Job cuts may offer short-term relief but lead to longer-term pain, employers warned

Singapore

WHILE many are bracing for a spike in unemployment as the Covid-19 pandemic wears on, industry watchers have a word of warning for companies that are planning to lay off their staff: this short-term relief could usher in longer-term pain.

"As productivity inevitably picks up, quite often in a relatively short period, it becomes more difficult for these organisations to ramp back up and meet pent-up demand for their products, which in turn can cause the slowdown to last even longer for them," Kartikey Singh, associate client partner of advisory at organisational consulting firm Korn Ferry, told The Business Times.

Layoffs are also counterproductive in that they weigh on staff morale during crises and natural disasters, for those who are witness to the layoffs, a situation that Vishnu Varathan, head of economics and strategy at Mizuho Bank called "lose-lose".

While cutting jobs might be seen as saving costs for the employer, Walter Theseira, an economist from the Singapore University of Social Sciences, said that this is not so.

"It means a permanent reduction in business capabilities because workers build up expertise and experience with a specific employer over time," Assoc Prof Theseira explained. "An experienced worker cannot be replaced easily."

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This is why it makes sense for employers to hold on to their workers as long as they expect a recovery in business conditions in the near to medium term, he said.

But the biggest question is when that recovery will come. "For example, if travel takes years to recover to 2019 levels, there simply won't be enough business to go around for all companies to maintain their 2019 staff strength," Assoc Prof Theseira added.

Some global health experts believe a vaccine is at least 12 to 18 months away, while other pandemic prophets see the crisis lingering for 36 months.

In a scenario where organisations see the downturn lasting beyond three to four quarters, layoffs may be a necessary evil. Korn Ferry's Mr Singh said that it would be the right strategy as it can save costs quickly and put the organisation on a sustainable cash position.

Concurring, Assoc Prof Theseira said that it may be the case that the company needs to preserve cash and hence jobs for the workers that do remain, but the issue is whether management is being responsible in doing so.

He noted: "We need to be more critical of decisions that are taken purely to preserve value for shareholders, owners, and management. While they also have rights, they are generally better-positioned to absorb some risk and loss in the near term, compared to workers."

Recruiters say it is important for companies to make the distinction between the current pandemic scenario and a "typical recessionary market", as it would determine how companies see their headcount.

"This is more of a paralysis, so companies and economies are forced to come to a standstill for a short-term period, so that they can get the health conditions under control and for the markets to resume. So I don't think companies are taking a short-term view when it comes to their talent," Jaya Dass, managing director for Malaysia and Singapore at Randstad, told BT.

This, alongside the government's wage-sharing measures like the Jobs Support Scheme, could be why Singapore has not seen widespread job cuts even though "circuit breaker" measures introduced on April 7 have led to a closure of all but essential businesses, Ms Dass said.

As of end-April, Workforce Singapore said that the agency has so far received a 10 per cent increase in notifications from employers on retrenchments, compared with the same period last year. It is fairly consistent with a Korn Ferry survey released last week, which found that 88 per cent of companies in Singapore have not implemented or are not currently considering permanent layoffs. However, 18 per cent have cancelled wage increases, and 17 per cent are delaying them, according to the survey.

In a worst-case scenario of widespread job losses, Mizuho's Mr Varathan said that it could wreak damage on the economy. Displaced workers could become discouraged if they are not quickly matched with new jobs, leading to a permanent upward shift in unemployment.

"While re-training and re-skilling are part and parcel of the 'new economy', the loss of expertise of the workforce, where it is not a technology-necessitated restructuring of the old job, does lead to under-employment and sub-optimal labour productivity outcomes," Mr Varathan pointed out.

The loss of confidence among those who have been let go will also almost certainly have a negative impact on consumption, leading to reduced aggregate demand, and this will cast a shadow on the economy as a whole, he warned.

Meanwhile, if companies are caught wrong-footed by a quicker-than-expected recovery, competition for labour may also drive up costs more than it would otherwise have been, he said.

"At the end of the day, the 'frictional' losses - to both the firms and workers and families - mean that economic growth may be unduly more hampered than it otherwise would have been," Mr Varathan said.

While some companies, like Singapore Airlines, have redeployed their staff to other sectors like healthcare and transport, others have found ways to redeploy within the firm.

Singapore's three biggest banks, have found ways to redeploy their staff to other roles or to work from home, even though they have each had to close over 20 branches during the circuit breaker period. So far, none of the banks have had to cut salaries.

For example, OCBC Bank has redeployed 30 per cent of its total branch sales and service staff. "The redeployed roles include performing anti-money laundering surveillance, assisting with the processing of applications to our Singapore Covid-19 Relief Programme, assisting with the surge in trading account openings, and responding to customer queries at our Contact Centre," Sunny Quek, head of consumer financial services Singapore at OCBC, told BT.

United Overseas Bank and DBS Bank said that they are also conducting virtual training for their staff.

With the majority of the workforce now operating from home, recruiters are also cautioning employers against addressing seemingly poor performance and using that as a reason to lay off workers,

Randstad's Ms Dass said: "Addressing it solely on their performance during this work-from-home period is not the right thing to do because conditions are not the same. People won't be in the most conducive environment to deliver work and they will certainly have other pressures at home that makes it harder."