Job market on a knife-edge

Sunway University economics professor Yeah Kim Leng forecast a 4% unemployment rate in 2020, subject to the MCO duration and the extent of restrictions that will likely continue after the MCO has ended.

PETALING JAYA: The country’s unemployment rate could hit the highest level in three decades as more Malaysians are likely to lose their jobs, largely due to the novel coronavirus (Covid-19) pandemic.

Economists anticipated the national unemployment rate to spike this year as cash flow constraints arising from the country’s movement control order (MCO) led more companies to lay off their staff.

Speaking with StarBiz, Sunway University economics professor Yeah Kim Leng forecast a 4% unemployment rate in 2020, subject to the MCO duration and the extent of restrictions that will likely continue after the MCO has ended.

“However, unemployment could spike up not only because of the MCO, but also the looming global recession that could reduce external and domestic demand significantly enough to result in higher-than-expected layoffs, ” he said.

Meanwhile, Bank Islam chief economist Mohd Afzanizam Abdul Rashid expected a national unemployment rate of 3.8% in 2020, up from the 3.3% recorded last year.

“This is based on our baseline 2020 gross domestic product growth forecast of -1.5%. The outlook for the labour market will really depend on the duration of MCO as economic activities are almost grind to a halt.

“The sooner MCO measures are lifted, the quicker our economy will go back on track. However, the impact can be equally catastrophic should Covid-19 make a comeback, if MCO measures are prematurely terminated, ” he said.

Earlier this month, Bank Negara warned that the country’s unemployment in 2020 could rise to 4% or 629,000 individuals.

In comparison, the unemployment rate was 3.7% in 2009 following the global financial crisis and 3.2% during the Asian financial crisis in 1998.

Over the last thirty years, the highest unemployment rate was in 1990 at 4.5%, according to the Institute of Labour Market Information and Analysis.

In a statement yesterday, chief statistician Datuk Seri Mohd Uzir Mahidin said that the impact of the novel coronavirus (Covid-19) on the country’s labour force would be reflected in the unemployment data from March 2020 onwards.

He pointed out that the unemployment rate in February has increased marginally to 3.3%, but has yet to be affected by the internal shock caused by the Covid-19 pandemic.

In comparison, the country’s unemployment rate for the month of January this year was 3.2%.

“The number of labour force in this month rose by 2.1% to 15.87 million persons against February 2019. During the same period, employed persons also increased 2.1% to 15.34 million persons.

"The labour force participation rate in February decreased 0.2 percentage points to 68.7% as compared with the previous month, but increased 0.2 percentage points as compared with the same month in the previous year (February 2019: 68.5%), ” he said.

The statement from Mohd Uzir followed a survey by the Statistics Department released last week, which showed that 46.6% of self-employed respondents were retrenched due to Covid-19.

Based on the survey that was conducted from March 23-31, about 23.8% of employers have also lost their jobs.

For context, the employers refer to owners of small and medium enterprises who also work at the companies such as contractors and operators of barber shops and food stalls.

However, the impact is less severe among private sector employers, whereby only 1.8% respondents have said that they are unemployed as a result of Covid-19.

Breaking down by industries, respondents working in arts, entertainment and recreation faced the biggest impact as 38% of them have lost their jobs. This was followed by food service (35.4%) and fishing (33%).

Commenting on the February labour market data, Yeah said the slight decline in the labour force participation rate is expected to continue in the coming months due to the impact of Covid-19.

“More students, retirees and housewives are likely to lose interest in seeking jobs as they stay home and firms freeze hiring during the MCO, ” he said.

Yeah, who is also the deputy president of the Malaysian Economic Association, added that the rise in unemployment would result in higher unemployment insurance claims as well as other subsidies by the government.

“The income impact will then feed through the demand channel through lower consumption as retrenched workers cut back spending, ” he said.