Labour market gaps:

More than just unemployment

VIEWS 5 /21 | 25 February 2021 | Siti Aiysyah Tumin

Views are short opinion pieces by the

author(s) to encourage the exchange of
ideas on current issues. They may not
necessarily represent the of ficial views of
KRI. All errors remain the authors’ own.

This view was prepared by Siti Aiysyah

Tumin, a researcher f rom the Khazanah
Research Institute (KRI). The authors are
gratef ul f or the valuable comments f rom Nur
Thuraya Sazali and Mohd Amirul Raf iq Abu
Rahim. Photo by Daniel Subramaniam and
used with permission.

Author’s email address:

[email protected]

Attribution – Please cite the work as f ollows:

Siti Aiysyah Tumin. 2021. Gaps in the
Labour Market: More than just Introduction
unemployment. Kuala Lumpur: Khazanah
Research Institute. License: Creative
Commons Attribution CC BY 3.0. Malaysia reported its first COVID-19 case over a year ago.
As the number of cases increased, the country imposed a
Translations – If you create a translation of movement control order (MCO) in March to contain the
this work, please add the f ollowing
disclaimer along with the attribution: This spread of the virus and to not overwhelm the country’s
translation was not created by Khazanah public health facilities. Schools and businesses were
Research Institute and should not be
considered an of f icial Khazanah Research
closed, shifting learning and work to be home-based1.
Institute translation. Khazanah Research The MCO was slightly relaxed in May to be a conditional
Institute shall not be liable f or any content or MCO or CMCO, and subsequently a recovery MCO or
error in this translation.
RMCO until the end of the year2. The government
Inf ormation on Khazanah Research Institute provided various assistance in its stimulus packages,
publications and digital products can be
including three rounds of wage subsidies to prevent
f ound at www.KRInstitute.org.
unemployment numbers from soaring, and it was
reported to have helped more than 2.6 million workers3.

1 Elengoe (2020)
2 Fan and Cheong (n.d.)
3 BERNAMA (2021)

KRI Views | Gaps in the labour market: More than just unemployment 1
However, not all were saved and Malaysia’s unemployment rate was higher than its usual rate of
3.3%. This article also illustrates other labour market gaps throughout 2020—underemployment
was high, especially among younger workers; and there were more people who left the
workforce. Even when restriction measures were relaxed (post-MCO), the recovery period
affected workers differently.

Unemployment remained high in 2020

When the MCO was first introduced in March 2020, the Department of Statistics (DOS) reported
that total number of unemployed increased by around 85,000 persons compared to February;
and in April, an additional 168,000 persons compared to March. Even when the MCO was
subsequently relaxed, the average unemployment numbers for the rest of 2020 was consistently
higher than 2019, by more than 200,000 persons. Consequently, the estimated monthly
unemployment rate was higher in 2020 than in 2019 (Figure 1).

Figure 1: Total unemployed persons and rate, by month, 2019 and 2020

1,000,000
1,000 6%
6
5.3
5.0
4.8
5
800
3.9
4
600

3.4 3.4 3
3.3 3.3
400
2

200
1
525.2

521.3

519.8

745.1

737.5

512.1

764.4
515.6
511.7

516.4

610.5

523.3
778.8

826.1

521.4
773.2

524.8

520.2
741.6

521.4

748.2

513.9

772.9
517
0 0
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec

Unemployed persons, 2019 (LHS) Unemployed persons, 2020 (LHS)

Unemployment rate, 2019 (RHS) Unemployment rate, 2020 (RHS)

Source: CEIC (n.d.)

However, the extent of unemployment was different between different demographic groups.
Youth unemployment rate is generally about three times the national unemployment figures, and
this remained to be true during COVID-19. By the end of 2020, unemployment rate for 15-25
years olds stood at 12.7%, while average unemployment rate was 4.8%. Women in the workforce
also faced slightly higher unemployment rate at 3.5% in the fourth quarter of 2019, higher than
men’s 3.1%; but by fourth quarter of 2020, both stood at 4.8%4.

4 DOS (2021b)

KRI Views | Gaps in the labour market: More than just unemployment 2
Gaps in employment: Labour underutilisation

However, gaps in the labour market goes beyond unemployment figures. Another key indicator
is underemployment, defined as those working less than 30 hours per week. For context, the
average weekly working hours in 2019 was 45 hours per week5. Underemployment happens
either due to the nature of work or insufficient work. During COVID-19, this could also be the
consequence of restrictions on opening hours. Both unemployment and underemployment
represent labour market underutilisation i.e. the gap between demand and supply in the labour
market.

Between 2017 and 2019, underemployment was trending downwards, and longer-term analysis
of underemployment using alternative data sources also showed declining underemployment
rates in Malaysia6. However, total underemployment doubled in the first two quarters of 2020—
from 2.3% and 2.5% of total employment in the first and second quarters of 2019, to 4.4% and
5.3% in the first and second quarters of 2020. The relaxation of the MCO moderated total
underemployment in the third quarter of 2020, but it increased again in the last quarter of the
year (Figure 2).

Figure 2: Total underemployment persons and Figure 3: Time-related underemployment and

rate, by quarter, 2017-2019 GDP per capita, 2019

10%
10 1,000
1,000,000 50
Time-related underemployment, %

8 800
40

6 600
30
5.3

4 400
4.4

20 R² = 0.09
3.5

2 200
2.7
2.5
2.3

2.2
2.0

10
0 0
Q1
Q2

Q4
Q1

Q3
Q4
Q3
Q4
Q1
Q2
Q3

Q2
Q3
Q4
Q1
Q2

Malaysia
2017 2018 2019 2020 0
2.5 3.5 4.5 5.5
Total underemployed persons (RHS)
Log GDP per capita
Underemployment per total employment share (RHS)

Source: DOS (2021b) Note: TRU reported by the ILO is dif f erent f rom DOS because
of modelling dif ferences and harmonization to allow f or cross -
country comparison. Source: ILO (n.d.); World Bank (n.d.).

Among the underemployed, half of them were willing and able to accept more work, and this
refers to time-related underemployment (TRU). Malaysia’s TRU is relatively low compared to
other countries in its similar income level (Figure 3) before the public health crisis, but
expectedly, TRU increased when the country battled with COVID-19. In 2019, TRU remained to

5 DOS (2020)
6 Nur Thuraya (2020)

KRI Views | Gaps in the labour market: More than just unemployment 3
be less than 1.5% of total employment; but in 2020, they were equal or above 2.0%, with the
highest rate recorded in the second quarter of the year, at 2.8% of total employment (Figure 4).

Figure 4: Time-related underemployment per total Figure 5: Percentage point change in employment
employment, by quarter and age group, 2019 and share between 2019 and 2020, by quarter and age
2020 group

66%
5.8 88 percentage points

1.6
4

-0.4

-0.6
-1.3
2.3
2
1.7 -4

-3.6
1.4

1.4 1.4 1.2 1.1 2.5 2.8 2.0 2.4 -8

-7.0

-11.2
0

-11.6
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2019 2020 -12
Q1 Q2 Q3 Q4
Total 15-24 25-34 35-44 ≥45
15-24 25-34 35-44 ≥45

Source: DOS (2021b) Source: DOS (2021b)

Generally, older workers have higher rates of underemployment, but the differences of TRU rates
between different age groups were relatively small in 2019 (Figure 4). In 2020, TRU rates for all
age groups increased by more than 1.5 times. Additionally, the short recovery period after the
MCO affected underemployment differently for the young and the old. In the third and fourth
quarter of 2020, TRU rates for workers older than 35 years old recovered and were closer to their
pre-COVID-19 rates. Meanwhile, TRU rates remained high for younger workers, especially those
between the ages 15 and 24 years old. By the end of 2020, the TRU rate for this age group more
than doubled the overall TRU rate. Workers between the ages 25 and 34 years old who previously
had the lowest underemployment rate now have the second-highest underemployment rate.
Essentially, the economic recovery phase post-MCO only re-absorbed older workers into full-time
employment, whereas younger workers remained to be underemployed.

Another way to illustrate the disproportionate effects of post-MCO recovery is by looking at the
general trend of employment. Throughout 2020, employment growth was positive for workers
above 45 years old, while the rest largely experienced employment contraction—the least among
workers between the ages 35 and 44 years old, and the largest among workers between 25 and
34 years old (Figure 5). This is yet another indicator that COVID-19 disproportionately affected
young workers in the labour market, and how periods of recovery tend to miss them out. In the
case of underemployment, workers could earn less income if they are paid by the hour. In the case
of no employment, they lost their income altogether.

KRI Views | Gaps in the labour market: More than just unemployment 4
One should not simply assume that gaps in the labour market will decline post-COVID-19,
especially if underemployment is associated with more structural issues in the labour market. An
example of this labour market mismatch is skill-related underemployment (SRU), defined as
tertiary-educated workers who are working in semi-skilled and low-skilled jobs that do not
require tertiary education.

Since 2017, SRU has been growing by around 3% per quarter, increasing from around 8% of total
employment to 12% of total employment by the end of 2020. The share of skill-related
underemployment was higher among women; by the fourth quarter of 2020, 14% employed
women were in jobs that required lower qualification than their educational background, while
the rate was 11% for men (Figure 6). SRU was also much higher among younger workers (under
35 years old), compared to older workers (above 35 years old), and it continued to rise during
COVID-19 (Figure 7).

Figure 6: Skill-related underemployment per total Figure 7: Skill-related underemployment per total
employment, by quarter and sex, 2017-2019 employment, by quarter and age group, 2017-2019

20
20% 20
20%
17.0

14.4
15 15 15.6
12.4 12.2
11.2 12.4

10 8.2 10 11.3 11.5

11.2
8.2

5 6.4 5 6.2
5.7

3.4
0 0
Q2

Q2

Q2

Q2
Q1

Q3
Q4
Q1

Q3
Q4
Q1

Q3
Q4
Q1

Q3
Q4
Q1

Q1

Q1

Q1
Q2
Q3
Q4

Q2
Q3
Q4

Q2
Q3
Q4

Q2
Q3
Q4

2017 2018 2019 2020 2017 2018 2019 2020

Total Male Female 15-24 25-34 35-44

≥45 Total

Source: DOS (2021b) Source: DOS (2021b)

The persistence of SRU could be explained by the nature of job demand pre-COVID-19 and during
COVID-19. The workforce is becoming increasingly educated as new graduates enters the job
market, but new jobs created were in semi- or low-skilled jobs. If skilled jobs were created, they
tend to concentrate in selected sectors like finance and real estate (Figure 8-a and 8-b), and these
economic activities employed only a small proportion of the workforce. During the pandemic, and
specifically, post-MCO when business activities resumed, overall private-sector job creation
contracted. Only manufacturing reported new jobs created, but these jobs were semi-skilled and
low-skilled jobs (Figure 8-c and Figure 8-d).

KRI Views | Gaps in the labour market: More than just unemployment 5
Another potential explanation is the geographical distribution of jobs in the country. In the case
of restricted mobility during COVID-19, people mostly turn to their local economy as employment
sources. However, past studies indicated that less-advanced states have limited growth of skilled
employment, and the extent of skill mismatch was much higher in these states 7. It is likely that
COVID-19 only exacerbated these issues.

Figure 8: Jobs created, by quarter, economic activity and skill, 2018-2020

(a) Q3 2018-2019 (b) Q4 2019-2020

Other services
Finance & real estate
Info & communication
Transportation, storage
F&B, accomodation
Wholesale & retail
Construction
Manufacturing
Mining & quarrying
Agriculture
Total

-10 -5 0 5 10 -10 -5 0 5 10
10,000

Skilled Semi-skilled Low-skilled Skilled Semi-skilled Low-skilled

(c) Q3 2019-2020 (d) Q4 2019-2020

Other services
Finance & real estate
Info & communication
Transportation, storage
F&B, accomodation
Wholesale & retail
Construction
Manufacturing
Mining & quarrying
Agriculture
Total

-10 -5 0 5 10 -10 -5 0 5 10,000

10

Skilled Semi-skilled Low-skilled Skilled Semi-skilled Low-skilled

Source: DOS (2021a)

7 KRI (2020)

KRI Views | Gaps in the labour market: More than just unemployment 6
Out of the labour force

Globally, 71% of employment losses were due to inactivity rather than unemployment8. People
out of the labour force (OLF) or inactive, refers to housewives, students, retirees, disabled
persons or those not looking for jobs. Total number of OLF expanded in 2020. Compared to the
first and second quarter of 2019, total OLF increased by close to 100,000 and 263,000 persons in
2020, respectively. Throughout the second half of 2020, total OLF continued to be higher than
2019 by more than 200,000 persons. Women made up the main source of OLF expansion (Figure
9), and from previous studies, we know that they do this because of housework or family
responsibilities9. With the closure of school and care facilities during the pandemic, it is
unsurprising that more women reported that they were out of the labour force in 2020, and more
people cited housework as their reason remaining out of the workforce (Figure 11).

Figure 9: Quarterly change of population outside Figure 10: Quarterly change of population outside
the labour force, by quarter and sex, 2018-2020 the labour force, by quarter and age group, 2018-
2020

400,000
400 400,000
400

300 300
9
92
200 200
153 160
146 41
60 253
100 100 195
60 145
83
0 0

-100 -100

-200 -200
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2018-19 change 2019-20 change 2018-19 change 2019-20 change

Male Female Total 15-24 25-34 35-44 ≥45 Total

Source: DOS (2021b) Source: DOS (2021a)

When OLF was analysed by age groups, COVID-19 also reversed some previous trends. In the past,
the expansion of OLF population was generally from the older population, but COVID-19 resulted
in more younger population in the OLF (Figure 10). Generally, inactivity was due to retiring,
which was why most of the OLF expansion in the past was among the older population (Figure
11). However, more older workers were holding on to their jobs and did not retire in 2020,
expectedly since income insecurity is high during this pandemic.

8ILO (2021)
9 In 2019, 60.7% of women out if the workforce cited housework and family responsibilities as their reason for not
seeking work, compared to 3.5% of men. Source: DOS (2020)

KRI Views | Gaps in the labour market: More than just unemployment 7
The expansion of younger population out of the workforce was also corroborated by the
expansion of people citing schooling or continuing their studies as reasons they remain out of the
workforce. There was also a non-negligible rise of “waiting” to join the workforce, among people
who are currently disinterested or just completed their studies (likely to be younger individuals)
(Figure 11).

Staying out of the labour force could be a reasonable strategy for young workers —when the
economy is sluggish and the job market is tough during recession, workers can remain in or
further their education, and continue to invest in their human capital. Various training initiatives
were also introduced to help youth to upskill during COVID-19.

However, not everyone could afford to continue their studies and some might incur debt as they
further their education. They will also eventually graduate from these training programmes and
formal education, and their fate depends on whether the economy recovers from the pandemic
quickly enough. Entry into the workforce during a recession is costly, with some studies showing
loss of earnings, being locked in lower-quality jobs, as well as other negative socioeconomic
status, health and mortality outcomes 10. Moreover, if the structural issues of limited skilled jobs
for an increasingly educated workforce (i.e. SRU) is not resolved, the returns to young workers’
human capital investment will be limited.

Figure 11: Quarterly change of population outside the labour force, by quarter and reasons, 2018-2020

600,000
600 Retired/disabled

Housework
400 241
206
161
Not interested/just completed
studies
200 163 71
126
240
Going further studies
111
107 106
-22 58
0 -45
5 Schooling/training
-23
-33 -148
-56 -138
-279 Total
-200

-400
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2018-19 change 2019-20 change

DOS (2021b)

10 Nesvisky (2006); Cockx (2016); Schwandt (2019)

KRI Views | Gaps in the labour market: More than just unemployment 8
Concluding remarks

The employment consequences of COVID-19 is uneven and goes beyond just unemployment.
Policies such as wage subsidies and job search assistance, in addition to household-based income
assistance, were important to assist some unemployed workers, but not all. Underemployment
remained higher than previously recorded, even when restrictions were relaxed in the second
half of the year. More pertinently, the slight period of recovery affected workers differently.
Young workers remained to be underemployed, and employment growth concentrated on older
and presumably more experienced worker. The lack of experience, either from being unemployed
or underemployed, could have longer-term consequences on the career development of young
workers. Additionally, the rising number of women out of the workforce due to rising care needs
during the pandemic should not be ignored. If not supported by more comprehensive care
policies, the return and new entry of women into the workforce might be hindered in the long-
run.

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KRI Views | Gaps in the labour market: More than just unemployment 10