KUALA LUMPUR (April 11): Malaysia’s unemployment rate improved to 3.5% in February this year after holding unchanged at 3.6% since late last year, with 591,900 unemployed people compared to 596,100 recorded in January, according to the Department of Statistics Malaysia, showing a stable recovery in the labour market, in line with current economic developments.

All economic sectors reported a persistent increase in hiring, noted UOB Global Economics and Markets Research, led by the services sector. "Accordingly, the employment-to-population ratio hit an all-time high of 67.4% (Jan: 67.3%), indicating strong ability of Malaysia’s economy to create employment," its senior economist Julia Goh and her colleague economist Loke Siew Ting observed in a note on Monday (April 10).

Having said that, they noted Malaysia's labour market is still some way from tightness given the increasing labour force participation, which hit a record high, the higher number of workers outside the labour force compared to pre-pandemic times, and constrained wage growth.

The country's labour force participation rose to its highest-ever of 69.9% in February (January: 69.8%), they said, with total number in the labour force expanding by 25,800 people — the 20th month increase in a row — to its record size of 16.78 million people (up from January's 16.76 million).

Malaysia’s labour market also showed higher number of workers outside the labour force than pre-pandemic (February: 7.24 million versus end-2019: 7.13 million), with housework/family responsibilities being the top reason they are out of it (Feb: 43.2%, Jan: 43.0%), followed by schooling/training (Feb: 40.6%, Jan: 40.8%), the duo noted.

“This compared with an easing trend in the worker segment that is temporarily not working but had jobs to return to (February: -1,200 or -1.5% month-on-month to 80,100; Jan: -10,300 or -11.3% m-o-m to 81,300),” Goh and Loke said.

The duo also said constrained wage growth was in part due to limited wage bargaining power and structural issues post pandemic.

“Overall slack is lessening as the economy improves, albeit there is still evidence that slack prevails and would likely narrow at a more gradual pace as conditions normalise,” they said.

UOB is nevertheless keeping its year-end jobless rate projection of 3.2% for 2023, which is more optimistic than Bank Negara Malaysia’s estimate of 3.3%.

Goh and Loke believe that the 3.2% jobless rate is achievable, as persistent upturn in tourism-related industries continues to be the tailwind for the nation’s labour market recovery ahead, together with compelling foreign direct investment inflows. The target is also hinged on the expected moderate domestic growth outlook of 4% for 2023 to lead to an increase in demand for labour, despite a slowdown in the external front.

MIDF Research, which noted that unemployment rate has dipped to a new pandemic low of 3.5% in February, kept its average jobless rate forecast at 3.5% for 2023, as it expects the domestic labour market to strengthen further in 2023, underpinned by continuous upbeat momentum in the domestic economy and modest expansion in the external sector.

"We are optimistic on Malaysia's job market recovery, underpinned by upbeat local economic momentum, return of foreign workers, positive effects of China's reopening and supportive and accommodative economic policies," it wrote.

Job vacancies, meanwhile, have dropped to the lowest in more than a year, it said, as total vacancies skid below 300,000 for the first time since December 2021. “After noticing robust employment growth, we expect moderation in job gains as the domestic economy almost recovered to pre-pandemic levels.... We foresee average job vacancies to hover between 150,000 and 250,000 per month for 2023 (2022: 396,300)...,” MIDF Research said.

It is anticipating there to be steady expansion in primary sectors, as well as construction and services, to prop up more employment opportunities next year.