and employees. As in any market, there is demand and supply and a balance needs to be struck at some point. An entrepreneur, let’s say a profit-oriented company, seeks to hire a sales manager for $ 5,000 a month. The company would expect the sales manager to generate more than $ 5,000 in profits for the company, otherwise it makes no sense to hire that person. If the company’s monthly profit is currently $ 20,000, the company will expect the subsequent profit to exceed $ 25,000. For this example, we set this arbitrary number at $ 30,000. This means the sales manager will add an additional cost of $ 5,000 to the company, but will report additional profits for the company. Therefore, it makes sense for the company to hire this person.

The next is the employee. The employee must value the salary offered to him more than his time to accept the employment. In the case of the sales manager, the salary is $ 5,000, but the sales manager can value his time at $ 3,500. Only if the value of the salary offered by the company exceeds $ 3,500 will this individual accept employment. In this case, the market strikes the balance at $ 5,000 and employment occurs.

Profit for the company without the sales manager: $ 20,000
Profit from the company with the sales manager: $ 30,000
Sales Manager Salary: $ 5,000
Net effect of sales manager on company profit: + $ 5,000

In the current scenario, the Covid-19-induced recession has caused many companies to be profitable. Business activity has been negatively affected and therefore companies may not earn as much as they did. In some cases, especially in the industries most affected by the pandemic, companies are generating little or no profit.

We use economics once again to understand this situation.

The company’s profits may have been a significant success. From earning $ 30,000 a month with this additional sales manager, profits may have dwindled to maybe just $ 10,000. The company can be allowed to serve its existing customers or existing contractual agreements can be fulfilled and this can become the main source of revenue. The company can then look at the amount of profits that this particular sales manager brings to the company’s $ 5,000 salary. That amount may have dropped to $ 2,000 a month. This means that it is costing the company more money than it earns to keep that particular sales manager. Under all normal circumstances, the company should make the decision to end the employment of the sales managers in the company. However, due to the Singapore government’s employment support plan, this particular person has recognition. Suppose the company receives a salary grant of 75% from the government. This would mean that the amount of salary assumed by the company is only $ 1,250 a month. In this case, the company only pays $ 1,250 to the sales manager per month, but if it makes a profit of $ 2,000 it keeps the sales manager busy. Therefore, it makes sense for the company to continue to employ this employee.

Profit of the company during the Covid-19 without the sales manager: $ 8,000
Profit from the company with the sales manager: $ 10,000
Sales Manager Salary: $ 5,000
Net effect of the sales manager on the company’s profit: – $ 3,000

Profit of the company during the Covid-19 without the sales manager: $ 8,000
Profit from the company with the sales manager: $ 10,000
Sales Manager Salary: $ 5,000
Financing 75% of the sales manager’s salary: $ 3,750
The company pays 25% of the sales manager’s salary: $ 1,250
Net effect of sales manager on company profit: + $ 750

That, however, has begun to change. Since the end of the circuit breaker, there has been a gradual reduction in the amount of co-financing paid by the Singapore government. The employment support plan will be further reduced after August 2020 and most companies will only receive 10% of salary support for another seven months. In this case, the salary paid to the sales manager by the company will be $ 4,500, with government funding of $ 500. If the automatic interruption of business activity remains low and this employee only adds $ 2,000 a month to the company’s profits, it would make sense for the company to stop employment.

Profit of the company during the Covid-19 without the sales manager: $ 8,000
Profit from the company with the sales manager: $ 10,000
Sales Manager Salary: $ 5,000
Public funding of 10% of the sales manager’s salary: $ 500
The company pays 90% of the sales manager’s salary: $ 4,500
Net effect of the sales manager on the company’s profit: – $ 2,500

Despite the best efforts of the Singapore government, it cannot continue to save all jobs as this money will have to be financed with loans or previous Singapore reserves. The Singapore government faces a puzzling enigma. Fund systems like the Job Support Scheme in the hopes that there will be a medical solution around the corner or to hit the bullet and let inefficient companies fail, as we cannot afford to fund salaries indefinitely. I think the government is trying to adopt a middle ground by setting the government co-financing portion at 10% for another 7 months after August 2020. The government is also trying to use moral persuasion to get companies to stay workers. Ministers have often sent messages to companies to encourage them to use the reduction as a last resort.

Let’s be clear. Despite the mixed signals that are constantly bombarding us from the media, we are in an extremely dire situation. This recession will get worse before it starts to recover. In many cases, profits have declined for many companies and many employees, like the sales manager in my example, are not relevant to the company. As the part of government co-financing of the employment support program shrinks over time and, if there is no medical solution to the current pandemic, we may see unemployment in Singapore begin to rise. increase inexorably.

Yours faithfully,

Daryl Lum

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