Tuesday, 4 October, 2022
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How unemployment remains low in parts of Asia despite economic woes

In countries like Singapore and Malaysia, the state is an integral component of wage-setting and often the arbiter over who gets hired and fired in companies.

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Many Asian economies are suffering historic slumps. It’s visible in the mothballed planes parked at empty terminals, the once-bustling central business districts that have emptied, and the rising number of boarded-up shopfronts. Just don’t look for it in the region’s unemployment figures.

In some of Southeast Asia’s most important economies, jobless rates haven’t risen much above 5%: It’s 2.9% in Singapore and 4.9% in Malaysia. That seems out of step with the severity of their economic contractions: Singapore’s gross domestic product cratered 13.2% in the second quarter from a year earlier and Malaysia fell 17.1%.

What explains this disparity?

A major factor is the role of the state. Asia is often characterized as a beneficiary of global capital flows, free trade and foreign investment. Yet this view obscures the powerful role the public sector also plays. Intervention is most obvious in Communist nations like China and Vietnam. At the other end of the spectrum is the Philippines, where central authority is much weaker. Between these extremes are countries like Singapore and Malaysia. In both places, government agencies hold stakes in many of the biggest companies; the state is an integral component of wage-setting and often the arbiter over who gets hired and fired.

In Singapore, protecting the labor market has been a key part of an aggressive response to the pandemic. The four stimulus packages it has announced include wage subsidy programs that encourage employers to retain staff as long as possible. Without this intervention, jobless ranks would surely swell; as it is, the government has made clear it can’t save every job. Singapore Airlines Ltd., for example, said Thursday it will eliminate 4,300 positions after initially resisting cuts.

When companies do consider layoffs, they are urged to keep Singaporeans as the core of their workforce. While the city-state likes to say its success is built on openness, and it has long courted multinational companies and global talent, the recession has changed some of those atmospherics.

This outsize role in the labor market didn’t begin with the pandemic. Intervention can be traced to the republic’s earliest days when it was beset by industrial unrest. From that point, leaders understood that economic survival depended on curbing the more radical of Singapore’s unions. This means many employers and workers have long maintained a tacit trade-off between limited wage demands and job security.

Also read: After blows in India, US, UK, TikTok owner to spend billions to expand from Singapore

In Malaysia, meanwhile, laws mandate preferential treatment for the ethnic Malay majority in employment, education and company shareholding. Successive governments tried to pare back these benefits, but retreated in the face of political backlash. State companies are woven into the fabric of the country and its strategic goals. Petroliam Nasional Bhd., the energy monolith, is a classic example. It became an ATM over the decades for schemes hatched by politicians: The firm helped finance the signature twin towers that dominate the Kuala Lumpur skyline, as well as the administrative capital Putrajaya. Petronas dividends also underpin national budgets and underwrite an array of subsidies.

The Philippines, by contrast, most closely resembles a Western model. The state plays little role, relative to some of its neighbors. Fiscal stimulus in response to the virus has been limited by regional standards, despite logging the biggest-ever contraction in the second quarter and a jobless rate that shot up to double digits. (This mirrors the unemployment trend in the U.S., though the economic damage there was much shallower.)

While Singapore and Malaysia tried to protect local jobs well before the pandemic, the Philippines has long been happy to export its labor, from nannies and construction workers to health-care professionals and teachers. People always wondered what would happen if they came home. Now many are returning on “mercy flights,” just as locals are searching for work.

One conclusion is that a strong government hand is a tremendous asset in bad times. You want the safety net, in terms of budget allocations and support programs, and some sense that national ambitions coincide with corporate decision-making. But a muscular state isn’t necessarily a prescription for all seasons: The Philippines’s economic growth in the few years before Covid-19 outstripped Malaysia and Singapore. On the flip side, the primacy of the public sector hasn’t meant a mistake-free pandemic in Singapore.

A powerful current of thought for much of the past few decades has been that an active state tended to be a liability; the idea that letting markets do more, slimming down the public sector and lightening the regulatory touch would pave the path to prosperity. The durability of the coronavirus will be the surest test of that model.- Bloomberg

Also read: Singapore Airlines cuts 20% of workforce as coronavirus smashes travel


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