ECO202 Macroeconomics | Unemployment Rates in Malaysia from 2013-2016

us on unemployment rate of Malaysia among graduate between 2013 and 2016. To discuss this, the report has used statistical data and diagrams to analyse this employment in Malaysia and other countries, properly. Moreover, it has discussed about impacts of this economic phenomenon on economy and society of this country briefly.

Unemployment rates in Malaysia from 2013-2016:

Unemployment rates in Malaysia:

In Malaysia, the unemployment rate has measured the number of people, who are searching for a job actively as a percentage of the total work force. In 1997, due to financial crisis, the country has reached at a higher unemployment rate of 2.5%. However, after this crisis, the economy has experienced unemployment rate from 1997 to 2010 though it has remained below 4% (Tradingeconomics.com, 2018). In 2013, this rate has increased again and has remained at a higher level though this unemployment rate has fluctuated after this year. Instead of this, Department of Statistics has stated that Malaysia has achieved full employment in 2013 with its unemployment rate of 3.1% while other developing countries cannot achieve this full employment level.

According to the Labour Force Survey Report, working age population in this nation has been considered between 15 to 64 years (Del Carpio, Özden, Testaverde & Wagner, 2015). This report considers six main indicators, which are, statistics on labour force, employed and unemployed person, total population outside labour force, labour force participation rate (LFPR) and unemployment rate. In 2013, total number of labour force has remained at 13.6 million while in 2016 it has become 14.7 million. Moreover, labour force participation rate has increased from 67% to 67.7% between 2013 and 2016. Unemployment rate, on the other hand, has increased from 3.1% to 3.4% during this period though it has decreased in 2014 (Dosm.gov.my, 2018).

Figure 1: Unemployment rate of Malaysia

Source: (Tradingeconomics.com, 2018)

Figure 1 has represented unemployment rate of Malaysia, where this rate has fluctuated drastically since 2013. During the ending phase of 2014, this rate has decreased significantly. However, after this year, the unemployment rate has increased again and in 2016, it has become 3.5% (Tradingeconomics.com, 2018).

Reasons for such unemployment rate among graduates:

Graduate unemployment rate means unemployment among people, who have an academic degree. According to some researchers, due to unemployment and underemployment, graduates have had trouble within their lives (Shamsudin et al., 2017). The chief reason behind this phenomenon can be considered as institutional inefficiency and effectiveness.  

Figure 2: Youth unemployment rate of Malaysia between 2007 and 2016

Source: (www.statista.com , 2018)

In recent years, fresh graduate in Malaysia have experienced unemployment issues, which can be increased further in future. Consequently, it has become difficult for an individual to find and apply for a proper job after remaining unemployed for a certain period. The youth unemployment rate of this nation has reached at 10.7% in 2015, which is three times higher comparing to the country’s unemployment rate of 3.1%. Hence, among regional economies, Malaysia has received the unemployment rate by double-digits despite of lower unemployment rate. According to the Department of Statistics Malaysia, the rates of unemployment among fresh graduates have increased from 30% to 34% between 2013 and 2016.  In 2015, 405000 youths have completed their higher education while unemployment rate of them has become 15.3% (www.statista.com , 2018). Moreover, among 273373, only 53% graduates have found jobs within six months of their graduation. According to a 2016 report, 200000 graduates have remained unable to find jobs in Malaysia.

Figure 3: Youth unemployment rate across various regions in 2015

Source: (Lam, Hassan, Sulaiman & Kamarudin, 2018)

The above figure has represented a statistical diagram of youth unemployment rate among various regions including Indonesia, Philippines, Singapore and Malaysia for the year 2015. This chart has also considered Korea, Vietnam and Thailand. According to this diagram, the unemployment rate among youth has become high in Indonesia, which is, 21.6% while in Thailand, this rate has become lowest one, which is, 3.4%.  However, for Malaysia, this youth unemployment rate in 2015 has become 10.7% (www.statista.com , 2018).

In this context, three factors can be considered for which unemployment has occurred among graduates in Malaysia. Those adversely affected factors are mismatch between focus of educational institutions and needs of industry, lack of skills and experience among graduates and possessing an entitled attitude. In Malaysia, educational system is exam-oriented though students in their higher education level receive lack skills related to jobs (Wan et al., 2017). On the other side, labour market in this country is dynamic due changing pattern of technologies and production system. As a result, product market changes demand for expertise and skills. For this, great disparity has occurred between static educational system and dynamic production system of industries. This disparity creates second cause of unemployment among graduates due to lack of experiences and skills. Industries prefer graduates, who have essential skills along with experience. Moreover, an entitled or bad behaviour among students have also generated difficulties to find a proper job. Graduates prefer to work within an environment, which gives convenience and comfort. Moreover, they become selective about their job and salary package.

Effects of unemployment upon the society and nation:

Unemployment affects the society and a nation adversely due to various reasons that can be described further. This negative economic phenomenon can increase financial costs while spending power of the family and the unemployed person can decrease. Moreover, the economy can experience recession (Wulfgramm, 2014). Society can also experience negative impacts as well like increasing mental health problem and health disease, political issues and insecurities among employees and so on. Those factors are described as follows:

Increasing financial costs: Due to increasing unemployment, financial costs of the government of a country can increase significantly for which the nation can suffer adversely. In many countries, the government provide benefits to unemployed persons for maintaining their minimum standard of living and for controlling social wellbeing (Drydakis, 2015). Hence, for increasing number of unemployed persons governmental expenditure can increase as well and this in turn can force the nation to reduce production along with income.

Spending power:  For an unemployed person, spending power decreases drastically. Thus due to increasing number of unemployed person, total amount of consumer expenditure can decrease further of a country (Korkmaz, 2015). This in turn can decrease the aggregate demand of this economy. Thus, the entire economic condition of this nation can affect adversely.

Decreasing spending power of the employed person: Excessive number of unemployment can create insecurities among employed persons for which they intend to save more amount money compare to their spending. Thus, aggregate demand and source of capital accumulation for a particular nation can be reduced and this in turn can adversely affect aggregate production of a nation.

Recession: Increasing unemployment rates can affect other economic factors adversely, for instance, per capita income, costs and quality of health care, poverty and standard of living. Those factors can reduce economic growth of both developed and developing countries. Moreover, those economic factors can negatively influence society as a whole. Those economic factors can also be described further.  

Unemployment does not affect a person but also affect the family and society in the long run, as well (Kunze & Suppa, 2017). These affects can be described as follows:

Mental health problem and health diseases: Due to unemployment, unemployed person can suffer from various mental health problems such as low level of self-confidence, feeling depression, unworthy and hopelessness. Hence, frustration and tension can generate general health issues of those unemployed persons.

Political issues: Citizens can loss their trust on government and on their administrative power due to large number of unemployment. They can think that the economy can experience economic stability in future due to insufficient policy and controlling power of the government.

Discourage taxpaying citizens: Unemployment also generates frustration and discontent among taxpaying citizens. Due to excessive public expenditures, the government increases tax rate to meet the huge demand of its unemployment fund. Consequently, tax burden increases among tax payers and this in turn negatively influence them to give accurate amount of tax to the government.

Standard of living: Due to large number of unemployed persons and limited job opportunities, the economy experiences strong competition for jobs. Moreover, negotiation power of a candidate regarding salary also decreases. As a result, standards of living for an unemployed person and his or her family decrease (Sosnaud, 2016). Moreover, this situation can be observed for an economy as a whole, where standard of living of entire unemployed persons and their family decline due to lower salary packages and income.

Crime, violence and suicide: Higher number of unemployment can increase crime and violence by large number within a society. Youth can start robbery or other illegal activities to earn money for supporting their family and their own needs (Kubrin, Hipp & Kim, 2018). On the other side, suicide rate among those unemployed graduates can also increase further due to higher level of depression and lower standard of livings. In addition to this, social outgoings among those youth also decrease, as they do not want to interact with other people, friends and family members. However, due to this social issue the economy losses many skilled employees. Unemployed people remain unable to show their skills for a long time and consequently, they loss their knowledge over time.

Stigma: Unemployment brings the disgrace with it and an unemployed person bears this. This is because no one wants to be termed as unemployed after completing certain level of higher education.

Increasing effect of unemployment rate on Malaysian economy:

Increasing unemployment has also affected Malaysian economy adversely. Crime index of Malaysia has increased by 4.6% between January and April in 2016 due to increasing number of property crimes (Habibullah et al., 2014). Violent crimes have increased in Malaysia in the form of robberies and assaults in 2015. Foreigners have also experienced petty theft like purse snatching, smash theft, snatching and residential burglaries. Other forms of non-violent criminal activity include automobile theft, cyber crime and credit card fraud (Lim, 2017). Hence, the Department of State becomes concerned about the chances of terrorist attacks against citizens America.

Consumer spending of this country has also affected adversely as the number of unemployment has increased sharply over the year. Due to no income or lower income, unemployed persons including graduates and youth, have remained unable to spend more amount of money during 2013 and 2014. However, after 2014, this rate has increased sharply and in 2016, it has reached at a higher level.

Figure 4: Consumer spending in Malaysia between 2013 and 2016

Source: (Tradingeconomics.com, 2018)

Figure 4 has represented this trend by an upward increasing curve focusing that consumer spending of this country has increased over the year. In 2013, consumer spending has remained below 120000 MYR million though in 2016 this rate has increased above 140000 MYR million (Tradingeconomics.com, 2018).

In addition to this, gross domestic product (GDP) growth rate of Malaysia is also required to consider for understanding the impact of unemployment on the country’s economic condition (Yelwa, David & Awe, 2015). As income of a consumer is considered within national income or GDP, higher amount employment can help the country to increase its national income while unemployment leads this rate to decrease further. The following figure has represented this situation.

Figure 5: GDP growth rate of Malaysia between 2013 and 2016

Source: (Tradingeconomics.com, 2018)

According to figure 5, national income of Malaysia has decreased over the year between 2013 and 2016. At the ending of 2013, this rate has remained around 1.8% while at the end of 2016 this rate has decreased and become 0.8% (Tradingeconomics.com, 2018). As unemployment is increasing since 2013, the GDP growth of this country has decreased as well.

Solutions to unemployment in Malaysia:

To reduce unemployment rate within country, the Government of Malaysia has implemented various policies. Those actions are described below to evaluate that whether those have solved unemployment related problems within country or not.

Malaysian Employers Federation (MEF) action:

President of the MEF has announced that in 2017, more number of workers can be retrenched compare to previous years as the economy has experienced challenges. Moreover, some companies have implemented game-changing technology (Seman & Suhaimi, 2017). Thus, MEF has taken various actions that are:

1. To retrench foreign workers
2. To follow guidelines implemented by the Ministry of Human Resources
3. Compensation

1Malaysia Training scheme (SL1M):

The government has introduced 1Malaysia Training Scheme in 2011to develop employability, capability and ability of graduates to obtain employment opportunity in collaboration with Government Linked Companies (GLCs) along with corporate social responsibility (CSR) of private sector. According to those social responsibilities, companies will provide training and proper job placement to graduate students, who require opportunities to advance their career and to become qualified for tax incentives. The chief objective of this government program is to enhance the number of skilled workers for fulfilling aspiration of the country (Chan, Winterton, Emelifeonwu & Salleh, 2017). Those well-known companies like tabung haji, Sapura Kencana Petroleum and Telekom Malaysia (TM) have been provided assistant and recommendation for proper form of methods, training programmes and tasks that can cover soft skills and on the job training of one year. However, those industries can reduce this duration of training by six months if those graduates perform efficiently (Noor, 2017). Moreover, those companies can hire them as a permanent employee. The chief target of those companies is to focus on unemployed graduates, who have hold a bachelor’s degree and those companies are required to be a legitimate one that can provide training scheme. Those companies, recognised by economy Planning Unit, require ensuring that all candidates are employed appropriately before the end of programme.

Regulations for hiring foreign workers:

One of the chief reasons of unemployment among graduates in Malaysia is hiring foreign workers by large number. Those skilled and experienced workers have decreased the number of available jobs for domestic employees significantly. The government policy of Malaysia towards foreign workers is slow and confused. However, government has decided to prevent the recruitment of new foreign workers, as 4 million workers are illegal. Those unskilled workers have come from Bangladesh, Myanmar, Nepal, Vietnam, Pakistan, Indonesia and Philippines (Del Carpio et al., 2015). On the other side, foreign workers, who are entering into the country with legal permission, can enhance national output and productivity with their skills. Hence, this governmental decision is logical and rational as Malaysian population is increasing day by day. Moreover, companies, who want to hire foreign employees, can recruit existing foreign employees and others whose permits have been expired under Illegal Immigrant Comprehensive Settlement Programme (Ab Hamid, Ab Aziz & Amin, 2018).

Moreover, Malaysia intends to discourage foreign unskilled workers through levying more tax on the manufacturers and others. However, this new policy adds pressure on producers by increasing production cost. Consequently, many experts have criticised this prevailing effort because manufacturers at the end have reduced their benefits. Many industries have affected adversely due to this decision, where employers are forced to pay annual levy because of their foreign workers (Devadason & Meng, 2014). However, the government has not informed those companies before implementing this policy. In addition to this, the president of small and medium enterprises has opposed this decision as employers of those enterprises have experienced risks to lose their legal foreign workers.

Fiscal and monetary policies of the Government and Employment Insurance Scheme:

The government of a country takes monetary policy to cut interest rates for increasing aggregate demand (Philip, 2014). On the other side, through fiscal policy, the government cuts taxes to increase aggregate demand. Fiscal policies can decrease unemployment through increasing aggregate demand and economic growth rate (Huidrom, Kose & Ohnsorge, 2018). This implies that by producing more, a firm can increase its demand for workers and this in turn can decrease demand-deficient unemployment. Many economists of Malaysia have stated that the government has taken proper monetary and fiscal policy in 2017 to control GDP growth.

In 2018, Employment Insurance Scheme has taken implemented. It is a cost to both employees and employers and the contribution rate is unknown. However, this is a payroll tax for workers and a cost for conducting business for employers.  

Foreign Direct Investment (FDI):

Foreign Trade Investment can influence job creation of a country in a same direction, which means, higher amount of FDI helps a country to create more employment opportunity and consequently gross domestic product (GDP) of this country increases further and this is true for Malaysia as well (Irpan et al., 2016). However, Malaysia has not obtained positive impacts towards economic growth and unemployment rate because of insufficient FDI. This is because recession and exchange rate fluctuation are unpredictable for this developing country. Hence, proper management is required to manage FDI.

Conclusion:

Effectiveness of policies to reduce the unemployment rate:

This data has discussed about unemployed graduates in Malaysia with some proper statistical data. At the beginning, this report has described about economic background of Malaysia through considering its significant economic growth within period and consequently it has become fourth largest economy in Southeast Asia. However, after 2013, youth unemployment of this country has increased and has reached at a higher peak. According to some economists, this can increase further in coming years. The country has experienced this type of unemployment due to some reasons such as mismatch between educational system and needs of industry, insufficient skills and experience among graduates and possessing a bad attitude. Moreover, foreign employees have also reduced employment opportunities if those graduates. The skill and experience gap between foreign employees and domestic employees have created this gap. The report has also focused on various impacts that a country or nation can experience due to this negative economic phenomenon. It is observed that due to lack of employment opportunity, an economy can experience huge financial crisis while spending power of this unemployed youth and his or her family decreases. As a result, the economy can face recession. Moreover, the society can experience various negative impacts, for instance, mental health problem along with health diseases, political instability and lower standard of living. Moreover, crime rate in the country can increase as well. Economic growth of Malaysia has decreased between 2013 and 2016 due to this increasing unemployment rate among youth. As a result, the government of this country has taken various policies to reduce that unemployment rate. However, those policies have not performed properly between 2013 and 2016 and consequently unemployment rate among youth has increased even after 2016.  Thus, the government can implement other policies to reduce this unemployment rate and for this, the report has provided recommendations.

Recommendation:

Firstly, the government of Malaysia can continue foreign direct investment (FDI) to support Malaysia for expanding its economy that can help the country to achieve world power and conquer. Increasing amount of FDI can help an economy to reduce unemployment by generating more job opportunities. This is because a developing country Malaysia has lower capital accumulation and this in turn has decreased total productivity. Hence, increasing number of capital accumulation can increase total productivity of this country and consequently demand for employees can increase further in those industries. However, domestic investment possesses equal importance as well. For this, the country needs to save more amount of money for increasing economic growth. Secondly, the government of Malaysia can obtain unemployment rate by lower than 1%. For this, it is essential to assure first job for each graduate students after finishing their studies. This type of method can be effective to reduce unemployment rate among youth. This process is not easy but can be effective for the graduates of Malaysia, as each year huge number of students is completing their higher studies without any job guarantee. Thirdly, Malaysia can increase free trade agreement (FTA) with other countries through eliminating trade barriers. This in turn can increase exports and imports of Malaysia with other countries in world economy and consequently demand for Malaysian product in international market can increase further. This can influence companies to invest more amount of money for producing more products by hiring more employees. This can generate employment opportunities among graduates in Malaysia. Fourthly, the country can encourage entrepreneurs to innovate new production technologies, where they can hire unskilled or semi-skilled workers, who do not have any working experience but have theoretical knowledge. Thus, without an entrepreneurial concept, educational system across Malaysia can create a system that can help an individual to create a job rather than to find a job. For instance, Mark Zuckerberg has become an entrepreneur with his knowledge and has created huge job opportunities in the U.S.A.

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