Malaysia: Mass Unemployment Averted, But Potential Hazards Ahead

Malaysia’s labour market has seen a slightly rosier outlook in June. But broad indicators – under-utilisation of employment insurance and large companies under strain – signal that the country is not out of the woods yet.

Workers wait by their trolleys before unloading vegetables from lorries at a wholesale market in Kuala Lumpur on June 15, 2020, as sectors of the economy are being reopened following restrictions to halt the spread of the Covid-19 coronavirus. (Photo: Mohd Rasfan, AFP)

Lee Hwok Aun

17 August 2020

Malaysia’s latest labour market report allays fears of widespread job loss across the country, and even hints of a rebound. But a deeper probe has uncovered cause for concern.

The Department of Statistics’ Labour Force Survey (LFS) monthly update reported a 4.9 per cent unemployment rate for June, lower than the 5.3 per cent registered in May (Figure 1). The number of employed virtually held constant, at 14.89 million in May and 14.99 million in June. The number of unemployed, at 773,200 in June, dipped to April levels after a slight bump in May (826,100). Unemployment of migrant workers is undercounted, since most of them reside in dormitories not sampled in the LFS, but the extent of undercounting is difficult to ascertain.

Manufacturing employment also recovered. Between February and April, employment shrank by 108,400, but the sector clawed back 18,700 jobs between April and June. Since February, Malaysia has suffered a net loss of 248,000 jobs, of which 89,700 are in manufacturing. The labour market has entered a quagmire, but so far it appears to be knee deep in the water – while some countries are flailing.

The buoyant macro picture mirrors the expected effects of economic relief and employment protection, particularly the wage subsidy. Employers can apply for the subsidy – RM1,200, RM800 and RM600 per employee per month, respectively, for small, medium and large businesses – for up to 200 employees earning RM4,000 or less monthly. As of 24 July, a reported RM8.97 billion had been approved for 2.58 million workers.

However, other data signal possible trouble. The Employment Insurance System (EIS) provides an unemployment allowance proportionate to the claimant’s salary for 3 to 6 months alongside training and job placement services. Between May and June, the EIS registered a steep rise in loss of employment (LOE) cases, which must be filed by claimants to receive assistance. This comprised mostly of professionals, technical workers, and managers, who accounted for almost 60 per cent of all LOEs, and who probably earn above the RM4,000 wage subsidy threshold. The EIS affords them temporary financial relief. But the placement rate has also declined, from 45 per cent in March to 21 per cent in July.

More generally, the EIS, which currently tallies about seven million insured persons, is under-utilised. This is perplexing, given that its creation was highly anticipated. In March, before the wage subsidy was introduced, out of 610,500 unemployed persons, a miniscule 15,600 recorded LOE cases (2.6 per cent of the total). In May, at the latest peak of unemployment, only 3.9 per cent of the unemployed tapped into EIS.

The abysmal take-up rate demands tri-partite attention; representatives of labour, business and government must redress this glaring deficiency. A functional and better utilised EIS will be important for Malaysia’s capacity to aid the unemployed.

The wage subsidy can serve as a barometer on stress levels in the labour markets – but must be examined carefully. The number of subsidies soared at its introduction in April; within the first month, subsidies were approved for 235,000 employers involving 1.7 million workers.

The increase in the total number of subsidies approved slowed down subsequently. This suggests that companies need it less and that the intervention has been effective in averting unemployment.

The total wage subsidy numbers provide an impressionistic account of the strain on businesses. This is because companies requesting subsidies for fewer than 76 employees are not required to prove revenue loss in their applications; and changes by sector are also omitted. Digging deeper, we find some hazard signs. I extracted the full list of wage subsidy recipients posted online, at three intervals roughly corresponding with wage subsidies approved in April, mid-June, and end-July, and sorted them by size and sector.

Various manufacturing establishments appear to be under increased strain, which is unsurprising given the disruptions to global supply chains, but also concerning due to the ways this signals potentially numerous jobs at risk.

The number of subsidies continues growing, but at a slower pace in the past two months, as more movement controls were lifted and many economic activities resumed. However, large claimants continued surging. Whereas the total subsidies of companies subsidising fewer than 76 workers increased by 6.6 per cent between June and July, that of companies subsidising 76-200 workers increased by 41.0 per cent.

Uncertainty remains over the situation of companies claiming 75 or fewer wage subsidies; many of them are presumably suffering business downturns. What we know with more certainty is that increasing numbers of large companies – vetted for financial stress – have sought out assistance.

Patterns across sectors are also instructive. The number of subsidies in manufacturing operations increased sharply; the sector’s share of the total swelled from 9.3 per cent in June to 17.4 per cent in July. In another computation from the data – average number of subsidies per company – manufacturing wage subsidy recipients burgeoned in size far more than any other sector (Figure 3).

More and more jobs, in larger and larger manufacturing firms, are propped up by the subsidy. Various manufacturing establishments appear to be under increased strain, which is unsurprising given the disruptions to global supply chains, but also concerning due to the ways this signals potentially numerous jobs at risk.

Three concerns emerge from these data explorations. First, EIS claims indicate mounting job loss of workers not covered by the wage subsidy. Second, while increasingly accessed, the EIS remains heavily underused, which poses serious questions about its efficacy – at the worst possible time. Third, the tally of financially strained large companies has escalated, and this includes manufacturing establishments, which foreshadows potential large-scale layoffs.

Disaster averted? Yes. But Malaysia must remain vigilant.

Dr Lee Hwok Aun is a Senior Fellow and co-coordinator of the Malaysia Studies Programme at the ISEAS – Yusof Ishak Institute.

ISEAS Commentary — 2020/121

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