Unemployment in the Time of Covid-19

By Wong Chen

In this article, I will discuss and explore the data, issues and policies relating to unemployment caused by the Covid-19 pandemic. I will also offer some personal advice should unemployment happens.

Make no mistake, Malaysia like the rest of the world is already in an economic recession and globally, millions have lost jobs. The ILO, the United Nations labour agency estimates global jobs losses caused by Covid-19 to be around 305 million, with an additional 1.6 billion of informal workers at very high risk of losing jobs too. At home, the unemployment rate is set to increase in the coming weeks and months.

Just a week ago, the Department of Statistics Malaysia (DoSM) released the April 2020 unemployment report, noting that the Malaysian unemployment rate has hit 5% or around 780,000 jobless. This 5% number is not without a proviso. Note that the DoSM April data measured the very start phase of Covid-19. DoSM also noted that some 4.9 million workers did not work in the month of April 2020. If a sizeable portion of this 4.9 million group has in fact lost their jobs in May, then the adjusted unemployment rate for April 2020 could be much higher than the official 5%. Nevertheless, the government is predicting unemployment rate to hit around 5.5 % by year end. As a comparative measure, Malaysia under normal economic circumstances has a historical unemployment rate of 3% to 3.5%.

My own estimate for the year end is much higher; I expect the unemployment rate to peak around 8% to 10%. My estimates are based on four factors; (a) if we have already hit 5% in the very first month of Covid-19, this number will only pick up pace as most companies/employers do not have financial reserves beyond three months, (b) as a good indicator, in the Great Asian Financial Crisis of 1997, the Malaysian unemployment rate hit a peak of 7.4%, and this current crisis is more systemic, truly global and far reaching (c) the services sector represents 50% of the work force and a fifth of that are involved directly in tourism and hospitality sectors, and (d) production of goods have dropped around 17%, this will in some way translate to a proportionate reduction in manufacturing workers.

What will a high unemployment rate mean for Malaysia? We will definitely witness a rise in social and welfare problems. To manage this unemployment crisis, the government has to carry out two immediate policies.

The first policy is the wage support subsidy program, which has been implemented under the Prihatin package, but in my personal opinion, it is too short in reach and too little quantum to make a real and meaningful impact. By the government’s own disclosures, it has only spent RM1.9 billion and has further allocated to spend another RM4 billion up to the end of June on wage subsidy. Combined, the government is spending slightly less than RM6 billion on the program for the first three months. The government talks about a whopping RM295 billion in Prihatin packages but what is actually disbursed on the ground, is in fact very small.

According to government data, some 2.3 million workers have received some wage subsidy, but the total number of employed people who did not work due to the MCO is 4.9 million. What this means is that the wage subsidy program has in fact reached only less than half (47% to be precise) of all affected workers. The quantum of support is also insufficient. At an average wage support of RM1,000 a month, this is roughly 1/3rd of the average income of a Malaysian worker. To be truly effective, the wage support should be above 50% which is what Singapore is doing. In Europe, the wage support is as high as 70% to 90%.

The second policy is to make provisions for better welfare support and also unemployment benefits. These social safety net programs must be put in place as soon as possible, as the vast majority of Malaysians do not have savings beyond two to three months. Based on studies conducted by office on β€œpoor economics”, we observe that a poor person will require an absolute minimal amount of RM400 a month to survive. Hence the average Malaysian family of 4.3 persons, will require a base minimal income of RM1,720 a month. If one of the working parent loses a job, welfare support must ensure that minimal threshold of RM1,720 family income is maintained. Failure to do so will spiral the unfortunate family into a poverty trap of illegal debts and the destruction of prospects and hopes for children.

At a personal level, my advice to all constituents is to start financial planning for the coming 18 to 24 months. This Covid-19 pandemic will not resolve itself until we find a vaccine and deploy it globally. This may take one and a half to two years to achieve. So please make financial plans for two years and factor in a scenario where a member of the family, loses a job. I would also encourage relatives, friends and neighbours to look out after each other should someone lose a job. Depression can set in with unemployment. While it is normal to feel down after losing a job, family and friends should intervene if the depression lasts longer than 6 months. Those who have lost jobs should do their best to take on whatever job offer that comes their way. Swallow your pride, roll up the sleeves and persevere. I speak from personal experience having gone through the Asian Financial Crisis in my late twenties. You simply just cannot give up.