As the Malaysian economy switches into recovery mode, the country must ensure that growth benefits all households, especially those at the bottom.
As Malaysia rolls out its Covid-19 vaccination campaign and the economy trundles toward full capacity, the prospect of recovery has brightened.
The country will hope to escape the pendulum pattern of progression-regression experienced in the past year, which still grips many countries. Malaysia’s first and severest Movement Control Order (MCO) of March-May 2020 saw GDP contract in the second quarter by a staggering 17 per cent year-on-year. Unemployment ballooned from 3.3 per cent in February to 5.3 per cent in May. Relief measures, especially wage subsidies and loan moratoriums, and cash assistance for households and microenterprises, helped staunch the haemorrhaging. Malaysia subsequently eased restrictions and shifted into recovery mode, with unemployment moderating to 4.6 per cent in September.
A Covid-19 resurgence in late 2020 dampened that momentum. Unemployment inched up to 4.8 per cent in November-December. Malaysia greeted 2021 grimly with a return to another MCO – and more rounds of stimulus.
However, the mood in Malaysia’s corridors of power is distinctly sanguine. This leans on domestic and global expansion, and has prompted forecasts of 6-7.5 per cent GDP growth for 2021. This is a sea change from the 5.6 per cent contraction suffered in 2020.
Labour market information supports a more tempered outlook for workers. The latest labour force data show unemployment still hovered at 4.8-4.9 per cent in January-February; the government has cited a report projecting a gradual descent to 4.3 per cent. In other words, employment will not fully recover to pre-Covid-19 levels by year end.
The Employment Insurance System’s (EIS) register of loss of employment (LOE) cases also cautions against over-exuberance. This provides supplementary data points on labour market health, with a caveat that high-skilled workers are disproportionately more likely to lodge LOE and claim EIS benefits. Comparing LOEs per month since January 2020, we observe that the unemployment situation in early 2021 has stabilised but not yet established a positive trajectory (Figure 2).
All things considered, and barring mishaps in vaccination or failures to contain potential viral waves, the economy and labour market look poised to recover, although the pace is uncertain and the downturn in tourism remains acute.
Some old headaches and unresolved issues are resurfacing with added urgency, and some self-inflicted injuries will require remedy. Among many issues, there are four challenges and accompanying opportunities.
First, the multitude of jobs lost and wages cut demand immense replenishment, but this period of heightened focus on growth and well-being presents a window of opportunity to also recalibrate the economy toward generating good, well-paying jobs. Such initiatives tend to get shelved in crisis, and the impetus diminishes when the economy is humming along and employers wield the threat that change disrupts the good times.
The problem of workers holding jobs beneath their qualifications, termed skill-based under-employment, has worsened in recent years, and persisted through 2020. In mid-2019, 32 per cent of all tertiary educated workers occupied jobs that do not require such qualifications. At the end of 2020, the proportion reached 37 per cent. The underlying problems are complex, and derive from inadequacies of both skilled workers and high-skilled jobs. Wage-boosting interventions, of which Malaysia has relied on minimum wage, have failed to compel the labour market to generate higher productivity jobs. Enhancing work conditions, such as redefining the work week from 48 hours towards the international norm of 40, should be one of the reforms to be carried out.
The perennial dilemma – dependence on low-skilled migrant workers – is resounding again. “Malaysianisation” initiatives in January-March induced only 600 instances, nationwide, of local workers filling jobs formerly held by foreign workers. This dismal record reflects the yawning gulf between job offerings and worker expectations. At the same time, hiring subsidies were claimed for 37,000 employees. Moving forward, Malaysia should consider aligning job creation incentives with broader development priorities and targeted growth sectors.
The problem of workers holding jobs beneath their qualifications, termed skill-based under-employment, has worsened in recent years, and persisted through 2020.
Second, the government’s regrettable decision to allow millions of workers to deplete their retirement savings will have serious ramifications. By end February, three out of ten active Employees’ Provident Fund (EPF) members had drained their retirement accounts to as little as RM100, while 60 per cent had tapped into savings meant for housing, health and education. Workers who did so have gained present relief, but at a future cost. The government must be transparent and accountable by rigorously calculating the total retirement income lost and providing answers to the households affected.
Third, while the wage subsidy protected jobs and has set a precedent for a policy that can be activated should a dire crisis strike again, the unemployed have strangely bypassed EIS, the institution established precisely to assist them through these travails. 6.3 million workers were registered with EIS at the start of 2020, just in time to face a recession. However, as the number of unemployed swelled by 168,300 in April 2020, only 10,100 EIS account holders claimed unemployment benefits in the following month. Workers’ apparent under-utilization of the EIS, especially among the ones without tertiary education, must be addressed.
Fourth, some of the most vulnerable in society – the self-employed, informal economy participants and microenterprises – inhabit different economic spaces, often removed from the mainstream and without access to social protection. The government’s extension of cash assistance to microenterprises reflects their precarious condition, and indicates the need to consolidate policies targeting these groups, not just to survive but to thrive.
Examined as a whole, Malaysia must steward an economic recovery that lifts the well-being of all households, especially those at the bottom.
Lee Hwok-Aun is Senior Fellow of the Regional Economic Studies Programme, and Co-coordinator of the Malaysia Studies Programme, ISEAS – Yusof Ishak Institute.