Early this year, our estimates for unemployment rates were expected to rebound around 4.2 to 4.3 per cent, considering that the economy managed to expand between 6.5 and 7.5 per cent.
However, the speed of economic and labour market recoveries that should have taken place throughout the year were largely affected by non-pharmaceutical containment measures to curb Covid-19. The momentum of the recoveries was only experienced at the beginning of the year.
Unemployment rates steadily decreased from 4.88 per cent in January to 4.52 per cent in May. In June, the rates started to increase to 4.78 per cent and peaked at 4.84 per cent in July due to tightened containment measures.
Considering the impacts of non-pharmaceutical containment measures, the average unemployment rate this year is adjusted slightly higher, around 4.5 to 4.6 per cent.
Entering the fourth quarter of this year, this calls for active government interventions to improve and stabilise the labour market for next year. Job creation and retention programmes that complement reskilling and upskilling should be the key focus areas next year.
The 2022 Budget, tabled last week, addressed the necessary interventions for continuous labour market recoveries.
Economic growth next year is expected to expand around 5.5 to 6.5 per cent. With these rates, the unemployment rate is projected to be around 4.0 per cent, implying significant labour market recovery.
Job creation strategies come from direct and indirect measures.
Direct measures refer to initiatives and incentives that will be affected directly by the labour market such as short-term employment, upskilling and reskilling programmes.
Malaysia Short-term Employment Programmes will be continued, offering 50,000 jobs within the public sector and 30,000 within the government-linked companies.
Several key labour market initiatives were designed to improve the labour market, especially from the perspective of social protection.
For example, increasing the insured salary ceiling from RM4,000 to RM5,000 will improve the overall social security coverage for nine million active workers covered by Socso.
In addition, the i-Saraan initiative was implemented to encourage informal workers to contribute to the retirement fund.
Indirect measures concern the implications of a labour market induced by non-labour interventions such as infrastructure development, investment, and financial and tax incentives for businesses.
There are many incentives and initiatives proposed in the 2022 Budget that will indirectly affect the labour market, including the tourism industry, foreign investment and sustainability agenda.
How these impact the labour market depends on the supply and demand of labour and the nature of businesses.
Adaption to sustainable and low carbon practices such as increasing use of recycled and renewable energy will induce the demand for green jobs. Thus, indirect measures should also be taken into consideration in policy assessments.
Three concerns should be noted here.
First, economic and labour market recoveries are based on the view that no more large-scale non-pharmaceutical containment measures will be imposed next year. If not, we are likely to repeat the situation this year, putting the labour market at high risk.
Second, creating “real” jobs is the most challenging aspect during recovery periods. Evidently, the full capacity of our economy to generate jobs under normal economic circumstances is around 326,000 for the past 10 years.
With the expectation of 600,000 jobs being created next year, this raises a question about the quality of the jobs.
Third, in a high unemployment rate situation, structural issues such as underemployment, wage differences and demand-supply mismatch may not be addressed extensively until the economy achieves considerable recovery.
Supply-side wage interventions such as increasing the minimum wage threshold may be an efficient strategy to be implemented, as micro, small and medium enterprises are still wounded and need continuous treatments.
The revision of the minimum wage for targeted groups, sectors and geographical locations could be considered, but it must be carefully addressed if it is to be implemented.
