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Singapore will extend a wage subsidy program for employers set to expire this year to avoid an increase in job losses that may derail the city-state’s economic recovery, Prime Minister Lee Hsien Loong said.
The government will spend S$675 million ($483 million) to extend its so-called Jobs Credit program by six months, Lee said in a speech to trade unions today. It had earlier budgeted S$4.5 billion for the one-year plan that made quarterly subsidy payments to employers for every Singaporean worker on their payrolls.
Singapore’s unemployment rate is at the highest in four years and nearly 19,000 workers were fired in the first half of the year as the global recession curbed demand for goods and services. The Jobs Credit program has been credited by economists for saving more people from getting fired as it helped companies reduce wage costs during the economy’s worst recession since independence in 1965.
“The economy is now recovering, and some companies are hiring again,” Lee said. “But if we withdraw the Jobs Credit completely and suddenly, companies may have difficulties adjusting.”
Singapore’s economy is forecast to shrink between 2 percent and 2.5 percent this year, the government said yesterday. That is better than a previous estimate for a contraction of as much as 6 percent.
The central bank yesterday said the strength of the economic recovery may ease after an “initial uplift,” and GDP growth in 2010 is expected to be slower than in previous post- recession periods.
“There is a need to extend the Jobs Credit for another six months as the current recovery has been uneven and restricted to certain segments of the economy,” said Irvin Seah, an economist at DBS Bank Ltd. in Singapore.
The government tapped its reserves for the first time this year in part to fund the Jobs Credit program. The extension of the plan will be funded through the normal government budget, Lee said today.
Under the initial plan, the government subsidized 12 percent of an employee’s monthly wages capped at S$2,500, giving companies cash grants of as much as S$900 every quarter per worker.
For the first of the two new payments, the government will subsidize 6 percent of wage costs at the same cap, Lee said. That will drop to 3 percent for the second payment, he said.
“Unemployment numbers tend to lag an economic recovery,” Lee said. “Not all companies are out of the woods and unemployment will take some time to come down.”