KUALA LUMPUR – Malaysia’s labour market continued to improve with the unemployment rate falling for the second straight month to 4.7% in July (from 4.9% in Jun and the peak of 5.3% in May). This follows 28.1k lesser unemployed persons against higher employment that rose above the 15 million level for the first time in four months (Jul: +83.2k to 15.07 million), reported UOB economists in a note released today.
“The Recovery Movement Control Order (RMCO) that started on 10 June allowed more economic sectors to resume that has helped to ease the labour market stress. Number of unemployment claims dropped to 9.3k in August (Jul: 16.7k, Jun: 18.6k). The ability for an economy to create employment, proxied by employment-to-population ratio, rose from 64.7% in June to 64.9% in July.
“The total labour force increased by 55k persons to 15.82m people in July (Jun: +49.5k to 15.76m) as a result of the reopening of more economic sectors under RMCO (including tourism, education, entertainment & recreational activities). Alongside a small gain in the number of outside labour force (Jul: +1.3k to 7.4m persons; Jun: +6.4k to 7.399m persons) helped to keep the labour force participation rate steady at 68.1% in June, though still below pre-MCO levels of ≥ 68.5% between December 2018 and March 2020,” said the economists.
Julia Goh, Senior Economist of United Overseas Bank (Malaysia) Bhd (UOB Malaysia) said the entrance of new graduates and workers returning to seek employment as economic conditions continue to improve should see a higher labour force participation rate in the coming months.
“Most economic sectors posted an increase in hiring in July led by the services sector particularly accommodation, food & beverages, and transport & storage activities. The increase in employment in the manufacturing sector was led by electrical & electronics, metal related, printing, plastic, motor vehicles, and rubber products sub-industries.
“The number of persons temporarily not working due to the pandemic fell to 104.3k in July (Jun: 908.9k, May: 2.27m, Apr: 4.87m). This group was not categorised as unemployed since MCO started as they had work to return to. The decline was partly due to the resumption of the education sector with reopening of schools and childcare centres that allowed parents to return to work.”
Gradual Improvement, Challenges Linger
Several government’s initiatives including the Wage Subsidy Program (WSP), Employee Retention Program (EPR), Hiring Incentive Program (PenjanaKerjaya), and Tekun Business Recovery Scheme has helped to support the labor market during the MCO.
“Since the WSP took effect from 1 April until 9 September, it has aided 2.7m employees through an approved allocation of MYR13.8bn to 330,682 employers. Under the Hiring Incentive Program (PenjanaKerjaya), total of 7,543 employees found jobs as of 24 July,” the economists noted.
Despite recent labour market indicators showing signs of improvement, they expect hurdles ahead as some of the relief measures, namely the WSP and six-month blanket loan moratorium, expire this month (on 30 September).
“Thereafter, the loan moratorium and repayment assistance will be extended on a targeted basis to those still affected by COVID-19. This will help pace the transition from broad temporary relief measures and avert another wave of business closures and layoffs.
“We expect the unemployment rate to ease further to 4.5% by year-end (2019: 3.4%) and 3.7% in 2021. It is still projected to remain above pre-MCO levels next year as firms continue to adjust in a new post-pandemic environment,” the note concluded.
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