This article first appeared in The Edge Malaysia Weekly, on October 19 - 25, 2015.
After almost two decades of near-full employment in the labour market, low unemployment has become a cornerstone of Malaysia’s economic fundamentals, and might even be taken for granted despite the growing economic headwinds.
But as growth decelerates and confidence falters, is it realistic to continue assuming that the low unemployment seen since the 1997 Asian financial crisis can be maintained?
After all, news of retrenchments have been cropping up regularly, and with household debt approaching 88% of GDP, the resilience of the job market has never been more critical.
The latest round of retrenchments saw Shell Malaysia announce that it would cut 1,300 upstream jobs from its 6,500-strong workforce over the next two years.
For perspective, there were over 10,000 retrenchments in 2014. In the 12 months ended June 2015, there have been almost 12,000 already — not including Shell’s.
Job cuts in the oil and gas industry may be expected because of the collapse of oil prices but there has also been a wave of retrenchments in the banking sector this year.
It began with Standard Chartered Bank cutting its Malaysian workforce by 11%, followed by CIMB Group Holdings Bhd (3,599 employees, or 11% of its headcount) and RHB Capital Bhd (2,700 employees, 15% of workforce).
More recently, it was reported that AffinHwang Capital Sdn Bhd is in the midst of retrenching a couple of hundred employees as well.
Some manufacturers have also made the news for trimming their workforce, such as Naza Automotive Manufacturing Sdn Bhd, which let go of 255 workers from its plant in Gurun, Kedah. CCM Fertilisers Sdn Bhd, a subsidiary of Chemical Company of Malaysia Bhd, also announced that 232 employees will be affected by the shutdown of one of its plants in June next year.
Against this backdrop, Malaysian Airline Systems Bhd (MAS) retrenched nearly 6,000 employees as part of Khazanah Nasional Bhd’s plan to restructure the loss-making national carrier.
“Are the retrenchment figures something that we should be worried about? I think, yes. Apart from the retrenchment of about 11,000 to 12,000 workers, employers are not hiring. With the economic slowdown and uncertainty, employers are taking a wait-and-see approach,” says Datuk Shamsuddin Bardan, executive director of the Malaysian Employers Federation.
The Malaysian Institute of Economic Research’s Consumer Sentiment Index (CSI) for example, has fallen to a new six-year low of 71.7 points, which is comparable to the 2008 global financial crisis levels.
There was no crash in the job market back in 2008, but then, Malaysia was relatively insulated from the shocks to the global economy. The saving grace was that Asia was the sweet spot for economic growth when the western world was hit hard by the US subprime mortage crisis.
But it may be a different scenario now as the external headwinds are strong while the government is facing its own set of domestic economic problems.
As for the labour market, the minimum wage policy, which was introduced in 2013, has led to employers focusing on automation. JCY International Bhd, for example, hopes to trim 4,000 workers from its 16,000 workforce over the next few years as it moves towards more automation. It is worth noting that most of the job cuts will affect foreign workers (see “The high cost of foreign labour”).
In the same year, the minimum retirement age of private sector workers was increased to 60 from 55. Before that, about 200,000 people retired each year, freeing up jobs for the 270,000-odd graduates that join the workforce each year.
“Since the minimum retirement age was increased, substantially fewer people have been retiring, which means less replacement hiring. This effect will continue to cascade each year until 2018. Raising the retirement age was a good policy, but it should have been staggered over several years,” says Shamsuddin.
Slower hiring
Over the past 12 months, the average number of job vacancies each month has fallen by over 16.86% year on year to 88,026.
Online job portal JobStreet.com however, saw total job postings rise a marginal 0.8% y-o-y for the nine months ended Sept 30. Meanwhile, the number of job applicants shot up by over 23% in the same period.
“As of now, job postings are on par with last year. They fell a negligible 0.8% y-o-y in the third quarter. However, we need to continue monitoring the situation closely since sentiment remains very poor based on our previous surveys,” says JobStreet country manager Chook Yuh Yng.
“As far as we can tell, smaller employers have been holding back. But sectors like construction and manufacturing, especially those for exports, are still doing alright. Jobs that require specialisation, such as sales, accounting and IT, are still in demand, while the top specialisations of applicants include admin, HR and customer service,” he explains.
Even the government has slowed down on hiring. Recall that the civil service, which makes up 10% of the labour market, was reported to have frozen hiring in the first quarter this year.
“Of course, when you talk about unemployment, at 3.2% (in July), it is still considered full employment, which is why the government can say it is not worried at the moment. But talking to business owners in the private sector, you get a different picture,” says Shamsuddin.
At 3.2%, unemployment may have hit an 18-month high, but it is well within the range deemed by economists as full employment. An unemployment rate of less than 5% is often defined as natural, or frictional unemployment.
“There are mixed signals from the Malaysian job market. On the one hand, there has been news of impending retrenchments and softening of jobs in sectors such as oil and gas due to weak commodity prices,” says Johan Mahmood Merican, chief executive of Talent Corp Malaysia.
“At the same time, the overall job market remains resilient with the unemployment rate maintained at around 3% and job postings on portals such as Jobstreet.com remaining at comparable levels to last year.
“There continues to be demand for talent, including from export-orientated sectors, and this is reflected in healthy wage growth in various occupations in demand,” he adds.
Shamsuddin, however, is less optimistic and is especially worried about youth (ages 30 and below) unemployment, given the fact that most of the 459,900 unemployed consist of young degree and diploma holders (see “Fresh grads at risk as economy quivers”).
Early warning
The first thing to do is to determine if there really is a problem. The challenge with examining unemployment is that it tends to be a lagging indicator of economic growth. Retrenchment tends to be a last resort for employers since rehiring can be very costly.
It doesn’t help that the labour statistics that are published have a lag of about two months — the latest data available is for July.
“Malaysia does not publish high-frequency data on the labour market, which makes it very difficult to identify trends at an early stage,” says a senior economist.
Nonetheless, there are some economic indicators that might be able to provide some early warnings. Just like the CSI, MARKIT’s purchasing managers index (PMI) has also been showing a downward trend with six consecutive months of contractions.
In September, the manufacturing PMI was 48.3 points. Any score below 50 indicates a contraction in future manufacturing output.
“Operating conditions continued to deteriorate towards the end of 3Q. Moreover, the latest PMI quarterly average signalled the strongest decline in manufacturing conditions since the survey began in July 2012. Production, new orders, buying activity and stocks of purchases all decreased at solid rates during the month,” writes Markit economist Amy Brownbill.
“Meanwhile, charges and input prices continued to rise sharply, amid reports of unfavourable exchange rates driving up imported raw materials and an increase in taxation,” she continues.
However, she highlights that one bright spot in the latest survey was a slight gain in employment PMI (see chart) and new export orders.
Another potential early indicator are the contributions to the Employees Provident Fund (EPF). Lower growth in contributions could suggest that employers are paying lower bonuses, as well as stagnation or wage cuts.
After all, many companies would first opt to manage payrolls by maintaining or cutting wages, rather than laying off staff.
Interestingly, net EPF contributions saw a sharp decline in July, by 9.58%, on the back of higher withdrawals. Meanwhile, the average annual growth in contributions has also decelerated to around 6% y-o-y, the lowest since 2010 (see chart).
Take Theresa, a designer working in an advertising firm. The 23-year-old tells The Edge that her advertising firm cut salaries after encountering difficulties in collecting payments from clients earlier this year.
“All the staff had to take a temporary pay cut. The cut depended on your basic pay. However, the bosses promised that we would be repaid next year, with interest,” says Theresa, who has since resigned.
She joins another 460,000 or so job seekers in the country who are potentially heading into what may be a tough job market probably not seen since she was born.
The single woman without loan commitments and family obligation can afford to take her own sweet time to search her ideal job, but probably not the breadwinners burdened with mortgage and car loans.
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