Friday, August 22, 2008

The Law of Unintended Consequences

For the past few days, I’ve been pondering about how the law of unintended consequences might apply within the context of better baby benefits (BBB), in particular extended maternity leave (now 4 months) for working mothers.

As the mainstream media so lightly puts it, employers in Singapore have had ‘mixed’ reactions to the enhanced BBB. Even though the maternity leave will be funded by the government, companies will in many cases need to hire a part-timer or temp staff to replace the working mother on maternity leave. Naturally, this is an extra expense and is probably highly disruptive to the normal flow of work, hence the cool reactions of many companies, particularly SMEs, to the BBB.

Even though the government has legislated that companies must still pay for maternity benefits if a working mother is dismissed ‘for no good reason’ within the last 6 months of pregnancy, this is probably cold comfort to working mothers who lose their jobs as a result of getting pregnant.

So. What are the possible unintended consequences of BBB? Perhaps employers will be less enthused about hiring married women of childbearing age in the first place? This may impact the job market for all women. Such a situation isn’t impossible. Certainly, we have already seen anecdotal evidence of Singaporean men being discriminated against for reason of their NS liability. So the real winners in the job market in this case may not just be male workers, but to be more specific, male foreign workers. After all, they come with the least amount of baggage. To borrow a phrase from HR professionals, foreign male workers have “zero drag”.

One of the most interesting things the government has taken to habitually proclaim in recent years is that foreign talent is ultimately good for Singapore, because not only does foreign talent enhance Singapore’s competitiveness, it also makes the employment market more resilient, as foreign workers will take the brunt of the first wave of job losses. Presumably, foreign workers would get laid off first and then pack up and go home, reducing the surplus labour in the job market.

Personally, I’ve never fully bought that argument. One reason is that it’s awful PR. If you’re trying to attract foreign talent as hard as our government is, it would hardly do well to emphasize to Singaporeans that foreign workers are economic shock troops on the employment front, doomed to take the first wave of job losses, and all in earshot of every foreign worker professional on the island. It hardly encourages faith in the belief that this island is a great place to live and work. Certainly, it doesn’t encourage foreigners to take up citizenship.

On the other hand, there is some data to support the idea that foreign workers help to cushion job losses (they also help to soak up jobs during an economic boom). The overall effect of having some 30% of our workforce composed of foreigners seems to be to smooth out volatility in the employment numbers for Singaporean citizens (which is something good). Unfortunately, the data from the MOM report is too coarse; we can't tell for sure if the effect of having foreign workers is salutary across all industries, particularly the high value, high skilled jobs that comprise the core of middle class living. [I could dig into the Labour Force Surveys, but I'm too lazy.]

But I digress. Let’s focus on the situation at hand. The labour market in Singapore is currently quite tight due to recent growth, but the global economy is now on the cusp of recession. This, in my opinion, presents an excellent opportunity to test once again the hypothesis that foreign workers will take the first wave of job losses.

Or perhaps the opposite will occur. As I mentioned above, Singaporean men have their NS liability hanging around their collective necks like a millstone, while the employers-have-mixed-reactions BBB are restricted largely to female Singaporean citizens. It may be that the easy and available supply of foreign workers with zero drag becomes preferred to local Singaporeans during the coming recession, when cost-cutting inevitably becomes the watchword of the day. This is especially so when we consider the large numbers of finance professionals moving from the key financial capitals like New York and London to Asia.

Of course, I am cognizant that the government could institute measures during a recession to make hiring foreigners more expensive, such as raising the foreign worker levy or making employment passes more difficult to obtain. Such measures could have helped stem job losses among Singaporeans in the past Asian Financial Crisis and the dot-com plus SARS bust. These measures may once again help to make Singaporeans more competitive vis-à-vis their foreign counterparts.

Don’t bet too heavily on this though. Our government has a track record of favouring employers over workers. In addition, just look at how compromised our unions have become. When the economy starts its slide, companies are going to start clamouring for more business friendly policies, and in a high-inflation environment like today (inflation is NOT going to go away, whatever the oil price is currently doing), they’re going to do whatever they can to cut costs.

Cutting costs could well mean cutting loose Singaporean workers, instead of foreigners.

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