Malaysia: Land of the (Increasingly) Self Employed

The ranks of self-employed individuals in Malaysia has swelled in recent years. The government has to do more to facilitate the growth of such one-person operations

A man cooks on a roadside stall in Kuala Lumpur on December 11, 2019. (Photo: Mohd Rasfan, AFP)

Michael Schaper

30 March 2020

Striking out on your own has become increasingly popular in Malaysia. In fact, the country has seen a surge in the number of so-called “own-account workers” in recent years.

Almost all of the latest growth in Malaysia’s workforce has come from the self-employed, who now represent the second biggest group in the Malaysian workforce. In 2018 there were 2.86 million own-account workers – almost 20% of the nation’s entire workforce of 14.8 million.

Numbers of self-employed persons are growing dramatically, even as the total number of people in traditional paid employment has begun to decline. They’re also the only group to have consistently increased their share of the total workforce year-on-year.

Indeed, it is getting harder to find traditional salaried employment opportunities in Malaysia’s workforce. Between 2017 and 2018, for example, total paid employee numbers in Malaysia declined by almost 10,000 to 10.7 million. At the same time, though, more than a quarter of a million people took the plunge and started working for themselves instead.

This is a systemic change in the country’s workforce and business structure that is often overlooked.

What’s causing this change? Several factors appear to be at play. The growth may be occurring due to an expanding services sector, the rise of the gig economy, the opportunity to “be your own boss,” and a more positive community attitude towards entrepreneurship. 

Malaysia’s case is representative of a global trend. In many parts of the world solo business operators are one of the biggest working groups in the economy, and often usually also the biggest single group of businesses. Evidence also suggests that in many countries this group is growing in size, even as more conventional forms of paid employment are declining.

Being a self-employed worker brings both problems and pleasures. While one has full freedom to determine one’s working environment, he or she will be reliant on their own efforts to maintain a certain level of income or lifestyle. Earnings can be highly variable. On the flip side, there is no parent company or external support agency that can step in and assist if one is unable to work, faces a health problem, goes on vacation, or, as is sometimes the case, ends up competing against larger and more sophisticated market operators.

There are often numerous regulatory burdens which also have to be met, as sole traders are often treated more as businesses than individuals, and have to comply with the whole range of business activity regulations.

… a powerful pull of self-employment is that it puts an individual in charge of their own destiny … No wonder, self-employment has become an increasingly attractive option to many people.

In contrast, an employee usually receives regular remuneration from his or her employer, as well as access to a health fund, pension funds and paid vacations. He or she does not take on personal liability for the legal responsibilities of the employer.

Yet a powerful pull of self-employment is that it puts an individual in charge of their own destiny. It is up to them to determine the hours worked, where the work is done and for whom. No wonder, self-employment has become an increasingly attractive option to many people – and this is why this group of workers are well on their way to becoming the most dynamic and fastest-growing segment of the Malaysian workforce.

There is plenty of scope for Malaysia to refine its approach to self-employment and leverage on its strengths. Some notable steps have been taken in recent years, such as the Self-Employment Social Security Act (2017), which requires own-account workers in several sectors to insure themselves against work-related injuries or diseases. But its coverage is still not universal, and several categories of self-employed persons remain outside its reach. The self-employed are also denied the benefits of Malaysia’s Employment Insurance System Act (2017), which provides social security support to workers who lose their jobs.

Both programmes could be reformed to allow the self-employed to participate. In addition, a more pro-active government policy is needed to support this growing sector.

Many of the country’s employment and entrepreneurship support programmes are directed towards established firms. For example, the recent Malaysians@Work scheme provides incentives for companies to employ more staff. But there is minimal support to help the self-employed. Other nations have adopted a range of specific self-employment assistance programmes.

This is a good time for Malaysia to consider introducing similar measures to foster more, not less, self-employment opportunities. There is also room for business and government leaders to publicly champion the validity of self-employment as a career option.

Dr Michael Schaper is a Visiting Senior Fellow with the ISEAS – Yusof Ishak Institute, and an Adjunct Professor with the John Curtin Institute of Public Policy at Curtin University, Western Australia. His Perspective paper on Malaysia’s Self-Employment Explosion: Why So Many Own-Account Workers? was published on 26 March 2020.

ISEAS Commentary — 2020/38

The facts and views expressed are solely that of the author/authors and do not necessarily reflect that of ISEAS – Yusof Ishak Institute. No part of this publication may be reproduced in any form without permission.