The State of the Nation: New approaches needed to tackle unemployment in 2021

This article first appeared in The Edge Malaysia Weekly, on January 25, 2021 - January 31, 2021.
The State of the Nation: New approaches needed to tackle unemployment in 2021
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WHILE the rollout of the Social Security Organisation’s ­(Socso) Wage Subsidy Programme (WSP) 3.0 as part of the Permai Assistance Package has been a much needed boost for employers, the reality is that companies are going to need sustainable measures to keep their operations and employees afloat.

Economists have projected a high rate of unemployment this year and are hoping the government will take new approaches to tackle the issue.

According to a report by the Department of Statistics Malaysia, the national unemployment rate edged up to 4.8% in November, up 0.1% from the previous month when the second Conditional Movement Control Order (CMCO) commenced on Oct 13.

The number of unemployed persons rose by 2.2% or 16,200, bringing the total to 764,400 from 748,200 in October.

“The continuing deterioration [of the employment rate] suggests the job market will be under downward pressure as long as the current lockdown is in effect as more business closures and downsizing are expected,” Sunway University economics professor Dr Yeah Kim Leng tells The Edge.

Job vacancies tracked by the Ministry of Human Resources showed an increase to 162,000 in December last year, up from 97,000 in the previous month. However, most of the openings were for blue-collar jobs such as factory, construction and farm work, sales assistance and security. Meanwhile, a substantial number of retrenchments occurred in the professional, managerial and technician categories, reflecting the uneven impact across sectors and types of jobs.

Laurence: The labour force may have permanently shifted in favour of jobs that can be conducted remotely, possibly resulting in persistent joblessness for young people or those that lack the skills or means to work remotely

Due to a slower return to normalcy in the pandemic-hit industries such as aviation, retail, hotels and restaurants and tourism-related segments, the job market slack in these areas is expected to remain, Yeah remarks.

He adds that the return to positive gross domestic product growth expected in the second quarter will likely be marked by continuing moderately-high unemployment hovering above 4% that is unevenly distributed across sectors and industries.

The Socio-Economic Research Centre’s (SERC) projection of the unemployment rate in 2021 is equally grim at 4.5%, extending a trend from 4.8% in 2020.

Its executive director Lee Heng Guie forecasts that four main factors will underpin high unemployment for the year. “For one, there will be weak recovery across subsectors. Secondly, the remote working arrangement will (continue to) reduce demand for transportation services; therefore, all related sectors will be slow.”

Lee: Ultimately, certain industries will experience a permanent loss of jobs or displacement of functions. This cycle is inevitable in a post-Covid environment.

Thirdly, he says the tapering effect of governmental intervention — such as the provision of wage subsidies — will impact employers who have relied on it to maintain or increase their workforce.

Fourthly, the Covid-19 pandemic will exacerbate the skills mismatch between humans and technology. As digitalisation picks up pace in a no-touch environment and technology is harnessed to maximise resources and productivity, employment opportunities will be reduced.

“It is inevitable. This cycle will be the environment in a post-Covid-19 world when, ultimately, certain industries will experience a permanent loss of jobs or displacement of functions. In addition, the prolonged period of fighting the coronavirus, coupled with a new influx of job seekers such as fresh graduates, will burden the existing pool of the already under-unemployed,” Lee explains.

Yeah: The government could increase the focus on business transformation and re-engineer­ing, particularly through technological upgrading and innovations

Under-unemployment is an underutilisation of skills or a graduate mismatch, as some call it, describing the employment of workers with high skill sets and post-secondary education in relatively low-skilled, low-wage jobs. In an annual study by the Labour Force Survey, there were 1.13 million underemployed graduates doing SPM-qualification jobs in 2019, increasing 41.3% from 800,000 in 2016.

What is helpful to businesses and employment

Although the ongoing Movement Control Order has so far been less severe than the first full lockdown imposed in March 2020, Institute for Democracy and Economic Affairs’ (IDEAS) research director Laurence Todd is concerned that the unemployment impact might be underestimated due to the lower number of people looking for work.

More worrying is the longer-term impact on the labour market, he emphasises, as many young people have lost important education and training opportunities, affecting their employability.

“[Also of concern is] the fact that the labour force may have permanently shifted in favour of jobs that can be conducted remotely. This may result in persistent joblessness for young people or those that lack the skills or means to work remotely. So, whilst the short-term impact may not be as severe as initially feared, there are significant issues that need to be addressed,” he adds.

To help sustain businesses this year, Sunway’s Yeah says the government could increase the focus on business transformation and re-engineering, particularly through technological upgrading and innovations to increase productivity and produce higher-value products and services.

“Hence, more loan facilities and grant schemes for such purposes would be a turning-a-crisis-into-opportunity moment for both the government and industry leaders. From a national strategy perspective, incentivising the structural transformation and digitalisation of businesses would enable Malaysian industries to remain internationally competitive and resilient to future economic shocks,” he says.

Employees, in turn, will benefit from skills upgrading and rising remuneration that is justified by rising productivity and better bottom line performance by the companies.

Yeah points out another area in need of further support is the acceleration of entrepreneurship and business start-ups directed at retrenched professionals and unemployed workforce entrants interested in building their own business.

“Besides purposed grants and loan schemes, the government could collaborate with the private sector to set up more business incubators and support facilities, including research and development commercialisation ventures with public and private universities,” he explains.

Any upside in employment besides healthcare, medical equipment, vaccine and other supplies may be found in the electronics manufacturing and services industries, e-commerce and digital technology and services. “Across the various economic sectors, these, namely, are expected to present stronger employment demand in line with the shift towards the digital economy,” Yeah shares.

While some businesses have been able to adapt, others have faced challenges that future policies may have to address.

For retail firms, the switch to online is not always straightforward. Delivery platform commissions of 20% to 30% would require a transformation of business models to stay profitable when operating solely through online channels, Todd says.

“Investing in talents who can navigate digital marketing has become a new requirement for smaller retailers,” he stresses.

He adds that digitalisation and automation have been imperatives in manufacturing for some time, yet, historically, government grants have tended to go to higher-technology projects when many small and medium enterprises are concentrated in low-technology sectors.

Funding that can support more modest upgrades and innovations, rather than solely focusing on the most advanced technologies, would go a long way.

While the crisis creates opportunities for the gig economy, Todd notes that the flexible opportunities to earn additional income are not a substitute for sustainable income over the long term as there are still significant gaps in the social protection offered to gig workers.

To date, the government has rolled out WSPs under the various economic stimulus packages three times. The first was announced last March, followed by a three-month extension in June, and now, an additional month’s subsidy in January.

Under the current WSP 3.0, eligible employers are entitled to a month’s wage subsidy of RM600 for each employee earning less than RM4,000. In addition, the wage subsidy limit of 200 employees for each employer has been increased to 500 employees, amounting to an additional allocation of RM1 billion, which is estimated to benefit 250,000 businesses employing more than 2.6 million workers.

According to earlier news reports, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said some 2.6 million employees were expected to have benefitted from the first two WSPs, amounting to RM11.9 billion.

“The Wage Subsidy is inherently very difficult to target. It would be better to introduce more targeted mechanisms to provide more to those who really need it,” says IDEAS’ Todd.

“However, the government lacks the administrative mechanism to implement such a system. The other factor to consider is how quickly new jobs and businesses will be created to replace those that are lost. Here, the priority is in ensuring that the economy is as resilient and innovative as possible. There are steps that the government can take now in reforming regulations and developing infrastructure that can help to promote job creation in the future,” he adds.

The wage subsidy scheme is a necessary relief for many but it may not be sufficient for those struggling at the margins, especially when their business revenue drops below the operating or variable costs.

“Given the sizeable take-up of the wage subsidy in the previous stimulus packages, the extension of the scheme to all industries, with the eligibility increased to a maximum limit of 500 employees from 200, is seen to be necessary to [at least] forestall any spike in layoffs,” says Yeah.

 

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