Unemployment Rate
Content
ACKNOWLEDGEMENT I take this opportunity to express my gratitude to the people who have been instrumental in the successful completion of this project. I would like to show my greatest appreciation to Mr. Sukiman Bin Ishak. I can't say thank you enough for his tremendous support and help. I feel motivated and encouraged every time I attend his meeting. Without his encouragement and guidance this project would not have materialized. The guidance and support received from all the members who contributed and who are contributing to this project, was vital for the success of the project. I am grateful for their constant support and help.
1
INTRODUCTION The unemployment rate can be defined as the number of people actively looking for a job divided by the labour force. Changes in unemployment depend mostly on inflows made up of nonemployed people starting to look for jobs, of employed people who lose their jobs and look for new ones and of people who stop looking for employment. Related terms are the labour force, the participation rate and the employment rate. The labour force is defined as the number of people employed plus the number unemployed but seeking work. The non-labour force includes those who are not looking for work, those who are institutionalised such as in prisons or psychiatric wards, stay-at home spouses, children, and those serving in the military. The participation rate is the number of people in the labour force divided by the population of working age that is not institutionalised. The employment rate is defined as the number of people currently employed divided by the population of working age. The terms unemployment and unemployed may sometimes be used to refer to inputs to production that are not being fully used (apart from labor) for example, unemployed capital goods. In its most general, but uncommon usage, unemployment might also denote objects not put to productive use.
TYPES OF UNEMPLOYMENT
2
i.
Frictional Unemployment When moving from one job to another, the unemployment temporarily experienced when looking for a new job. It happened when unemployment that occurs naturally during the normal workings of an economy. It can occur for a variety of reasons such as people change jobs, move across the country, and search for new opportunities or take their time after they enter the labour force to find appropriate job. Frictional unemployment will arise because it takes time for workers to be matched with suitable jobs. During this time, workers engaged in a job search will be registered as unemployed. The employers are not fully informed about what labour is available.
ii.
Structural unemployment It caused by a mismatch between the location of jobs and the location of job-seekers. "Location" may be geographical, or in terms of skills. The mismatch comes because unemployed are unwilling or unable to change geography or skills. Unemployment may result from labour-saving techniques of production or a whole new technology which requires workers with different skills. People cannot immediately take up jobs in other parts because there is mismatch between workers skill and job requirements due to not having sufficient education and lack of skills and training. E.g. when products such as black and white television become obsolete workers engaged in their production may become unemployed.
3
iii.
Cyclical (Demand deficient unemployment) unemployment When there is not enough aggregate demand for the labor. It caused by a business cycle recession. Cyclical unemployment arises because the economy is in recession and there is deficiency of demand. E.g. in the recession year 1982, the unemployment rate rose in 48 of the 50 states in U.S. The unemployment increases during recession and decreases during expansion1.
1
The recession year 1982, the unemployment rate rose in 48 of the 50 states in U.S. The unemployment increases during recession and decreases during expansion.
4
UNEMPLOYMENT: ISSUES IN MALAYSIA According to the definition of the Malaysia Labor Force Survey, the unemployed include persons who were available for work but did not work during a reference period. They could either be actively looking for work or not during the said period. The Malaysian economy did experience a significant unemployment rate in the mid-1980s as the unemployment rate exceeded 7% in 1986 and 1987 (Figure 1). This shows evidence of some mismatch problems during this period when the economy was adjusting from the transition of a reliance on mining and agriculture to manufacturing.
5
UNEMPLOYMENT RATE IN ASIA AND PACIFIC The unemployment rate in Asia and the Pacific has fallen only slightly, from 4.3% in 2010 to 4.2% in 2011. The region continues to face the problem of jobless growth, with developing countries failing to generate sufficient opportunities in the formal sector. The problems are greatest for young people, who are three times more likely to be unemployed than adults. The youth unemployment rate for Asia and the Pacific is projected to remain at 10.2% in 2012. Moreover, in 2010, some 1.1 billion workers in the region remained in vulnerable employment. It is important to ensure that wages increase in line with better productivity gains. This would allow domestic consumption to act as an enhanced engine of growth and sustain a virtuous circle of improved productivity, better working conditions, reduced inequality and sustainable and inclusive development. Policy options should also be devised to boost entrepreneurship and rural employment and support green jobs. Such policies would help countries avoid falling into the “middle-income trap”, in which productivity fails to keep pace with economic growth. A postcrisis macroeconomic framework should seek full employment for men and women as a core policy goal apart from economic growth targets, inflation and sustainable public finances. Improved social protection can support countries in their efforts to rebalance the sources of growth as well as reducing income insecurity for the poor. The crisis has prompted some countries in the region, such as Malaysia and the Philippines, to consider establishing unemployment insurance schemes, while India has expanded its national rural employment guarantee scheme.
MALAYSIA UNEMPLOYMENT RATE
6
Source: http://www.statistics.gov.my
Unemployment rate increased to 3.0% A decline in population in the labour market is an extension to the reduction of employed persons by 15,300 persons (0.1%) from 12.55 million in March 2012 to 12.54 million persons in April 2012. Conversely, the number of unemployed persons slightly increased by 3,500 persons (0.9%) to 383,900 persons. This situation contributed to the 0.1 percentage point increase in the unemployment rate in April 2012. Similarly, the seasonally adjusted unemployment rate rose by 0.2 percentage point to 3.0 per cent. The unemployment rate is unchanged at 3.0 per cent compared to the April in the year before.
7
Source: http://www.statistics.gov.my
A small decrease was recorded in the number of labour force in April2012 with 11,800 persons (0.1%) from 12.93 million to 12.92 million persons2. A similar trend was also recorded for the population outside labour force by 10,900 persons (0.2%) to 6.87million persons. As a result, the labour force participation rate remained unchanged at65.3 per cent compared to the previous month. Year to year comparison disclosed that the LFPR was higher 0.5 percentage point compared to 64.8per cent in April 20113.
2
Labour Force Survey (LFS) is conducted to collect information on the structure and distribution of labour force, employment and unemployment.
8
ECONOMIC BENEFITS OF UNEMPLOYMENT Unemployment may have advantages as well as disadvantages for the overall economy. Notably, it may help avert runaway inflation, which negatively affects almost everyone in the affected economy and has serious long-term economic costs. However the historic assumption that full local employment must lead directly to local inflation has been attenuated, as recently expanded international trade has shown itself able to continue to supply low-priced goods even as local employment rates rise closer to full employment. The inflation-fighting benefit to the entire economy arising from a presumed optimum level of unemployment has been studied extensively. Before current levels of world trade were developed, unemployment was demonstrated to reduce inflation, following the Phillips curve, or to decelerate inflation, following the NAIRU/natural rate of unemployment theory. Beyond the benefits of controlled inflation, frictional unemployment provides employers a larger applicant pool from which to select employees better suited to the available jobs. The unemployment needed for this purpose may be very small, however, since it is relatively easy to seek a new job without losing one's current one. And when more jobs are available for fewer workers (lower unemployment), it may allow workers to find the jobs that better fit their tastes, talents, and needs. Optimal unemployment has also been defended as an environmental tool to break the constantly accelerated growth of the GDP to maintain levels sustainable in the context of resource constraints and environmental impacts. However the tool of denying jobs to willing workers seems a blunt instrument for conserving resources and the environment -- it reduces the consumption of the unemployed across the board, and only in the short-term. Full employment of the unemployed workforce, all focused toward the goal of developing more environmentally efficient methods for production and consumption might provide a more significant and lasting cumulative environmental benefit and reduced resource consumption. If so, the future economy and workforce would benefit from the resultant structural increases in the sustainable level of GDP growth.
3
The LFS covers both urban and rural areas of all states in Malaysia through the personal interview method.
9
UNEMPLOYED - WHAT CAUSES UNEMPLOYMENT? Firstly it is important to note that the organization dynamics have changed, expectations of employers and potential employee are also very different as compared to a decade ago. In short the world has changed. To increase the complexity, we will also find that there are so many courses in the market place that one wonder how can one cope with such a ’maze’ let alone decide on the one that will suit you and most important of all, one that can lead us to a fulfilling career later in life. Unemployment is caused when someone is laid off, fired or quits and is still looking for a job. This type of natural unemployment always occurs, even in a healthy economy. If someone retires, goes back to school or leaves the work force to take care of children or other family member that is not unemployment. Also, if someone gives up looking for work, they are also not counted as unemployed by the Federal government. For this reason, some people say the government undercounts the real unemployment rate. Sometimes unemployment is a result of advanced technology, such as computers or robots, which replaces worker tasks with machines. If the workers are not retrained, they may not have the skills needed to get a new job. This is known as structural unemployment. Unemployment can also be caused by job outsourcing, when a company moves its manufacturing or call centers to another country where labor costs are cheaper4. This occurred in many states after NAFTA was signed in 1994. It was also caused when workers in China and India gained the skills needed by American companies. Large scale unemployment is caused when consumer demand slows enough that businesses lose too much profit. If they don't expect sales to pick up anytime soon, they then must lay off workers. This usually happens during the recession phase of the business cycle.
THE REASON WHY GRADUATES HAVE PROBLEM
4
This occurred in many states after NAFTA was signed in 1994.
10
The increasing unemployment rate among the graduates in Malaysia is a worrying trend. For many years, the issue cropped up again and again, made the news headlines, and even hit the parliament. The days have passed when a degree scroll can become your automatic passport to employment. Higher education is no longer a symbol of career success. This may sound painful for graduates but let’s face it. It is reality, no matter how harsh it may appear.
Economy The changing of the economic structure and landscape is a probable cause for the rise in the unemployment. For many years, the manufacturing has been the strongest sector in the country until it is now being progressively replaced by the services sector. The services sector requires people who do not only possess the right technical knowledge, but also those who possess the right soft skills interpersonal, communication, wisdom, maturity and are business oriented. Now, getting graduates with that kind of quality is a tough endeavor these days. It is even hard to find graduates who can speak moderate English.
Quality of education It seems that every year the country produces more and more brilliant students. This is evident with the increasing number of straight A students in SPM. It is also easier to find degree holders with first class honors. Surely, this is a good yardstick of the graduate’s quality. He or she used to be short listing 4-5 first class graduates for an interview and in the end rejected them all, and hired a second class student instead. It seems that the country is blessed with institutions highly capable to produce low quality, academic achievers. This statement may not bode well with some of the institutions out there but this should be taken as a challenge, not a mockery.
Choosy job seekers
11
Nowadays, candidates are expecting job offer to come with a package of a good pay, convenient working location, no shift, no work beyond 6pm and so on, with everything handed in a silver platter. Job seekers have come to me to complaints and made admissions that shocked me till no end. They are not willing to drive far because. Another was not willing to take the public transport because it is stressful. Lack of guidance Blaming the graduates themselves for the whole predicament is not entirely right either. After all, they are products of a flawed system. Majority of them are oblivious to the expectation from them in the employment market. Upon graduation, they become babies again, not ready to face the real world. The supposedly days of liberation suddenly becomes the days of uncertainty. This happens due to obvious discrepancy between the education and the employment – i.e. study is study and work is work. This gap needs an immediate bridging. While organizing a career fair and sending penultimate students for industrial placement are commendable effort, these are just not enough. Graduating students need a closer feel to the employment world. The career office should be their second home. If that also means bringing executives, engineers and managers into the university to give practical advice to the students, by all means do it.
UNEMPLOYMENT RATE – NEWSPAPER ARTICLE
12
Thursday March 29, 2012
Implications of minimum wage
Dramatic rise in wages poses upside risk to inflation By NOMURA RESEARCH RECENT news suggests that Prime Minister Najib is likely to announce setting a minimum wage on Labour Day (May 1). This is authorised under the National Wages Consultative Council Act of 2011 passed by parliament in July last year. Because of the looming general elections, the announcement is likely to be construed as politically motivated, but there are also important economic consequences of a legislated minimum wage requirement. The minimum wage is likely to be set anywhere between RM800 to RM1,000 per month. If we assume RM1,000, this would imply a significant 17% rise in the wages of unskilled workers, which according to Malaysia's Employers Federation 2010 Salary Survey, are earning an average RM852 a month. To put this in perspective, it compares with the average increase of wages in the manufacturing sector of only 6% per year. This poses an upside risk to inflation, in our view. First, overall labour productivity growth, which has been slowing in the last few years to an average of 2.7% (versus 5.3% pre-1998), is likely to substantially lag the potential increase in minimum wages, resulting in a rise in unit labour costs. Second, while one could argue that the legislation only affects a certain segment of the employed sector, in 2010 the share of private wage earners earning RM1,000 or below comprise nearly 50% of total employment, according to the Malaysian Institute of Economic Research. Given the significant share, this is also likely to affect wage negotiations among higher skilled workers, and could stoke higher wage expectations. As is common in other countries (e.g. Indonesia), minimum wages can be perceived as a wage-setting mechanism (which sets a floor to actual wages) rather than just a safety net for low-wage workers. Finally, given the current strength in domestic demand (indeed Bank Negara's annual report suggests that domestic demand “will continue to be the anchor for growth,”) firms are likely to pass on rising input costs, fueling CPI inflation. There are also longer-term concerns: Minimum wages could introduce rigidities into the labour market that may ultimately structurally raise unemployment rates. We think part of the reason Malaysian unemployment rates recovered quickly during the 2008/09 global financial crisis is that wage flexibility allowed downward adjustment in wages rather than employment losses during the downturn. Indeed, wages fell more sharply in 2008/09 than in the previous recession, and the unemployment rate recovered to pre-crisis levels more quickly and stayed there until now. The legislated minimum wages could reduce some of that flexibility.
This could also hurt external competitiveness, which, as we have argued before, is facing some pressures that are not due to an appreciating real exchange rate. If a minimum wage of RM1,000 is set, Malaysia's labour costs will be nearly twice the regional average and will be the highest in South-East Asia except Singapore. We understand that the Government is fully aware of these concerns and has pledged to address them by a broader set of structural reforms under Prime Minister Datuk Seri Najib Tun Razak 's New Economic Model and the 10th Malaysia Plan unveiled in 2010. The problem, however, is implementation has been slow so far and without more meaningful progress, these concerns will likely persist. One key argument of the proponents of the minimum wage is that this is supposed to complement these reforms by imposing a hard constraint on firms to improve productivity and reduce their reliance on low-skilled, low-wage foreign workers. The risk is the reforms lag the minimum wage implementation, and hence the argument fails to hold, while external competitiveness could suffer. The extent of the impact will still depend on the level of the minimum wage set, and the enforcement among firms. While the latter remains to be seen, for the former, we can draw on some findings from academic literature to gauge the optimal level of the minimum wage, i.e. whether it is high enough to improve living standards of wage workers but low enough to keep competitive pressures under control. A study by the World Bank suggests that a useful rule of thumb for developing economies is that the minimum wage at the national level should be no more than 40% of average wages. By this benchmark, a minimum wage set at RM1,000 for Malaysia seems appropriate on average, though there is considerable variation across sectors. For instance, it is around 41% of the current average in the manufacturing sector, but about 75% of the rubber sector. In terms of the near-term monetary policy implications, although headline inflation eased for the fourth consecutive month in February to 2.2% year-on-year from 2.7% in January, we see risks to our current policy rate forecast of total 50 basis points cut in the second half of 2012. We think the risk of Bank Negara remaining on hold for the rest of 2012 has already increased given that in its recently released annual report, the central bank continued to assess that “at the current level (3%) of the overnight policy rate, monetary conditions remain supportive of economic activity.” Minimum wages implemented in May could provide additional upside risks to inflation, when fiscal policy is highly expansionary and commodity prices are elevated. © 1995-2012 Star Publications (Malaysia) Bhd (Co No 10894-D)
UNEMPLOYMENT RATE – NEWSPAPER ARTICLE
13
INDEPENDENT NATIONAL NEWSPAPER OF EAST MALAYSIA Established since 1963
Same minimum wage target
Published on: Friday, May 18, 2012
Kota Kinabalu: The minimum wage set for the peninsula, Sabah and Sarawak, although different at the moment, is a starting point for achieving a uniform minimum wage figure for the country. Human Resource Minister Datuk Dr S. Subramaniam said the Government actually wanted the minimum wage figure to be just one for the whole nation but the National Wages Consultative Council decided to come up with different figures for peninsula, Sabah and Sarawak. He said the minimum wage that was set at RM900 (RM4.33 per hour) for the peninsula and RM800 (RM3.85 per hour) in Sabah, Labuan and Sarawak is not to discriminate but "more of an attempt to bridge the gap which has existed for years." The recommended figures on this were also agreed upon by the representatives of employers and employees who sit in the council, he said, Thursday. He said the NWCC would take into account the median wage which employers could afford to offer, Poverty Line Income (PLI), the percentage growth of productivity, Consumer Price Index and current unemployment rates, to decide on the minimum wage. He said the different rates decided by the government recently was caused by low median wage and high PLI in Sabah and Sarawak compared to the peninsula. Subramaniam said currently, the median wages in Sabah and Sarawak were RM577.40 and RM738.71 respectively, compared to RM1,134.25 in the peninsula while the PLI in the two states were RM1,048 and RM912 respectively, compared to RM763 in the peninsula. The Minister said the Government's intention is to see employees earn more than the minimum wage figures. Like in other countries, he said Malaysia hopes to see less than 10 per cent earning at the minimum wage level and the rest of the employees earning above the set minimum wages. Right now more than 44 per cent of employees in this country are still earning below the minimum wage figures, he said, adding that the Government wants to see less than 10 per cent of this remain at the minimum wage level while the rest (30 per cent) would have moved to a much higher salary than the set minimum wages. "That can only be done by a structural reform, that is restructuring the economy including increasing the productivity level and doing business in a way that is different from what we are doing nowÉthis shift we can't deny, that shift we should have done years before," he said. The Minister also said that the minimum wages to be implemented by the government would also cover the foreign workers, because it is also part of the government effort to reduce over dependency on foreign workers. Subramaniam said the whole idea of the minimum wage is not to make foreign labour cheaper than the local workers, but to make them (foreign workers) more expensive if not at the same cost. He said the effort to set the minimum wages for the private sectors in the three regions actually started about two years ago. "It was actually something that started about two years ago and involves a long process until today which is, fortunately or unfortunately, somewhere near the election. It has been announced and therefore we have to manage the announcement and manage the implementation," he said. The minimum wages for private sector policy, which was already passed in parliament, also provides for a transition period, that is it would take effect 12 months after it is gazetted for the micro enterprises and six months for the other enterprises. The 12 months transition period is not applicable to professional firms even if they employ less than five workers, and any person may apply to the said council for an extension of the commencement date of the Order for the implementation period different than the set commencement date. The minimum wages cover all employees as defined in the Employment Act 1955, Labour Ordinance (Sabah Cap. 67) and Labour Ordinance (Sarawak Cap. 76) in all economic sectors. It covers all private sector workers including foreign workers in the formal employment.
© Copyright 2012 Sabah Publishing House Sdn. Bhd.
SOLUTIONS TO UNEMPLOYMENT PROBLEM The following ways may reduce unemployment: Phillips Curve It used to be largely believed that unemployment could be solved using the Phillips curve. This involves increasing inflation to reduce unemployment by fooling workers into accepting jobsat a lower rate than they would otherwise have done, due to the declining value of money. However,
14
since the work of Milton Friedman, it is widely accepted that the Phillips curve is vertical in the long run: you cannot achieve a lowering of the unemployment rate in the long run, and attempts to do so will only cause inflation. Demand side policies Monetary policy and fiscal policy can both be used to increase short-term growth in the economy, increasing the demand for labour and decreasing unemployment. The demand for labour in an economy is derived from the demand for goods and services. Supply side policies Minimum wages and union activity keep wages from falling, which means too many people want to sell their labour at the going price but cannot. Supply-side policies can solve this by making the labour market more flexible. These include removing the minimum wage and reducing the power of unions, which act as a labour cartel. Other supply side policies include education to make workers more attractive to employers. Cutting taxes on businesses and reducing regulation, create jobs and reduce unemployment.
Shifting tax burden This method will shift tax burden to capital intensive firms and away from labour intensive firms. In theory this will make firms shift operations to a more politically desired balance between labour intensive and capital intensive production. The excess tax revenue from the jobs levy would finance labour intensive public projects. However, by raising the value of labour artificially above capital, this would discourage capital investment, the source of economic growth. With less growth, long-run employment would fall.
15
CONCLUSION The Malaysian Government, through various tripartite forums, have constantly highlighted and promoted the importance of continual improvement and learning. Workers must be actively involved in upgrading their knowledge and skills. Unemployment is a problem that we have to control through effective labour management and human resource policies. The negative impact of globalisation and external shocks of the international economic system must be mitigated by prudent government interventions. Consequently, underpinning the efforts to combat unemployment is the capacity of the workforce
16
to compete through increasing productivity and working in harmony with the other factors of production. The strategic thrust in addressing unemployment is economic growth and development
REFERENCES http://en.wikipedia.org/wiki/Unemployment" http://www.statistics.gov.my http://www.statistics.gov.my/portal/images/stories/files/LatestReleases/employment/Labour_Force _Indicator_Malaysia_April_2012BI.pdf The Star (2012) “Implications of minimum wage” Thursday March 29, 2012. Daily Express “Same minimum wage target Friday” May 18, 2012.
17
.
BIBLIOGRAPHY By Woon Tai Hai, KPMG Advisory Sdn Bhd CIA World Fact book - Unless otherwise noted, information in this page is accurate as of April 17, 2007 Virginia Tech, Department of Economics, Professor Richard Ashley's website, Fact sheet on the impact of unemployment, retrieved May 25, 2007
18
1
INTRODUCTION The unemployment rate can be defined as the number of people actively looking for a job divided by the labour force. Changes in unemployment depend mostly on inflows made up of nonemployed people starting to look for jobs, of employed people who lose their jobs and look for new ones and of people who stop looking for employment. Related terms are the labour force, the participation rate and the employment rate. The labour force is defined as the number of people employed plus the number unemployed but seeking work. The non-labour force includes those who are not looking for work, those who are institutionalised such as in prisons or psychiatric wards, stay-at home spouses, children, and those serving in the military. The participation rate is the number of people in the labour force divided by the population of working age that is not institutionalised. The employment rate is defined as the number of people currently employed divided by the population of working age. The terms unemployment and unemployed may sometimes be used to refer to inputs to production that are not being fully used (apart from labor) for example, unemployed capital goods. In its most general, but uncommon usage, unemployment might also denote objects not put to productive use.
TYPES OF UNEMPLOYMENT
2
i.
Frictional Unemployment When moving from one job to another, the unemployment temporarily experienced when looking for a new job. It happened when unemployment that occurs naturally during the normal workings of an economy. It can occur for a variety of reasons such as people change jobs, move across the country, and search for new opportunities or take their time after they enter the labour force to find appropriate job. Frictional unemployment will arise because it takes time for workers to be matched with suitable jobs. During this time, workers engaged in a job search will be registered as unemployed. The employers are not fully informed about what labour is available.
ii.
Structural unemployment It caused by a mismatch between the location of jobs and the location of job-seekers. "Location" may be geographical, or in terms of skills. The mismatch comes because unemployed are unwilling or unable to change geography or skills. Unemployment may result from labour-saving techniques of production or a whole new technology which requires workers with different skills. People cannot immediately take up jobs in other parts because there is mismatch between workers skill and job requirements due to not having sufficient education and lack of skills and training. E.g. when products such as black and white television become obsolete workers engaged in their production may become unemployed.
3
iii.
Cyclical (Demand deficient unemployment) unemployment When there is not enough aggregate demand for the labor. It caused by a business cycle recession. Cyclical unemployment arises because the economy is in recession and there is deficiency of demand. E.g. in the recession year 1982, the unemployment rate rose in 48 of the 50 states in U.S. The unemployment increases during recession and decreases during expansion1.
1
The recession year 1982, the unemployment rate rose in 48 of the 50 states in U.S. The unemployment increases during recession and decreases during expansion.
4
UNEMPLOYMENT: ISSUES IN MALAYSIA According to the definition of the Malaysia Labor Force Survey, the unemployed include persons who were available for work but did not work during a reference period. They could either be actively looking for work or not during the said period. The Malaysian economy did experience a significant unemployment rate in the mid-1980s as the unemployment rate exceeded 7% in 1986 and 1987 (Figure 1). This shows evidence of some mismatch problems during this period when the economy was adjusting from the transition of a reliance on mining and agriculture to manufacturing.
5
UNEMPLOYMENT RATE IN ASIA AND PACIFIC The unemployment rate in Asia and the Pacific has fallen only slightly, from 4.3% in 2010 to 4.2% in 2011. The region continues to face the problem of jobless growth, with developing countries failing to generate sufficient opportunities in the formal sector. The problems are greatest for young people, who are three times more likely to be unemployed than adults. The youth unemployment rate for Asia and the Pacific is projected to remain at 10.2% in 2012. Moreover, in 2010, some 1.1 billion workers in the region remained in vulnerable employment. It is important to ensure that wages increase in line with better productivity gains. This would allow domestic consumption to act as an enhanced engine of growth and sustain a virtuous circle of improved productivity, better working conditions, reduced inequality and sustainable and inclusive development. Policy options should also be devised to boost entrepreneurship and rural employment and support green jobs. Such policies would help countries avoid falling into the “middle-income trap”, in which productivity fails to keep pace with economic growth. A postcrisis macroeconomic framework should seek full employment for men and women as a core policy goal apart from economic growth targets, inflation and sustainable public finances. Improved social protection can support countries in their efforts to rebalance the sources of growth as well as reducing income insecurity for the poor. The crisis has prompted some countries in the region, such as Malaysia and the Philippines, to consider establishing unemployment insurance schemes, while India has expanded its national rural employment guarantee scheme.
MALAYSIA UNEMPLOYMENT RATE
6
Source: http://www.statistics.gov.my
Unemployment rate increased to 3.0% A decline in population in the labour market is an extension to the reduction of employed persons by 15,300 persons (0.1%) from 12.55 million in March 2012 to 12.54 million persons in April 2012. Conversely, the number of unemployed persons slightly increased by 3,500 persons (0.9%) to 383,900 persons. This situation contributed to the 0.1 percentage point increase in the unemployment rate in April 2012. Similarly, the seasonally adjusted unemployment rate rose by 0.2 percentage point to 3.0 per cent. The unemployment rate is unchanged at 3.0 per cent compared to the April in the year before.
7
Source: http://www.statistics.gov.my
A small decrease was recorded in the number of labour force in April2012 with 11,800 persons (0.1%) from 12.93 million to 12.92 million persons2. A similar trend was also recorded for the population outside labour force by 10,900 persons (0.2%) to 6.87million persons. As a result, the labour force participation rate remained unchanged at65.3 per cent compared to the previous month. Year to year comparison disclosed that the LFPR was higher 0.5 percentage point compared to 64.8per cent in April 20113.
2
Labour Force Survey (LFS) is conducted to collect information on the structure and distribution of labour force, employment and unemployment.
8
ECONOMIC BENEFITS OF UNEMPLOYMENT Unemployment may have advantages as well as disadvantages for the overall economy. Notably, it may help avert runaway inflation, which negatively affects almost everyone in the affected economy and has serious long-term economic costs. However the historic assumption that full local employment must lead directly to local inflation has been attenuated, as recently expanded international trade has shown itself able to continue to supply low-priced goods even as local employment rates rise closer to full employment. The inflation-fighting benefit to the entire economy arising from a presumed optimum level of unemployment has been studied extensively. Before current levels of world trade were developed, unemployment was demonstrated to reduce inflation, following the Phillips curve, or to decelerate inflation, following the NAIRU/natural rate of unemployment theory. Beyond the benefits of controlled inflation, frictional unemployment provides employers a larger applicant pool from which to select employees better suited to the available jobs. The unemployment needed for this purpose may be very small, however, since it is relatively easy to seek a new job without losing one's current one. And when more jobs are available for fewer workers (lower unemployment), it may allow workers to find the jobs that better fit their tastes, talents, and needs. Optimal unemployment has also been defended as an environmental tool to break the constantly accelerated growth of the GDP to maintain levels sustainable in the context of resource constraints and environmental impacts. However the tool of denying jobs to willing workers seems a blunt instrument for conserving resources and the environment -- it reduces the consumption of the unemployed across the board, and only in the short-term. Full employment of the unemployed workforce, all focused toward the goal of developing more environmentally efficient methods for production and consumption might provide a more significant and lasting cumulative environmental benefit and reduced resource consumption. If so, the future economy and workforce would benefit from the resultant structural increases in the sustainable level of GDP growth.
3
The LFS covers both urban and rural areas of all states in Malaysia through the personal interview method.
9
UNEMPLOYED - WHAT CAUSES UNEMPLOYMENT? Firstly it is important to note that the organization dynamics have changed, expectations of employers and potential employee are also very different as compared to a decade ago. In short the world has changed. To increase the complexity, we will also find that there are so many courses in the market place that one wonder how can one cope with such a ’maze’ let alone decide on the one that will suit you and most important of all, one that can lead us to a fulfilling career later in life. Unemployment is caused when someone is laid off, fired or quits and is still looking for a job. This type of natural unemployment always occurs, even in a healthy economy. If someone retires, goes back to school or leaves the work force to take care of children or other family member that is not unemployment. Also, if someone gives up looking for work, they are also not counted as unemployed by the Federal government. For this reason, some people say the government undercounts the real unemployment rate. Sometimes unemployment is a result of advanced technology, such as computers or robots, which replaces worker tasks with machines. If the workers are not retrained, they may not have the skills needed to get a new job. This is known as structural unemployment. Unemployment can also be caused by job outsourcing, when a company moves its manufacturing or call centers to another country where labor costs are cheaper4. This occurred in many states after NAFTA was signed in 1994. It was also caused when workers in China and India gained the skills needed by American companies. Large scale unemployment is caused when consumer demand slows enough that businesses lose too much profit. If they don't expect sales to pick up anytime soon, they then must lay off workers. This usually happens during the recession phase of the business cycle.
THE REASON WHY GRADUATES HAVE PROBLEM
4
This occurred in many states after NAFTA was signed in 1994.
10
The increasing unemployment rate among the graduates in Malaysia is a worrying trend. For many years, the issue cropped up again and again, made the news headlines, and even hit the parliament. The days have passed when a degree scroll can become your automatic passport to employment. Higher education is no longer a symbol of career success. This may sound painful for graduates but let’s face it. It is reality, no matter how harsh it may appear.
Economy The changing of the economic structure and landscape is a probable cause for the rise in the unemployment. For many years, the manufacturing has been the strongest sector in the country until it is now being progressively replaced by the services sector. The services sector requires people who do not only possess the right technical knowledge, but also those who possess the right soft skills interpersonal, communication, wisdom, maturity and are business oriented. Now, getting graduates with that kind of quality is a tough endeavor these days. It is even hard to find graduates who can speak moderate English.
Quality of education It seems that every year the country produces more and more brilliant students. This is evident with the increasing number of straight A students in SPM. It is also easier to find degree holders with first class honors. Surely, this is a good yardstick of the graduate’s quality. He or she used to be short listing 4-5 first class graduates for an interview and in the end rejected them all, and hired a second class student instead. It seems that the country is blessed with institutions highly capable to produce low quality, academic achievers. This statement may not bode well with some of the institutions out there but this should be taken as a challenge, not a mockery.
Choosy job seekers
11
Nowadays, candidates are expecting job offer to come with a package of a good pay, convenient working location, no shift, no work beyond 6pm and so on, with everything handed in a silver platter. Job seekers have come to me to complaints and made admissions that shocked me till no end. They are not willing to drive far because. Another was not willing to take the public transport because it is stressful. Lack of guidance Blaming the graduates themselves for the whole predicament is not entirely right either. After all, they are products of a flawed system. Majority of them are oblivious to the expectation from them in the employment market. Upon graduation, they become babies again, not ready to face the real world. The supposedly days of liberation suddenly becomes the days of uncertainty. This happens due to obvious discrepancy between the education and the employment – i.e. study is study and work is work. This gap needs an immediate bridging. While organizing a career fair and sending penultimate students for industrial placement are commendable effort, these are just not enough. Graduating students need a closer feel to the employment world. The career office should be their second home. If that also means bringing executives, engineers and managers into the university to give practical advice to the students, by all means do it.
UNEMPLOYMENT RATE – NEWSPAPER ARTICLE
12
Thursday March 29, 2012
Implications of minimum wage
Dramatic rise in wages poses upside risk to inflation By NOMURA RESEARCH RECENT news suggests that Prime Minister Najib is likely to announce setting a minimum wage on Labour Day (May 1). This is authorised under the National Wages Consultative Council Act of 2011 passed by parliament in July last year. Because of the looming general elections, the announcement is likely to be construed as politically motivated, but there are also important economic consequences of a legislated minimum wage requirement. The minimum wage is likely to be set anywhere between RM800 to RM1,000 per month. If we assume RM1,000, this would imply a significant 17% rise in the wages of unskilled workers, which according to Malaysia's Employers Federation 2010 Salary Survey, are earning an average RM852 a month. To put this in perspective, it compares with the average increase of wages in the manufacturing sector of only 6% per year. This poses an upside risk to inflation, in our view. First, overall labour productivity growth, which has been slowing in the last few years to an average of 2.7% (versus 5.3% pre-1998), is likely to substantially lag the potential increase in minimum wages, resulting in a rise in unit labour costs. Second, while one could argue that the legislation only affects a certain segment of the employed sector, in 2010 the share of private wage earners earning RM1,000 or below comprise nearly 50% of total employment, according to the Malaysian Institute of Economic Research. Given the significant share, this is also likely to affect wage negotiations among higher skilled workers, and could stoke higher wage expectations. As is common in other countries (e.g. Indonesia), minimum wages can be perceived as a wage-setting mechanism (which sets a floor to actual wages) rather than just a safety net for low-wage workers. Finally, given the current strength in domestic demand (indeed Bank Negara's annual report suggests that domestic demand “will continue to be the anchor for growth,”) firms are likely to pass on rising input costs, fueling CPI inflation. There are also longer-term concerns: Minimum wages could introduce rigidities into the labour market that may ultimately structurally raise unemployment rates. We think part of the reason Malaysian unemployment rates recovered quickly during the 2008/09 global financial crisis is that wage flexibility allowed downward adjustment in wages rather than employment losses during the downturn. Indeed, wages fell more sharply in 2008/09 than in the previous recession, and the unemployment rate recovered to pre-crisis levels more quickly and stayed there until now. The legislated minimum wages could reduce some of that flexibility.
This could also hurt external competitiveness, which, as we have argued before, is facing some pressures that are not due to an appreciating real exchange rate. If a minimum wage of RM1,000 is set, Malaysia's labour costs will be nearly twice the regional average and will be the highest in South-East Asia except Singapore. We understand that the Government is fully aware of these concerns and has pledged to address them by a broader set of structural reforms under Prime Minister Datuk Seri Najib Tun Razak 's New Economic Model and the 10th Malaysia Plan unveiled in 2010. The problem, however, is implementation has been slow so far and without more meaningful progress, these concerns will likely persist. One key argument of the proponents of the minimum wage is that this is supposed to complement these reforms by imposing a hard constraint on firms to improve productivity and reduce their reliance on low-skilled, low-wage foreign workers. The risk is the reforms lag the minimum wage implementation, and hence the argument fails to hold, while external competitiveness could suffer. The extent of the impact will still depend on the level of the minimum wage set, and the enforcement among firms. While the latter remains to be seen, for the former, we can draw on some findings from academic literature to gauge the optimal level of the minimum wage, i.e. whether it is high enough to improve living standards of wage workers but low enough to keep competitive pressures under control. A study by the World Bank suggests that a useful rule of thumb for developing economies is that the minimum wage at the national level should be no more than 40% of average wages. By this benchmark, a minimum wage set at RM1,000 for Malaysia seems appropriate on average, though there is considerable variation across sectors. For instance, it is around 41% of the current average in the manufacturing sector, but about 75% of the rubber sector. In terms of the near-term monetary policy implications, although headline inflation eased for the fourth consecutive month in February to 2.2% year-on-year from 2.7% in January, we see risks to our current policy rate forecast of total 50 basis points cut in the second half of 2012. We think the risk of Bank Negara remaining on hold for the rest of 2012 has already increased given that in its recently released annual report, the central bank continued to assess that “at the current level (3%) of the overnight policy rate, monetary conditions remain supportive of economic activity.” Minimum wages implemented in May could provide additional upside risks to inflation, when fiscal policy is highly expansionary and commodity prices are elevated. © 1995-2012 Star Publications (Malaysia) Bhd (Co No 10894-D)
UNEMPLOYMENT RATE – NEWSPAPER ARTICLE
13
INDEPENDENT NATIONAL NEWSPAPER OF EAST MALAYSIA Established since 1963
Same minimum wage target
Published on: Friday, May 18, 2012
Kota Kinabalu: The minimum wage set for the peninsula, Sabah and Sarawak, although different at the moment, is a starting point for achieving a uniform minimum wage figure for the country. Human Resource Minister Datuk Dr S. Subramaniam said the Government actually wanted the minimum wage figure to be just one for the whole nation but the National Wages Consultative Council decided to come up with different figures for peninsula, Sabah and Sarawak. He said the minimum wage that was set at RM900 (RM4.33 per hour) for the peninsula and RM800 (RM3.85 per hour) in Sabah, Labuan and Sarawak is not to discriminate but "more of an attempt to bridge the gap which has existed for years." The recommended figures on this were also agreed upon by the representatives of employers and employees who sit in the council, he said, Thursday. He said the NWCC would take into account the median wage which employers could afford to offer, Poverty Line Income (PLI), the percentage growth of productivity, Consumer Price Index and current unemployment rates, to decide on the minimum wage. He said the different rates decided by the government recently was caused by low median wage and high PLI in Sabah and Sarawak compared to the peninsula. Subramaniam said currently, the median wages in Sabah and Sarawak were RM577.40 and RM738.71 respectively, compared to RM1,134.25 in the peninsula while the PLI in the two states were RM1,048 and RM912 respectively, compared to RM763 in the peninsula. The Minister said the Government's intention is to see employees earn more than the minimum wage figures. Like in other countries, he said Malaysia hopes to see less than 10 per cent earning at the minimum wage level and the rest of the employees earning above the set minimum wages. Right now more than 44 per cent of employees in this country are still earning below the minimum wage figures, he said, adding that the Government wants to see less than 10 per cent of this remain at the minimum wage level while the rest (30 per cent) would have moved to a much higher salary than the set minimum wages. "That can only be done by a structural reform, that is restructuring the economy including increasing the productivity level and doing business in a way that is different from what we are doing nowÉthis shift we can't deny, that shift we should have done years before," he said. The Minister also said that the minimum wages to be implemented by the government would also cover the foreign workers, because it is also part of the government effort to reduce over dependency on foreign workers. Subramaniam said the whole idea of the minimum wage is not to make foreign labour cheaper than the local workers, but to make them (foreign workers) more expensive if not at the same cost. He said the effort to set the minimum wages for the private sectors in the three regions actually started about two years ago. "It was actually something that started about two years ago and involves a long process until today which is, fortunately or unfortunately, somewhere near the election. It has been announced and therefore we have to manage the announcement and manage the implementation," he said. The minimum wages for private sector policy, which was already passed in parliament, also provides for a transition period, that is it would take effect 12 months after it is gazetted for the micro enterprises and six months for the other enterprises. The 12 months transition period is not applicable to professional firms even if they employ less than five workers, and any person may apply to the said council for an extension of the commencement date of the Order for the implementation period different than the set commencement date. The minimum wages cover all employees as defined in the Employment Act 1955, Labour Ordinance (Sabah Cap. 67) and Labour Ordinance (Sarawak Cap. 76) in all economic sectors. It covers all private sector workers including foreign workers in the formal employment.
© Copyright 2012 Sabah Publishing House Sdn. Bhd.
SOLUTIONS TO UNEMPLOYMENT PROBLEM The following ways may reduce unemployment: Phillips Curve It used to be largely believed that unemployment could be solved using the Phillips curve. This involves increasing inflation to reduce unemployment by fooling workers into accepting jobsat a lower rate than they would otherwise have done, due to the declining value of money. However,
14
since the work of Milton Friedman, it is widely accepted that the Phillips curve is vertical in the long run: you cannot achieve a lowering of the unemployment rate in the long run, and attempts to do so will only cause inflation. Demand side policies Monetary policy and fiscal policy can both be used to increase short-term growth in the economy, increasing the demand for labour and decreasing unemployment. The demand for labour in an economy is derived from the demand for goods and services. Supply side policies Minimum wages and union activity keep wages from falling, which means too many people want to sell their labour at the going price but cannot. Supply-side policies can solve this by making the labour market more flexible. These include removing the minimum wage and reducing the power of unions, which act as a labour cartel. Other supply side policies include education to make workers more attractive to employers. Cutting taxes on businesses and reducing regulation, create jobs and reduce unemployment.
Shifting tax burden This method will shift tax burden to capital intensive firms and away from labour intensive firms. In theory this will make firms shift operations to a more politically desired balance between labour intensive and capital intensive production. The excess tax revenue from the jobs levy would finance labour intensive public projects. However, by raising the value of labour artificially above capital, this would discourage capital investment, the source of economic growth. With less growth, long-run employment would fall.
15
CONCLUSION The Malaysian Government, through various tripartite forums, have constantly highlighted and promoted the importance of continual improvement and learning. Workers must be actively involved in upgrading their knowledge and skills. Unemployment is a problem that we have to control through effective labour management and human resource policies. The negative impact of globalisation and external shocks of the international economic system must be mitigated by prudent government interventions. Consequently, underpinning the efforts to combat unemployment is the capacity of the workforce
16
to compete through increasing productivity and working in harmony with the other factors of production. The strategic thrust in addressing unemployment is economic growth and development
REFERENCES http://en.wikipedia.org/wiki/Unemployment" http://www.statistics.gov.my http://www.statistics.gov.my/portal/images/stories/files/LatestReleases/employment/Labour_Force _Indicator_Malaysia_April_2012BI.pdf The Star (2012) “Implications of minimum wage” Thursday March 29, 2012. Daily Express “Same minimum wage target Friday” May 18, 2012.
17
.
BIBLIOGRAPHY By Woon Tai Hai, KPMG Advisory Sdn Bhd CIA World Fact book - Unless otherwise noted, information in this page is accurate as of April 17, 2007 Virginia Tech, Department of Economics, Professor Richard Ashley's website, Fact sheet on the impact of unemployment, retrieved May 25, 2007
18
