The State of the Nation: An opportune time to reinvent Malaysia’s labour market

This article first appeared in The Edge Malaysia Weekly, on June 22, 2020 - June 28, 2020.
-A +A

LABOUR markets across the globe are in dire straits as the Covid-19 pandemic has restricted movement and economic activities.

The latest unemployment data paints a bleak picture. The US labour market is experiencing its worst downturn since the Great Depression, with unemployment rates of 14.7% in April and 13.3% in May; Australia’s unemployment rate of 7.1% in May was its worst since 2001; unemployment was at a record high of 17.7% in April for the Philippines; and across the Causeway, Singapore recorded its highest unemployment rate in a decade of 2.4% in the first quarter of 2020.

Malaysia’s situation was not any different — 778,800 people were unemployed in April, raising the unemployment rate to 5%, its highest level in over three decades. This was expected, given that the Movement Control Order in place since March 18 brought almost all economic activities to a halt.

However, there is a silver lining to every crisis: The pandemic presents Malaysia with an opportunity to reinvent its labour market by addressing some of the structural issues that exist.

 

The pivot to automation, digitisation at the workplace

McKinsey & Co Malaysia senior and managing partner Nimal Manuel says the crisis has created an imperative to escalate the adoption of new technology across all aspects of life, from e-commerce to remote working and learning tools.

“We see a shift towards a more ‘contact-free’ economy — one where businesses and consumers look for less face-to-face human interaction.  It is possible that this crisis could be a turning point for automation as Covid-19 accelerates existing trends.

“According to the Brookings Institution, over the three recessions of the past 30 years, the pace of automation increased during each period,” he says.

However, there is a nagging fear that automating and digitising processes at the workplace could spell further job cuts as machines replace humans.

On this, Khazanah Research Institute’s (KRI) deputy director of research Christopher Choong Weng Wai opines that technology is a double-edged sword — it can replace workers, but it can also create new jobs.

“It is the role of policy to deploy technology in such a way that we can augment labour, and I see the pandemic as providing us with the impetus and opportunity to shift our workforce to higher value-added activities with the help of automation and digitisation,” he tells The Edge.

Dr Niaz Asadullah, professor of economics at the University of Malaya and Southeast Asia lead of the Global Labor Organization, says for the vast majority of small and medium enterprises (SMEs) in Malaysia, which account for 40% of the total workforce and 98% of businesses, automation is not yet an option.

“Seventy per cent of SMEs don’t even accept mobile payments. In the absence of these complementary provisions, any increase in the use of online platforms, digitisation and automation is likely to be concentrated in the formal sector as larger firms are better placed to finance the associated costs of restructuring production processes. In other words, the pandemic may widen the existing digital divide in the economy. But I don’t expect this per se to have a large impact on the unemployment situation, at least not in the short run,” he says.

 

Creating jobs, addressing skills mismatch and tackling youth unemployment

A pertinent component in reinventing the Malaysian workforce is addressing the mismatch between the skills that our graduates are equipped with and what is required by employers.

Youth unemployment, a long-standing issue of contention in Malaysia, stood at 9% in April for people aged between 15 and 30.

Institute of Strategic and International Studies Malaysia fellow in economics, trade and regional integration Dr  Juita Mohamad says increasing private sector cooperation in apprenticeship, training and internships is vital to fix the skills mismatch.

“Additionally, firms can contribute by improving integration with the local labour market by offering more internship programmes and increasing collaboration with universities and career centres. Further, firms can increase the level of on-the-job training for fresh graduates in the initial year of employment to overcome the issue of skills mismatch. This has worked well in Japan as workers in most of the sectors are reskilled in the first year of their employment to cater for the demands of the industry,” she says.

She adds that improving the quality of Technical and Vocational Education and Training (TVET) for youths should also be prioritised.

“For youth in particular, research suggests that increasing the quality of and access to vocational training is linked to lower rates of youth unemployment. To improve the quality of the TVET programmes, streamlining them and ensuring rigorous monitoring are very much needed.

“Both the government and private sector need to play a role in upskilling and reskilling workers in Malaysia. To date, there are numerous TVET programmes provided by seven different ministries at certificate, diploma and degree levels. This creates an issue of overlap and redundancy. Consolidating these programmes into fewer flagship programmes, along with establishing rigorous, measurable monitoring and evaluation mechanisms, can help in removing lower-performing programmes and improving programme administrative capacity.

Universiti Malaya’s Niaz says skills mismatch reflects two factors — the fundamental gaps in Malaysia’s education system and a rapidly changing economy.

“The Malaysian economy has seen a rise in service-based activities. The way work is organised is also changing as repetitive tasks are automated by companies. All these have created new demands for soft skills at the expense of routine skills.

“However, our schools have historically focused on hard skills. Rote learning remains the norm instead of developing competencies. School curriculums need to respond to these changes in market demand,” he says.

The focus, says Niaz, should shift to innovation and digital literacy skills.

“Equally important are life skills. An education system that teaches flexibility and adaptability, initiative and self-direction can help minimise the mismatch between skills that employers demand and graduates offer,” he says.

KRI’s Choong says the problem cannot be solved by looking at education alone.

“We must complement education policies with a matching job creation strategy that addresses the demand side of labour. Otherwise, our workers will be taking up jobs below their skill levels or moving to other countries, resulting in brain drain. We need both education and labour market policies to work in tandem,” he says.

Democratic Action Party (DAP) political education director Liew Chin Tong believes that it is not a question of Malaysians not having sufficient skills, but the fact that there aren’t any jobs created at the level that they desire.

“More than 500,000 Malaysians work in the 3D (dirty, dangerous and difficult) sector in Singapore. If we reduce the number of unskilled foreign workers and automate some jobs, we can pay Malaysians at a certain level for them to do jobs that were previously outsourced to foreign workers. For instance, instead of hiring five foreign workers as security guards, if we use technology and hire just one person, paying a decent rate, you would create many jobs for Malaysians,” he says.

 

Improving workplace productivity

A common grouse of Malaysian employees is that they are not paid well enough, and the reason given by employers is that the productivity levels of Malaysian employees do not justify a higher salary.

“Yes, this is a chicken and egg situation. Employers cite low worker productivity as the reason for low pay. But low pay also adversely impacts the incentive among workers to invest in skills development. The easy availability of low-skilled foreign workers also makes it easy for employers to sustain the current low-productivity, low-wage equilibrium.

“The gradual phasing out of unskilled foreign workers would force employers to shift to a skill-intensive production process, but this must be coordinated by a steady improvement in the skill sets of new entrants into the labour market. Individual businesses can’t coordinate these two processes — this calls for state intervention,” says Niaz.

McKinsey’s Nimal says businesses will be on the front line of the workplace as it changes.

“That will require them to both retool their business processes and re-evaluate their talent strategies and workforce needs. As an example, in an attempt to fill the current skill gap by providing educational assistance, AT&T offered all of its employees opportunities to enrol in online computer science programmes at Georgia Tech University, which the company helped set up.

“Upskilling of critical workforce pools has the potential to drive disproportionate value in an organisation and upgrade workforce income levels. A key step is to build no-regret skill sets — a tool kit that will be useful no matter how an employee’s specific role may evolve. There are four broad capabilities that are relatively ubiquitous — namely, digital, higher cognitive, social and emotional, and adaptability and resilience.

“Beyond this, there is significant value in investing in upskilling oneself with high-demand functional skills, [for example] in data science, data engineering, technology architecture and design,” he says.

Assessing productivity would also be crucial for employers when making tough decisions, such as resizing the workforce during cost-cutting exercises. Francis T Rozario, an executive director with human resources consulting firm Targetexec Sdn Bhd, says employers should carry out reorganisation exercises rather than retrenchments.

“Basically, retrenchment exercises follow the LIFO (last in, first out) principle, where the newest employees to an organisation would be the first to be retrenched. Sometimes this can result in an enterprise being less productive, as the newest member could actually be a more efficient worker [compared with existing staff]. Therefore, at such times, it could be [better] to undertake a reorganisation exercise.

“In a reorganisation exercise, you would seek the most optimal result [even if it deviates from the LIFO principle] and, in doing this, keep the people who contribute to the organisation in the most effective and efficient manner. It also includes eliminating waste [by reducing unnecessary activities] and cross-training employees to improve productivity,” he says.

 

Job preservation should be the priority now

Under the short-term Economic Recovery Plan (Penjana), the government has allocated RM9 billion to tackle the unemployment problem in Malaysia through various initiatives, including the extension of the wage subsidy programme.

According to Malaysian Institute of Economic Research (MIER) head of research and senior research fellow Dr Shankaran Nambiar, although addressing the structural issues of unemployment should be a priority in the longer term, the government’s immediate focus in the next six months must be job preservation.

“We do need technological upgrading, tech-intensive production, 5G rollout, automation and technology-driven productivity; but it would be prudent to wait for six months to a year before introducing these policies. In this context, it was very sensible to delay the launch of the 12th Malaysia Plan.

“Hopefully, the Covid-19 crisis has laid bare the structural problems that we have — the dependence on unskilled migrant labour, the large number of undocumented workers, the issue of graduate unemployment and the problem of food security.

“Our human capital development planning should work towards making agriculture attractive to young Malaysians; our industries should be less dependent on migrant labour; and education should be more vocationally and technologically oriented. But, these big changes should wait a bit,” he says.

 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.