Multi-pronged strategy needed to tackle rising unemployment
By Ranjit Singh |   |  Featured, Opinion

Ranjit Singh

THE public health response to the Covid-19 pandemic has brought unprecedented job losses all around the world. Lockdowns have caused massive disruptions to the market which prompted businesses to lay off workers in a bid to slash costs. Many businesses had been adversely affected that they had to shutter altogether.

The Department of Statistics Malaysia (DoSM) recently reported that 610,000 Malaysians had lost their jobs in March this year amid the imposition of the Movement Control Order (MCO) which began on March 18.

Given that the period represented less than two weeks into the MCO, it can be envisaged that job losses would be more pronounced in April as the whole month would be under the movement control. The unemployment rate for March was 3.9% and is expected to spike to 5.5% by year-end, which would be the highest ever experienced by the nation.

Bank Negara Malaysia (BNM) had projected that gross domestic product (GDP) growth would come in at between -2% and 0.5% for 2020. It recently announced that the first-quarter (1Q) GDP was 0.7% and some economists have predicted that 2Q GDP would be around -1.1%.

As the economy worsens, what are the measures that the government and the central bank should take to stem the unemployment rate?

There are two main strategies for reducing unemployment – demand-side policies to reduce demand-deficient unemployment (unemployment caused by recession) and supply-side policies to reduce structural unemployment (the natural rate of employment).

In order to stoke aggregate demand, BNM slashed interest rates thrice this year. Currently, the Overnight Policy Rate stands at 2%. BNM should consider slashing interest rates further to reduce the cost of borrowing and improve the cash flow of companies. If companies have adequate cash flow, they will be less inclined to lay off their employees and this would have a positive effect on the unemployment rate.

One fiscal tool that the government can employ is lowering taxes to increase aggregate demand. Although this may adversely affect government coffers and widen the deficit, it can substantially improve the cash flow of companies so that they will be less motivated to undertake a retrenchment exercise as business conditions worsen.

The government should also relook at education and training. The Covid-19 pandemic allows the government to reassess the manpower needs of the country as the economy recalibrates. It has at its disposal sizable funds under the Human Resource Development Fund (HRDF) to undertake reskilling programmes to ensure that labour is ready for the “new normal” economy post-Covid-19.

One of the measures that the government could consider is to offer geographical subsidies to companies that are operating in areas most affected by Covid-19. This would enhance companies’ cash flow and prevent them from laying off their workers due to adverse business conditions.

Another way that the government could rein in job losses is to relook at the minimum wage. Although controversial, the lowering of the minimum wage which currently stands at RM1,200 could ensure that there will be fewer job losses. Wouldn’t it be better to have less salary than no salary at all? The government should undertake a campaign that educates the people in view of the challenging times we are in now, that many companies just cannot afford to pay the minimum wage but could retain their workforce if the minimum wage was reduced marginally.

Some of the measures suggested above require a compromise between employers and employees. They must realise that the job market is facing unprecedented challenges and the only way we can ensure job losses are kept to the minimum is if there is full cooperation from employees, employers and the government. - May 15, 2020

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