National Wages Council
Wage Guidelines For July 2003 To June 2004.
Impact of SARS on the Economy
1. 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.
2. 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.
3. 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
4. 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
5. 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
6. 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.
7. 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
8.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
9. 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
10. 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
11. 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
12. 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.
13. 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.
14. 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.
15. 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.
16. 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
17. 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.
Other Costs
18. 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
19. 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.
20. To facilitate wage negotiation, companies should share relevant
information on company performance and business prospects with
employees and their representatives.
21. 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.
Conclusion
22. 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.
