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Singapore risk: Labour market risk
(RiskWire Via Thomson Dialog NewsEdge)COUNTRY BRIEFING
FROM THE ECONOMIST INTELLIGENCE UNIT
RISK RATINGSCurrentCurrentPreviousPreviousRatingScoreRatingScoreOverall assessmentA11A12Labour market riskB25B25Note: E=most risky; 100=most risky.SUMMARY
Labour unions have very little power, the government having long since subsumed them in a tripartite framework with itself and business. Strikes are extremely rare. Labour laws are likely to remain liberal, although high levels of unemployment within the Singaporean population could increase political pressure on the government to reduce the number of foreign workers in the country, possibly creating some skills shortages. Wages are not fully responsive to productivity changes. The government, through the National Wages Council (NWC), issues centralised voluntary directives on wage levels. For some time the government has encouraged firms to pay a higher proportion of pay in the form of an easily modified variable component--also encouraged by the Economic Review Committee as a means of maintaining competitiveness. Structural unemployment is a problem in parts of the economy, and this has prompted some calls for tighter restrictions on foreign workers.
SCENARIOS
Wages do not adjust quickly enough to any future downturn, reducing firms' competitiveness (Moderate Risk)
The government has a number of ways to reduce wage costs in the economy. It can reduce the employers' rate of contribution to the Central Provident Fund (CPF); it can suggest through the National Wages Council that wages can be reduced; it can encourage firms to pay a higher proportion of wages through a variable component, that can be more easily cut-back in times of economic recession. All these methods are tried and tested, but history suggests that wages have not been cut quickly enough in past recessions (1984-85 and 1997-98 and 2001). Wages may keep rising fast in 2006, even as unemployment risks worsening. Foreign businesses should try to increase the variable component of salaries paid--made politically easier by the fact that the government has been the leader in reducing the fixed component of wages. In the event of wages needing to be cut, companies should engage in intensive consultation with their workers.
High levels of unemployment force a less liberal approach to foreign workers (Low Risk)
In recent years, the government has taken a very liberal attitude towards admitting skilled foreign workers. However, it is possible that high levels of unemployment in the local workforce would result not only in the repatriation of less skilled foreigners (for example, in the construction sector) but also in some discrimination against skilled foreign workers, although this looks unlikely. An alternative approach, suggested in July 2004 and a number of times since, is that Singaporeans should in effect be subsidised to take up lower paid jobs. Foreign firms should consider what proportion of their foreign staff could be replaced by domestic hires.
BACKGROUND
(Background material is updated twice yearly. Last update: May 26th, 2004)
Union Strength
Most workers in big industrial plants and offices are unionised. The National Trades Union Congress (NTUC), created in 1961, is a congress of affiliated unions (it is not a union itself). As of December 2002, it had 64 trade unions and six associations affiliated with it, organised mostly by industry. Trade-union membership is well over 400,000. The NTUC works as a social partner with the government and employers. Several NTUC leaders are members of parliament. Major affiliates include the United Workers of Electronic and Electrical Industries, the Amalgamated Union of Public Employees, the Singapore Manual and Mercantile Workers Union, the Singapore Teachers Union, and the Food Drinks and Allied Workers Union.
Labour Disputes
Except for a brief strike in 1986, Singapore has remained strike free since 1978. Strikes may be rare, but labour disputes reached a record high in 2002, with over 20,753 salary claims lodged by non-unionised workers (compared with 19,107 in 2001 and 10,561 in 2000). In 2002 there were 260 unionised trade disputes, compared with 266 in 2001. Most involved wages or conditions of service; the vast majority were resolved, and only five had to be referred for arbitration.
Jurisdictional disputes are rarely a problem, but in a disagreement, the Ministry of Manpower may supervise an election to determine union representation.
Collective bargaining, covered under the Industrial Relations Act, normally occurs on a company-by-company basis and covers all employees in a firm except managerial, executive and confidential staff. Agreements generally include provisions covering bonuses, vacations, sick and maternity leave, other grounds for leave, medical benefits, shift premiums, the standard working week, overtime, uniforms (if necessary), transport, salary schedules, wages, annual increments and severance pay.
Wage Restrictions
Singapore has no statutory minimum wage. National guidelines for annual wage adjustments are recommended by the National Wage Council (NWC), which includes representatives of employer organisations (principally the Singapore National Employers Federation and the Chambers of Commerce and Industry), the National Trades Union Congress and the government.
Before the recession of the mid-1980s, the NWC would issue quantitative guidelines, indicating pay increases in percentage terms. Since then, it has issued qualitative guidelines. The NWC has always recommended that wage increments lag productivity growth. Unions and management meet every year and negotiate wage increments based on economic performance and profitability of companies.
Wage increases are usually paid in two parts: a variable component and a built-in, fixed increment. Over the years, the NWC has recommended that (1) total wage increases reflect the performance of the economy; (2) built-in wage increases lag productivity growth; (3) companies pay as much as possible of their wages as a variable component; and (4) the variable component reflect the performance of the company. In the long term, this base-up wage system should replace the seniority-based wage system. The base-up wage system is generally recognised as a more equitable system, to both younger and older workers. Other recommendations accepted by the government include workers training and medical co-payment.
In December 2001, the government accepted the NWCs recommendation for a 17-20% wage cut in the monthly salaries of political/statutory and judicial appointment holders and senior civil servants. At this time, the NWC also strongly urged companies to tap into the many training schemes and incentives the government has put in place. Because Singapores economic outlook remains unclear (especially in light of the SARS virus outbreak), the NWCs 2001 guidelines are being extended until June 30th 2004, one year later than originally planned. The Singapore government is leading by example. Its cabinet ministers will take a 10% wage cut starting in July 2003, and other civil servants pay will be cut by 1-9%. Companies who are adversely affected by the economic downturn will, in consultation with unions and workers, be allowed to implement a wage freeze or wage cuts. Specifically, the NWC suggested that tourism and transport-related companies implement immediate wage cuts to save jobs. They should also transfer significantly more than 2% of employees basic wage to a monthly variable component (MVC) so that wages are more tightly tied to the economy. All other companies were advised to implement wage freezes (unless the company is doing well) and to transfer 2% or more of basic wages to MVC. All companies that use a seniority-based wage system were encouraged to adopt a competitive base wage system and to narrow the salary maximum/minimum ratio to 1.5 or less. Furthermore, the NWC proposed that the government set up a tripartite taskforce to lead and monitor the wage restructuring process. For companies that continue to do well, an annual wage increase should be considered, preferably in the form of MVC.
The Employment Act provides for several mandatory fringe benefits (applicable to employees earning less than S$1,600 per month). Major benefits include the following:
An employee is entitled by law to seven days of vacation for the first year of service, plus one additional day (up to a maximum of 14) for each year employed thereafter. Vacation must be taken within the year following the year in which the vacation leave is earned and pro-rated if the employee has completed at least three months of service.
There are 11 paid public holidays--New Years Day, Chinese New Year (two days), Hari Raya Puasa and Hari Raya Haji (Malay holidays), Good Friday, Labour Day, Vesak Day (a Buddhist holiday), National Day, Diwali (a Hindu holiday) and Christmas Day.
Employers must provide sick leave of at least 14 days (or up to 60 days for hospitalisation) if an employee has served at least six months.
The Workers Compensation Act covers all manual workers regardless of salary and all non-manual workers whose average monthly earnings do not exceed S$1,600. The minimum cover is S$37,000, and maximum S$111,000 for a fatal accident; total permanent incapacity is subject to a minimum of S$49,000 and a maximum of S$147,000.
Eight weeks of paid maternity leave is available for women who have worked at least 180 days before the date of delivery.
The Central Provident Fund (CPF)--a compulsory savings programme for all employers and those employees who earn more than S$200 a month--provides retirement and medical benefits. Members may also use their funds to purchase homes and may direct most of their monthly contribution to pay mortgage instalments. During the economic downturn of 1997-98, the employers contribution rate to the CPF was reduced to 10% from 20% as part of the governments cost-cutting package (unveiled in November 1998) to improve Singapores wage competitiveness. The rate was partially restored to 12% on April 1st 2000 and again lifted, to 16%, from the start of January 2001. A return to the full 20% rate had been planned for January 2002, but (in the light of the deteriorating economic environment) was postponed for six months. The employees rate remains at 20%. The CPF is paid on the first S$6,000 in monthly salary; any earnings beyond this level are not subject to CPF. There are progressively lower rates for workers older than age 55 to encourage older persons to stay in the workforce. Withdrawals from the CPF may start at age 55, but the minimum sum that must be maintained after withdrawals start is now S$70,000. It will increase by S$5,000 per year to reach S$80,000 by 2003.
In January 2001 eligible Singaporeans received the first payment of the S$500-1,700 CPF Top-Up announced by the prime minister in August 2000. The second payment, costing the government a total of S$1bn, was given in January 2002. In 2001, the government announced the creation of the New Singapore Shares (NSS)--a S$2.7bn scheme designed for the citizens to partake of the nations wealth. This scheme is in addition to the CPF top-up scheme and does not replace it. Those who qualify for this scheme will receive a basic package of S$200-1,700 NSS, depending on their income (for those who are employed), and on their housing type (for those who are not employed). The self-employed will receive shares according to their housing type, unless they qualify for fewer shares based on their income level. Those who received the 2000/01 CPF top-up were also qualified to receive the NSS. Those who do not qualify for the CPF top-up can still get the NSS if they contributed at least S$50 to their CPF account between January 1st 2002 and December 31st 2002. Unlike the CPF top-up scheme, part of the shares can be drawn out immediately. Also, if saved, the shares will earn interest at a basic rate of 3%--possibly higher, if the economy does well--until March 2007. On March 1st 2007, all outstanding shares will automatically be exchanged for cash at S$1 each. While Singaporeans are encouraged to keep their shares until 2007 to earn the maximum amount of dividends, they may exchange them at any time.
Singapore residents have also had access since April 2001 to a voluntary Supplementary Retirement Scheme, through the four big local banks, with considerable tax incentives. The government, aware that the CPF scheme may not adequately fund retirement, hopes this scheme will lift private savings.
Foreign employees and their employers are exempted from CPF contributions. When foreign employees become Singapore permanent residents, they and their employers must contribute to the CPF.
Many firms offer considerably more than the mandatory fringe benefits listed above in order to retain staff. Executives with five years service get an average of 18 days of annual leave, and those with at least ten years service get an average of 21 days. Many firms provide their chief executives with cars and club memberships, though fewer perks are given to department or division heads. Many executives receive fixed monthly transport allowances.
Hiring and Firing Restrictions
In the absence of any agreed notice period in a collective agreement, the Employment Act requires the following minimum notice periods for terminating employment: An employee must receive one day notice for fewer than 26 weeks of service, one week notice for 26 weeks to two years of service, two weeks notice for two to five years of service, and four weeks notice for five years of service or longer. For executives, three months written notice by either side or three months pay in lieu of notice is usually required.
For non-economic dismissal, employees who feel they have been wrongfully dismissed may appeal--within one month of the dismissal--to the manpower minister, who has the authority to order reinstatement or direct the employer to pay compensation if warranted.
Provisions for retrenchment benefits are usually included in collective bargaining agreements. The norm is one to two months salary for each completed year of service. Those with less than three years of service are usually granted a lump-sum payment. Where there is a dispute over retrenchment benefits stipulated in a collective agreement or in the terms and conditions of employment, it may be referred to the Commissioner of Labour for conciliation and to the Industrial Arbitration Court for arbitration.
The government adopts an open-door policy and welcomes foreign talent. Recognising the constraint of a small population and the need to become more competitive, the government continues to attract foreign personnel. A multi-ministry committee--Singapore Talent Recruitment (Star) Committee--was formed in 1998. The groups chairman, BG George Yeo, and its deputy chairman, Lee Boon Yang, oversee the effort of developing Singapore into a hub for international talent while maintaining social cohesiveness and national resilience.
Applications for foreign workers should be made to the Foreign Manpower Employment Division of the Ministry of Manpower. Firms applying for work permits for foreign workers can expect a reply within seven working days. A new work-pass framework, encompassing the existing Work Permit and Employment Pass schemes, was implemented in 1998. P passes are issued to those holding administrative, professional and managerial jobs, including entrepreneurs, investors and specialists; Q passes are for skilled workers and technicians. Semi-skilled and unskilled workers (essentially the two-year Work Permit holders) are issued R passes, with employment subject to the full range of Work Permit controls.
Firms experiencing financial difficulties are usually eligible for assistance from the Economic Development Board. The government has a history of reducing the foreign workers levy (FWL), and 2003 proved to be no exception. As part of its S$230m SARS relief package, the government is cutting the FWL for unskilled workers from S$240 per worker per month to S$120 per worker per month for all hotels declared under the Singapore Tourism Act, effective from May 1st 2003 to December 31st 2003. Hotels will save more than S$2m in levy payments. Not related to the SARS relief package, the MOM will lower the upper-tier levy rate for foreign construction workers from S$470 to S$320 from January 1st 2004 in recognition of the higher minimum skill standard for the construction foreign workforce. The current levy rate for skilled workers will remain at S$30. Other changes for foreign construction workers include lowering the local to foreign worker ratio from 1:5 to 1:4 (effective October 1st 2003), raising skill standards, and re-certifying skills starting from January 1st 2006.
The Basic Skills Certification (BSC) requirement, introduced in August 1998, stipulates that construction contractors wishing to bring in foreign workers from non-traditional sources had to get at least 20% of these foreign workers to obtain the BSC issued by the Building and Construction Authority. The workers are tested at overseas testing centres before admission into Singapore, ensuring that foreign construction workers have a minimum level of skills needed for their jobs. The 20% requirement was raised to 50% in April 1999 and to 100% in April 2000.
Different economic sectors have maximum permissible levels of foreign staff with work permits (called the dependency ceiling). For manufacturing, foreign workers may not exceed 50% of the total workforce; in the service sector, this ceiling is set at 30%. In construction, the employer may engage up to five foreign workers for every one full-time local worker. In the marine sector, the ratio of foreign workers to local workers is 3:1. The Employment of Foreign Workers Act holds principal contractors who have control of access to a workplace responsible for illegal workers found at the workplace, and it imposes fines of 24-48 times the foreign-worker levy. Repeat offenders face mandatory prison sentences in addition to the fine.
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