A general view of Kuala Lumpur skyline March 5, 2022. — Picture by Yusof Mat Isa
KUALA LUMPUR, Nov 10 — The RM99.7 billion allocation in Budget 2023 that covers end-to-end labour market ecosystem, encompassing labour supply, job market and labour demand, demonstrates the government’s commitment in tackling the labour market issue moving forward, said an economic expert.
Chief economist at the Centre for Future Labour Market Studies, Assoc Prof Mohd Yusof Saari said the Budget, tabled last month, is expected to enhance labour supply through empowering focus groups such as B40, M40, women and youth, with a provision of RM18.6 billion.
“In addition, the labour demand component is focused on creating jobs for the rakyat (people) through direct and indirect measures that are worth at least around RM80.9 billion. Finally, the job market strengthening measures via incentivising job search and matching to boosting employment are set to cost around RM 208 million,” he said.
He said this in the “Labour Market Outlook 2023 — Dovetailing post-pandemic recovering momentum with enhanced resilience and reforms” report, published recently by the Centre for Future Labour Market Studies (EU-ERA).
According to the study, the recent rising cost of living suppresses household disposable income, and as two-thirds of household income comes from paid salary, the living cost spike would slow down consumption expenditure and impede demand-side growth.
“The Consumer Price Index (CPI) for food and non- alcoholic beverages has steeply increased by over 4.0 per cent since March 2022 compared to the usual rate. Although the unemployment rate decreased from 4.2 per cent in January to 3.7 per cent in July, the lowest since February 2020, the rates are still higher than the pre-crisis level (3.3 per cent in 2019).
“Thus, the increase in food and drink prices will definitely have an impact on household income especially for the B40 and lower M40 groups,” it said.
Mohd Yusof said crucial interventions were needed to improve labour supply outcomes, with multidimensional approaches to incentivise people to work and realign workforce skills and proficiencies to meet industry demand are keys to support economic production.
“Youth unemployment, graduate employability, worker protection and talent development are addressed in Budget 2023 leveraging on high technology and digital-based growth that further reinforce on improving high-skilled workforce and living standards.
Echoing the tone, Putra Business School, Universiti Putra Malaysia’s (UPM) Assoc Prof Abu Sofian Yaacob said to some extent the initiatives have helped to reduce the unemployment rate to 3.7 per cent as at July 2022.
“However, we need to keep on improving the percentage because there will be new entrants in the job market as graduates are entering the job market perpetually. For the moment, Budget 2023 will start the ball rolling and hopefully as the country’s economy improves there may be additional costs required in order to maintain or increase economic activities.
“The Trends 2022 report published by the ILO (International Labour Organisation) showed that the economy of the Asia and Pacific have improved after being hit hard by the pandemic but hopefully after the 15th General election (GE15), Malaysia could have a stable government and this will bring in more foreign investments,” he said.
Despite quite a number of initiatives and subsidies announced in Budget 2023, Abu Sofian suggested that more serious actions be taken towards the agriculture and livestock segment, as it will determine the critical level of food security and fulfilling local demands.
He said rubber and palm oil plantations should be reviewed and consider switching to other crops in order to maintain and improve the livelihoods of the owners.
“Smallholders should think about exploring into other food crops. Also, the government should encourage innovations and large commercial scale production by rounding up the smallholders to form a cooperative or private limited company.
“With stable government and commitment, we could slowly but surely recover to our pre-Covid level between three-five years,” he said.
Meanwhile, Bank Islam Malaysia Bhd chief economist Firdaos Rosli said the full resumption of economic activities and international borders reopening have aided labour market recovery, allowing transactions to occur in formal and informal channels, unlike during the pandemic.
“On the one hand, fiscal policy has been effective in bringing the labour market back to its natural state. This was only possible by allowing businesses to operate at a higher capacity and workers entering the job market following the uptick in business activities.
“On the other hand, the accommodative monetary environment also helped in lowering the cost of doing business and improving workers’ disposable income throughout the pandemic,” he said.
Eventually, he said, Malaysia’s unemployment rate will plateau and settle at a level somewhat higher than in pre-pandemic levels moving forward, due to the spare capacity as firms struggle with labour shortages.
“It appears that there is a push to gradually close the tap on the inflow of low-skill, low value foreign workers, which is positive for technological upgrading. I believe the inflow of foreign workers will be more selective in the post-pandemic era.
“However, we do not know whether the incoming government will revise the budget or retable it as is,” he said.
In regional comparison, Firdaos said Malaysia appears to be doing relatively well on labour market recovery versus other regional countries, such as Indonesia and China, which remain having the unemployment rate elevated and yet to return to their pre-pandemic levels.
He said Malaysia’s unemployment rate is still trending over the pre-pandemic levels of around 3.3 per cent, although it is steadily declining since the movement control order (MCO) 1.0.
“The US, UK and EU seem to be doing better as they reopened their economies much earlier than Malaysia. The unemployment rate of these countries has returned to pre-pandemic levels as early as September 2021,” he said.
Moving forward, he said the government may need to focus on wage improvements for labour market recovery.
“The pandemic caused Malaysia’s wage-to-gross domestic product (GDP) to decline to 34.8 per cent in 2021 from 37.1 per cent in 2020, thus pushing it further away from the 12th Malaysia Plan target of 40 per cent.
“Besides, wage improvements will also aid individuals in replenishing their lost retirement savings following the Employees Provident Fund (EPF) withdrawals,” he added.
