Labour market to remain tepid

Published on 03 May 2021.

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The normalisation of Malaysia’s labour market will significantly lag the general economic recovery this year, due to the lingering effects of the COVID-19 pandemic. A fragile labour market and poor wages can have a substantial effect on household incomes as 77.3% of the nation’s workforce were employees (as opposed to employers, own account workers and unpaid family workers) as at end-2020. 

Before the onset of the pandemic, Malaysia had been generating about 300,000-320,000 net jobs annually, thus keeping the unemployment rate contained at 3.0%-3.5%. Given that net employment declined by nearly 120,000 last year, some 40,000-60,000 net jobs will have to be created monthly through the next two years to normalise the labour market. Nonetheless, the recovery is off to a measured pace as only 55,700 jobs were generated in the first two months of 2021 despite some economic improvements. 

The normalisation of overall wage growth is further complicated by the disproportionate impact on job losses in various segments. The sudden displacement of labour across sectors had pushed up skills-related under-employment to 12.6% of total employment in 2020 (2019: 10.2%). The pandemic had also reduced households’ access to child or aged care facilities while necessitating school closures, leading to the temporary exit of an estimated 150,000 workers from the labour market last year. The number of long-term unemployed workers, defined as those out of a job for more than 6 months, increased from 88,600 as at end-2019 to 156,600 as at end-2020.  

Various national policies to address such structural issues are being formulated, e.g. Industry4WRD, which will introduce programmes to upskill or reskill the existing workforce for specific manufacturing segments. These programmes correspond with the Government’s intention to pursue key high value-added manufacturing investments and will contribute to the improved resiliency of the Malaysian labour market over time. In this regard, the National Economic Council is targeting some 160,000 jobs to be created through committed investments in 2021.

Amid the gradual economic recovery, private consumption has been propped up by measures such as bank loan moratoriums, tax incentives, direct cash transfers and wage subsidy programmes. Given the protracted nature of the jobs recovery, the extension of these policies would be crucial in minimising the impact to overall household welfare.

RAM maintains its unemployment rate forecast of 4.0% by end-2021 (2011-2019 average: 3.2%), underscoring our expectation of tepid job recovery this year. A speedier normalisation of labour market conditions can be achieved through a broad-based economic recovery through faster vaccinations, greater stimulative efforts and realisation of key investments. The successful reskilling or upskilling of a large proportion of affected workers can similarly contribute to the jobs recovery this year.




Analytical contact
Jason Fong
(603) 3385 2616

Media contact
Padthma Subbiah
(603) 3385 2577


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