Job mismatch looms as Singapore’s labour crunch persists

Total job creation sunk to a four-year low.

Singapore’s economy is practically at full employment rate, but the disjunct between total job creation and total number of vacancies reveals that there is a mismatch between job openings and skills.

A report by DBS reveals that unemployment rate for the second quarter due today will likely stay low at 2.0%. This is unchanged from the preliminary estimate and underscores the existing tightness in the labour market. At this level, the economy is practically at full employment state. The widely regarded natural rate of unemployment in Singapore is 2%.

However, there are signs of mismatch between job openings and skills. Total job creation in the second quarter has moderated to 22K. This is the lowest since 3Q10. Yet, the total number of job vacancies in the economy registered 60,500 in 1Q14, a rise of 18.4% from the same period last year.

The ratio of job vacancy to unemployed person ratio has also remained fairly high at 1.33 in the first quarter. Plainly, the labour market is extremely tight at present. But despite the ample vacancies available, employers are finding it hard to fill up these openings, which explain the moderation in new jobs being created.

Here's more from DBS:

This is perhaps an unintended outcome of the foreign labour curbs introduced by the government in a bid to restructure the economy. With the restrictions imposed on the hiring of foreign workers, many employers are finding it hard to fill these positions with locals. At times, even higher wages is not enough to entice the locals to take up these jobs since these are jobs that Singaporeans shunned in the first place.

As companies continue to struggle against the labour crunch, business activities will be affected. Some companies may be force to relocate or shrink their operations since there are not enough workers to fill the positions. As such, GDP growth performance will be impacted in the medium term and a second order feedback effect on the labour market may eventually emerge. With that, we expect unemployment rate to inch higher due to the structural shift and below potential growth (4%). This is perhaps the “cost of restructuring”.