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Looking Forward: Unemployment Support in Singapore a Possibility?

Updated: Aug 3, 2023


Image: Credits to The Business Times

Context Setting: Unemployment Support in Singapore

Conventionally, unemployment support comes in two main forms — non-monetary and monetary. While non-monetary support is provided through initiatives to aid in re-employment, monetary support comes in direct forms of cash, financial grants, and vouchers etc.


In Singapore, it is no secret that the Government has reservations on implementing direct financial unemployment support.¹ Often seen as a double-edged sword, such hesitations are largely by virtue of the ‘moral hazard’ problem.²


Broadly, ‘moral hazard’ refers to the situation where one lacks the incentive to protect themselves against a financial risk because they are protected from its negative consequences.³ In the lens of unemployment support, this means that those unemployed may feel perfectly comfortable being and remaining in unemployment provided that they receive financial payouts.


This is exactly what the Singapore Government cautions against — that while unemployment support may act as a safety net for Singaporeans who may genuinely be struggling to make ends meet, it could very well reduce incentives for people to either actively seek employment or remain employed. If not balanced properly, overly-attractive unemployment benefits could lead to unintended consequences such as the over-reliance on government funds, reduced motivation to work, and higher levels of unemployment. This will prove to be especially detrimental to an economy reliant on human capital like Singapore’s.


As a result, in fear of distorting incentives, Singapore does not have any overt system of unemployment benefit dedicated to help the unemployed.⁴ While unemployed Singaporeans can get financial assistance through schemes like ComCare under the Ministry of Social and Family Development to help alleviate their immediate financial hardships,⁵ these schemes aim to provide assistance to the “less fortunate” and are not confined to the unemployed.⁶


Over the last few years, however, sentiments regarding unemployment support in Singapore have changed. Since 2021, the National Trades Union Congress (NTUC) has been proposing the idea of unemployment support.⁷ During the 2023 Budget debate in February, Member of Parliament (MP) Jamus Lim similarly suggested for unemployment support to be of a six-month duration and a payout of 40% of one’s last-drawn salary to ensure financial sustainability.⁸ Most notably, in the 2023 Budget, Deputy Prime Minister (DPM) Lawrence Wong touted the idea of re-employment support for jobseekers.⁹ In light of the pandemic-induced economic slowdown in Singapore, DPM Wong commented that “finding the best-fitting job, or training for a job with better prospects, takes time, during which there might be room for the Government to step in to provide some interim support”.¹⁰ Among the various discussions and calls for greater unemployment support, this was the latest signal that such a scheme is being considered by the Government.


To better understand the merits and drawbacks of unemployment support, and how it could work in Singapore, we first look into similar policies that are present overseas.


Looking Abroad

South Korea

In 2017, the severity of youth unemployment in South Korea prompted the government to implement a nationwide Youth Job Seeker Allowance. This is an allowance paid to participants in the Employment Success Package who are searching for jobs. For up to three months, the Allowance provides KRW 300,000 in cash (S$312) per month for those aged 34 or younger seeking jobs.¹¹


The impact the Allowance had on the labour market was examined through a study which found that while recipients of the allowance took an average 1.2 months longer to obtain employment than non-recipients, the allowance had a positive effect on post-employment wages.¹² Using firm size as a proxy for quality of jobs, it was discovered that those who received benefits for longer durations were associated with better jobs through sufficient searching and job preparation.¹³


Application to Singapore

Taking reference to South Korea’s implementation of re-employment support, it suggests that providing individuals with an income source during their period of unemployment may reduce pressures to take up a low-paying job — a core factor DPM Wong mentions. In fact, it could give Singaporeans time to search for optimal jobs, and to develop even better skills and human capital to command higher pay. However, such a policy could lead to negative labour market outcomes due to longer and more generous benefit payouts that could easily reduce motivation, increase unproductivity, and take a toll on efficiency.


United Kingdom

The United Kingdom (UK) has a similar policy in the form of Job Seeker Allowance (JSA), which is additional money to assist unemployed individuals to cover living costs while looking for work. While unemployment benefits are more widespread in European countries such as the UK, the JSA requires recipients to take steps to look for work as agreed with the work coach assigned to each recipient.¹⁴


In 2022, the UK tightened welfare rules for the unemployed to meet labour shortage issues in its economy. Rather than being able to spend up to three months looking for employment similar to their previous job while receiving state benefits, unemployed individuals now only have four weeks to do so. After that, job seekers will be required to apply for and accept offers for all types of work — including lower-paid, less-skilled roles than their last job — or face welfare payment cuts.¹⁵


The intention of such a policy change was to increase the costs of unemployment to recipients of the JSA, and incentivise them to take up employment opportunities. However, such tightening of rules, known as benefit sanctions, while found to be effective in enhancing short-term labour flows from JSA recipients, was not sustained in the long run.¹⁶


Application to Singapore

It has to be acknowledged that policy outcomes abroad may differ in Singapore. However, if the lessons from the UK approximate the response by workers in Singapore, then this brings up another trade-off policymakers would have to consider.


Harsher benefit sanctions can reduce strains on the government budget and encourage job flows into employment in the short-term. Yet in the long run, effects on employment would be similar in the absence of such sanctions, and workers are likely to end up with lower wages due to less time taken to search for jobs for reasons described above.


Conclusion

An apt metaphor used by former Senior Minister Mr Tharman Shanmugaratnam in 2015 to describe Singapore’s stance on social support was that of a trampoline — where schemes in place would aim to catch those who fall in between the cracks and propel them back upwards.¹⁷ In his words, "We are achieving a paradox on active government support of personal responsibility, rather than active government support to take over personal responsibility or community responsibility.”¹⁸


Such a sentiment continues to be echoed even today, despite the shift in policy sentiment towards the idea of unemployment support. If implemented in Singapore this is likely to take the form of something similar to Job Seeker Allowances adopted overseas — while likely to enhance wages of benefit recipients, this will concurrently increase strains on the budget and is likely to create a moral hazard problem.


To this end, such a policy should not only finely balance personal responsibility and government support, but also complement broader measures to enable workers to increase their income such as SkillsFuture and the Job-Skills Integrator announced in Budget 2023. Doing so would then truly embody the idea of a social trampoline.


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¹ Cheung Wai-lam, “Unemployment-Related Benefits Systems in Singapore,” (2000): p3, https://www.legco.gov.hk/yr99-00/english/sec/library/e17.pdf.
² “Introducing Unemployment Support in Budget 2023? What Can We Expect,” Smart Towkay, February 07, 2023, https://www.smart-towkay.com/blog/view/349-introducing-unemployment-support-in-budget-2023-what-can-we-expect.
³ Kenton Will, “Moral Hazard: Meaning, Examples, and How to Manage,” Investopedia, June 06, 2023, https://www.investopedia.com/terms/m/moralhazard.asp.
⁴ Cheung Wai-lam, “Unemployment-Related Benefits Systems in Singapore.”
⁵ “Comcare,” Ministry of Social and Family Development, Accessed June 31, 2023, https://www.msf.gov.sg/what-we-do/comcare.
⁶ Cheung Wai-lam, “Unemployment-Related Benefits Systems in Singapore,” (2000): p3, https://www.legco.gov.hk/yr99-00/english/sec/library/e17.pdf.
⁷ Tay Hong Yi, “Re-employment support on the cards to help retrenched workers tide over tough times: Lawrence Wong,” The Straits Times, March 09, 2023, https://www.straitstimes.com/singapore/re-employment-support-on-the-cards-to-help-retrenched-workers-tide-over-tough-times.
⁸ See Sharon, “Support the unemployed and self-employed, draw Singaporeans to skilled trades, say MPs,” The Business Times, February 23, 2023, https://www.businesstimes.com.sg/singapore/support-unemployed-and-self-employed-draw-singaporeans-skilled-trades-say-mps.
⁹ Ibid.
¹⁰ Ibid.
¹¹ Cho, Sung‐Eun, and Young‐Min Lee, "The Effects of Youth Job Seeker Allowance in South Korea," Asian‐Pacific Economic Literature 34, no. 2 (2020): 64-77. https://onlinelibrary.wiley.com/doi/pdf/10.1111/apel.12312
¹² Ibid.
¹³ Ibid.
¹⁴“Jobseeker’s Allowance (JSA),” GOV.UK, December 17, 2014, https://www.gov.uk/jobseekers-allowance.
¹⁵ Milliken David, “UK Government Tightens Welfare Rules for Unemployed,” Reuters, January 27, 2022, https://www.reuters.com/world/uk/uk-government-tightens-welfare-rules-unemployed-2022-01-27/.
¹⁶ Taulbut, Martin, Daniel F. Mackay, and Gerry McCartney, "Job Seeker’s Allowance (JSA) benefit sanctions and labour market outcomes in Britain, 2001–2014," Cambridge Journal of Economics 42, (2018): 1417-1434. https://core.ac.uk/download/pdf/132211687.pdf
¹⁷ Chua Mui Hoong. “Tharman’s Trampoline and the Productivity Puzzle,” The Straits Times, May 24, 2015, https://www.straitstimes.com/opinion/tharmans-trampoline-and-the-productivity-puzzle.
¹⁸ Ibid.
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