• Improvement in unemployment rate was due partly to the reopening of the economy, as some workers get back to work
• Incentives and measures introduced under Prihatin and Penjana packages and targeted loan moratorium will underpin employment growth
• Continuation of wage subsidy programme may support labor market conditions. However, unemployment rate may trend slightly higher in 4Q20.

Number of Unemployed Persons Was at 773.2k in June

Malaysia’s unemployment rate improved by 0.4 percentage points from 5.3% in May to 4.9% in June, its first decline after four consecutive months of increases. This was due partly to the re-opening of the economy, which led to resumption of business and factory operations during the month. As the economy moved from the Conditional Movement Control Order (CMCO) to the Recovery MCO (RMCO) from 10 June to 31 August, almost all economic sector have been allowed to operate, leading to some workers getting back to work. In June, the number of unemployed persons fell by 52.9k (from a rise in unemployed of 47.3k in May), ending fourth consecutive months of increases. As a result, the cumulative number of unemployed persons fell to 773.2k in June from 826.1k in May. The labour force rose by 49.5k to 15.76 million persons (+1.8k in May), improving for the second straight month. Meanwhile, the labour force participation rate (LFPR), which is the ratio of labour force to working age population rose by 0.1 percentage points to 68.1% in June (68.0% in May). Likewise, the working population increased for the first time in three months by 102.3k to 14.99mn in June from 14.89mn in May, where there was an apparent month-on-month increase in services sector for the first time since January 2020. Higher employed was registered within e-commerce activity, delivery services and information and communication technology related activities.

In the coming months, we believe the unemployment rate will likely improve further as the economy continues to reopen in the Recovery MCO phase. There has also been some improvement in SOCSO’s loss of employment (LOE) or retrenchment data, which eased in July to 14.7k from its last peak of 18.6k in June. Although the level of LOE is still elevated, the lower number of retrenchment could suggest an increase in rehiring and retention in employment as businesses resume operations. In addition, incentives implemented under Prihatin and Penjana packages will also assist employment growth. For instance, the Hiring Incentive Program and Training Assistance has resulted in a total of 7,543 employees being employed, including 5,302 employees as of 24 July compared to 5,055 employees in the previous week. Furthermore, the wage subsidy program has benefitted more than 2.58 million employees as at 24 July who have been affected by the pandemic. However, in 4Q20, there are still some concern of possible slight uptrend in unemployment rate, especially if the wage subsidy programme, scheduled to end in September 2020, has an impact on the labour market conditions. Other concerns for the labour market are that some businesses (especially those in tourism related industries) are still negatively impacted by Covid-19. Similarly, some businesses that are not allowed to operate at full capacity in order to comply with standard operating procedures may also refrain from increasing hiring in an effort to lower costs.

Source: Affin Hwang Research - 10 Aug 2020