Jobs recovery for Malaysia: Budget 2021 and beyond

By Dr. Amanina Abdur Rahman, Economist, World Bank Sustainable Growth and Inclusive Finance Hub in Malaysia.

Last week’s tabling of Budget 2021 centered on four broad themes – caring for the people, steering the economy, promoting sustainable living and enhancing public service delivery – and shone a particular spotlight on the importance of helping Malaysia’s workers weather the Covid-19 storm.

Following this debate, important questions to ask include: Which workers have been at most risk of losing their jobs? How likely are the policies announced in the Budget to help these at-risk workers? And what additional policies will be needed to facilitate a jobs recovery?

New research published by the World Bank in conjunction with the Institute of Southeast Asian Studies (ISEAS) shows that Malaysian workers who cannot work from home or whose jobs require high levels of physical contact with others are most vulnerable to job losses during the COVID-19 crisis.

Using data on the ability of different workers to work from home adjusted for internet access and for the required physical proximity at work, the paper, titled “The Vulnerability of Jobs to COVID-19: The Case of Malaysia” shows that about 64.5 percent of jobs in Malaysia cannot be performed from home, while about 50.9 percent require high levels of physical contact.

These jobs are among the most vulnerable, particularly during a crisis that is further prolonged or if strict restrictions of economic activities are reinstated that go beyond the Conditional Movement Control Order (CMCO).

Vulnerability is highest among those already more economically at risk prior to the crisis, namely, among workers with relatively low education and income, and the self-employed. Less than one fifth of low-income workers can work from home, compared to more than three fifths of high-income workers.

Similarly, only one out of ten workers without a formal education can work from home, compared to eight out of ten workers with tertiary education. Workers from rural areas and women are also particularly at risk, as they are likely to have jobs that cannot be performed from home, or that require high levels of physical proximity.

As compared to prime-aged workers age 25 to 54, youth and older workers are also at greater risk of losing their jobs. The most at-risk workers typically have only relatively precarious sources of income and little savings. Frequently, they also have no access to the Employment Insurance System (EIS), the Employees’ Provident Fund (EPF) or other social insurances that can help covered workers weather the crisis.

This means there is a need for consistent and continuous government support as long as the crisis persists, especially for households in the bottom 40 percent of the income distribution (the B40). As the finding is not unique to Malaysia and similar patterns have been observed in Europe, Brazil, Mexico, and the United States, Malaysia can also learn from international experiences and best practices regarding how the government can help workers weather the Covid-19 storm.

Budget 2021 provides a range of welcome measures that will help safeguard the jobs and livelihoods of the B40. Several programs for upskilling and reskilling, as well as the employment and reemployment of workers were announced.

These include expansions of existing programs, such as the Penjana Kerjaya program, and the introduction of new ones, such as the Short-Term Employment Programme (MySTEP) that guarantees employment for 50,000 workers.

The extension of the job search allowance by three months expands the safety net available for retrenched workers as they seek re-employment. The new cash transfer program Bantuan Prihatin Rakyat (BPR) provides a higher level of benefits and covers a larger group of households, compared to its precursor, Bantuan 2 Sara Hidup (BSH).

The benefits from the social assistance programs implemented by the Department of Social Welfare have also been increased. These changes are particularly welcome in light of the continuing impact of Covid-19 on households, and especially B40 households.

Nevertheless, further support may be needed. If the crisis is further prolonged, additional rounds of cash transfers targeted at the B40 and independent of beneficiaries’ registration with the EIS or other social insurances will be particularly vital.

These transfers provide short-term relief to mitigate acute financial strains, they support medium-term recovery efforts, and they support consumption and human capital development at a time of economic downturn. It will be worthwhile to consider channelling further rounds of cash transfers to the beneficiaries of the new BPR program instead of the wider group of beneficiaries covered by Bantuan Prihatin Nasional (BPN).

This would ensure that a greater share of transfers goes to the B40 – the group most in the need of support. In contrast, allowing for early withdrawal of EPF account balances has both advantages and drawbacks.

While it can alleviate the burden of households and subsequently prop up domestic demand during the Covid-19 crisis, it also affects Malaysians’ income security during retirement and not necessarily help the B40, many of whom either have no EPF accounts or very low balances.

Thus, any further easing of early withdrawal of EPF account balances should only be implemented after careful consideration and a rigorous analysis of the likely impacts. Jobs recovery will require further proactive public policies that promote job retention and job creation by firms, and that facilitate the upskilling and reskilling of workers.

To this end, Malaysia has made steps in the right direction, and continuing doing so will be crucial. It will also be important that the planned skills-building programs focus on skills that show promise in the economic recovery, such as digital skills and socio-emotional or ‘life’ skills. In the current environment, workers with these skills also have a better chance to obtain or retain jobs that can be performed from home – a trend that is anticipated to persist even after the crisis.

Given Malaysia’s rising debt levels and need for additional outlays to support a jobs recovery, policy measures on the expenditure side need to be accompanied by revenue-raising measures. There is a medium- and long-term need for the government to diversify its revenue base and to increase its revenue collection through more progressive taxation.

With this in mind, as Malaysia continues to be battered by the Covid-19 storm, policies outlined in the Budget 2021 as well as the policy directions proposed here can make sure that the most vulnerable are protected and have the chance of weathering the storm and rebuilding their livelihoods.

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