This article first appeared in The Edge Malaysia Weekly on July 20, 2020 - July 26, 2020

THE country’s unemployment rate for May climbed to 5.3% but has yet to hit a peak, as economists project that data in the coming months will show a further increase to as much as 6%.

May’s labour market data showed a silver lining despite the high unemployment rate, as the pace of increase in job losses has slowed significantly compared with April.

There were 826,000 unemployed people in May compared with 778,800 in April and 610,500 in March.

AffinHwang Research economist Alan Tan believes that the rise in the unemployment rate is likely to be slower going forward, as the economy is gradually reopening in the Recovery Movement Control Order (RMCO) period.

“During the RMCO, which started from June 10 (until Aug 31), almost all essential and non-essential services and businesses are operating. An improvement in labour market conditions has already been reflected in the drop in loss of employment (LOE) or retrenchment,” he says in his report.

The LOE, tracked by the Social Security Organisation (Socso), had eased to 7,900 as at July 10, compared with its high of 18,600 in June, and represents the lowest level since April 2020.

“This may suggest an increase in rehiring, some rise in hiring and retainment in employment as businesses resume operations,” Tan adds.

Cumulatively, LOE, recorded by the Employment Insurance System (EIS), which is under the purview of Socso, totalled 58,523 people as at July 11.

Institute for Democracy and Economic Affairs (IDEAS) research manager Lau Zheng Zhou says this suggests a potential peak at 5.8% to 6% in June before coming down further to give a full-year average unemployment of 5.5%.

That said, some believe the unemployment rate could trend higher in the fourth quarter, as the wage subsidy programme is scheduled to end in September, as is the automatic loan moratorium period.

Under the government’s expanded wage subsidy programme in June, a qualifying condition was that employers must retain their employees for at least six months — three months during and after the subsidy period.

The wage subsidy programme was introduced under the Prihatin stimulus package in April for a period of three months, and then extended for three months.

The introduction of the EIS in 2018 appears to have been timely, given that it has provided retrenched workers with a social safety net of sorts.

The EIS Employment Outlook (Volume 4) report notes that the government had allocated a total of RM14.05 billion in funding to the Employment Retention Programme and wage subsidy programme in addition to enhancing EIS benefits.

Even with the unemployment rate at higher levels — and expected to inch up in the coming months — Socio-economic Research Centre executive director Lee Heng Guie believes there should be no concern over insufficient funds.

“Based on the accumulated reserves of RM1.113 billion at end-2019 and gross EIS contribution of 0.2% each for employees and employers, as well as estimated withdrawal of EIS benefits for 2020, the fund’s reserve still remains at a comfortable level and provides a sufficient buffer to meet the future withdrawal of EIS benefits for job search allowance,” he notes.

While there could be a deficit for the current year, he says past accumulated reserves and continued contributions — albeit lower in the year ahead — would ensure there are surplus funds to sustain the EIS.

Lee sees the unemployment rate rising further to between 5.5% and 6.5% from 2Q to 3Q.

It is also worth noting that the numbers for “outside the labour force” continued to increase in May to 7.39 million people from 7.35 million in April. In March, it was 7.24 million.

“Outside the labour force” are those not classified as unemployed or employed, including students, housewives, the retired, disabled and those not interested in looking for a job.

Lee says these are known as “economically inactive persons” — those aged above 15 who are neither working nor seeking work. Common reasons one would be in this category include schooling, attending courses or undergoing training, taking care of family responsibilities, old age or retirement. There are also those who do not actively seek employment because they believe their job search would not yield results.

“With the current depressed labour market conditions in economic recession, the number of unemployed outside the labour force will rise further,” Lee observes. In 2019, graduates outside the labour force increased by 7.6% to 869,800 persons, making up 16.5% of the total number of graduates that year.

“The number of graduates outside the labour force has been rising steadily in recent years, from 659,600 in 2016 to 767,100 in 2017 and 808,500 in 2018. While some may pursue further studies or are not actively looking while waiting for more suitable jobs, a mismatch with market demand and, among other reasons, the sharp economic downturn and severely affected companies would mean fewer job openings for graduates,” says Lee.

For now, economists agree that the incentive measures introduced under the stimulus packages will help support employment growth.

“For instance, under PENJANAKerja — the hiring incentive and training assistance programme — 129,169 job vacancies had been advertised and 159,591 job seekers were registered through the MYFutureJobs initiative as at 13 July,” says AffinHwang’s Tan.

Minister of Finance Tengku Dato Sri Zafrul Abdul Aziz recently stated that total disbursements under the wage subsidy programme amounted to RM6.82 billion as at July 13 and had benefited 2.49 million employees.

IDEAS’ Lau says the stimulus given for income and job protection should be seen as a stop-gap measure instead of a sustainable recovery plan, noting it was to give the government some time and space to flatten the Covid-19 infection curve.

“Now that most of the sectors in the economy are open for business, firm owners should be able to depend less on cash assistance and start paying salaries and keeping jobs by generating revenue from sales of products and services.

“Employees who previously agreed to a pay cut should also start to see a gradual return in income levels.”

Nevertheless, Lau points out that the experience of returning to normalcy could be different from one sector to another.

“As it stands, the services industry linked to tourism and accommodation, as well as the manufacturing and construction sectors, will require more policy attention than others. This may suggest the need for a more targeted approach in addressing unemployment by sector.”

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