DISCUSSION PAPER 10/20 | 10 AUGUST 2020

Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia

Hawati Abdul Hamid and Nur Thuraya Sazali

Khazanah Research Institute

KRI Discussion Papers are a series of research documents by the author(s) discussing and examining pressing and emerging issues. They are stand-alone products published to stimulate discussion and contribute to public discourse. In that respect, readers are encouraged to submit their comments directly to the authors.

The views and opinions expressed are those of the author and may not necessarily represent the official views of KRI. All errors remain authors’ own.

DISCUSSION PAPER 10/20 | 10 AUGUST 2020

Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia

This discussion paper is prepared by Hawati Abdul Hamid and Nur Thuraya Sazali, researchers at Khazanah Research Institute (KRI). The authors are grateful for the valuable comments from Dr Lim Lin Lean, Datuk Dr Norma Mansor from University of Malaya, Muhammad Farqani Mohd Noor from Social Security Organisation (SOCSO), and Siti Aiysyah Tumin and Ahmad Ashraf Ahmad Shaharudin from KRI. The authors also thank Shariman Arif Mohamad Yusof and Amos Tong Huai En for their excellent assistance. Our special gratitude to Employees Provident Fund (EPF) and SOCSO for their support and assistance.

Authors’ email address: hawati. [email protected] and [email protected]

Attribution – Please cite the work as follows: Hawati Abdul Hamid and Nur Thuraya Sazali. 2020. Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia. Kuala Lumpur: Khazanah Research Institute. License: Creative Commons Attribution CC BY 3.0.

Translations – If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by Khazanah Research Institute and should not be considered an official Khazanah Research Institute translation. Khazanah Research Institute shall not be liable for any content or error in this translation.

Information on Khazanah Research Institute publications and digital products can be found at www.KRInstitute.org.

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 2 Abbreviations

Act 4 : Employee's Social Security Act 1969 Act 789 : Self-Employment Social Security Act 2017 Act 800 : Employment Insurance System Act 2017 CAGR : Compounded Annual Growth Rate DOS : Department of Statistics, Malaysia EIS : Employment Insurance Scheme EPF : Employees Provident Fund KWAP : Kumpulan Wang Persaraan Diperbadankan LFS : Labour Force Survey LHS : Left-hand side LTAT : Lembaga Tabung Angkatan Tentera MWFCD : Ministry of Women, Family, and Community Development MEDAC : Ministry of Entrepreneur Development and Cooperatives MOF : Ministry of Finance MOHR : Ministry of Human Resource MWFCD : Ministry of Women, Family, and Community Development PPA : Private Pension Administrator Malaysia PRS : Private retirement scheme RELA : Malaysian Volunteer Corps Department RHS : Right-hand side SESS : Self-Employment Social Security SDGs : Sustainable Development Goals SOCSO : Social Security Organisation SWS : Salaries and Wages Survey

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 3

DISCUSSION PAPER 10/20 | 10 AUGUST 2020 Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia

Hawati Abdul Hamid and Nur Thuraya Sazali

Executive Summary

• This discussion paper studies both informal employment (workers without social protection) and non-standard employment (workers without full-time jobs) to elucidate the characteristics and trend of jobs outside the formal and standard regulatory framework in Malaysia.

• In the past, informality is often understood to exist outside the formal sector and regulatory boundary, but informality has increasingly been found within the formal sector due to a process referred as the “informalisation” of jobs with workers may not enjoy all legally- mandated benefits and social protections through their employment.

• The 2019 statistic of 8.3% of workers in the informal sector is argued to underestimate the true extent of informality as it only covers firm-based informality or workers working with unregistered firms, not worker-based informality or workers without social protection (i.e. informal employment). A directly measured worker-based informality figure is only available in the latest Informal Sector Survey Report, suggesting that the number of informal workers was 2.5 million or 16.8% of total employment in 2019.

• As only 2017 and 2019 datapoints are available, to assess long-term trends, worker-based informality is deduced by estimating the gaps in workers’ participation in statutory social protection schemes, namely the retirement savings through the Employees Provident Fund (EPF), social insurance schemes by the Social Security Organisation (SOCSO) as well as government-funded employment and pension schemes for civil servants.

• The incidence of worker-based informality is found to be higher when informal employment is estimated based on the number of workers without retirement arrangements and society security protections, i.e. at 38% and 34% of total employment respectively. This means that the number of workers with a lack of social protection is around four times higher than the statistics on workers in (unregistered) informal sector.

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 4 • Although the share of worker-based informality has fallen recently, its longer-term trend has remained rather flat. Notwithstanding the expansion of our economy and labour market, the percentage of employers (over total employment) contributing to the schemes have deteriorated in recent years from about 4% in 2008 to 3% in 2019. From workers’ standapoint, the contributing workers as a percentage of total employment has remained stagnant for the same period.

• The estimated worker-based informality, however, cannot be further disaggregated by socio-economic characteristics. To overcome this shortcoming, we utilised the information from the Salaries and Wages Survey Report to estimate the size of non-standard employment and capture the socio-demographic composition of non-standard workers.

• Although non-standard workers are not identical to informal workers, they both typically experience similar deficits in decent work, with largely similar social protection policy implications. Non-standard employment offers quick hiring and flexibility, yet it also tends to have a higher concentration of precarious jobs that are unsecured, some with more random work arrangements.

• While non-standard employment such as part-time jobs and freelancing have long existed, new forms of non-standard employment are emerging, contributed by the rise of “sharing” or “gig” economy where digital plaforms have enabled a more effective matching of labour demand and supply.

• Limited to Malaysian workers, we found that non-standard employment is more prominent among older (over 60 year), rural, semi-skilled, and agricultural workers with no formal education. This sociodemographic profile is also consistent with the characteristics of informal workers for countries in the South-Eastern Asian and the Pacific reported in the 2018 ILO Informal Economy report. Yet, it is observed that the growth of non-standard employment has been faster among urban, female, tertiary-educated and sales and services workers.

• As a subset of non-standard employment, part-time employment (defined as working less than 30 hours per week) has seen a substantial decline over the years. Yet, more part-time workers cited insufficient work as the main reason for working less hours, signalling unmet employment needs among part-timers. Groups within the labour market where part-time employment is more prevalent include workers who are female, living in rural areas and working in the agricultural sector.

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 5 • In essence, while the “salariats” or salaried workers with standard full-time jobs in the formal sector remain the dominant form of employment in Malaysia (about 70% of total employment), new forms of “precariats” are emerging and its traditional form continue to persist. Informal and non-standard employment may offer flexibility, but for many this can be at the expense of job stability, undermining the economic and social security of a number of our workforce. The emerging growth patterns may signal a rising hiring preference for non-standard workers even for jobs that typically offer standard full-time employment.

• As most social protection schemes in Malaysia are built around standard employment relationship, non-standard employment increases the chances of workers not to be covered or not fully protected by these schemes. This means that some workers in non-standard work arrangements may also be exposed to the risk of informality. Rapid informalisation of jobs and encroachment of non-standard jobs on traditional full-time jobs if left uncheck could pose a challenge to the Malaysian social protection system as contributions to statutory schemes are typically enforce via employment relationships.

• The adverse effects of job informalisation on workers are manifested amid the Covid-19 pandemic. Early findings on the Covid-19 impacts on livelihoods corroborate the vulnerable state of informal and non-standard workers. Without access to employment- related safety net, these vulnerable workers are becoming more vulnerable. This pandemic underscores the pressing need to better ensure workers in Malaysia to be more resilient now and into the future.

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 6

1. Introduction

This paper is published as part of Khazanah Research Institute’s (KRI) study on social protection and informal and non-standard employment in Malaysia. Our first discussion paper, “The Demise of Formal Employment? – A Literature Update on Informality” reviews the existing knowledge on the subject, relevant debates and potential policy implications. It also discusses the evolution of the measurement of informality and how informality has evolved over time.

Presently, the widely understood and officially measured concept of informality in Malaysia is limited to employment in unregistered establishments, often referred to as workers in the informal sector. Our second discussion paper, “Unregistered and “Invisible”: Workers in Malaysia’s Informal Sector”, focuses on the concept of firm-based informality as defined by the registration status of the enterprises. The paper provides key trend analyses on employment in the informal sector (excluding agriculture activities), highlighting its fast pace of expansion in recent years. Several deficiencies of this approach in understanding the true extent of informality are also discussed.

While informality is often understood to exist outside the formal sector and regulatory boundary in the past, this form of employment has increasingly been found within the formal sector due to a process referred to as the “informalisation” of jobs. This third discussion paper, “Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia”, focuses on the concept of worker-based informality, defined as workers who do not get ample legally-mandated benefits such as paid leave (rest, sick and maternity) and other forms of social protection through their employment1. These deficits experienced by the workforce are largely underestimated under the firm-based approach and could result in misperception of the labour market structure and conditions of the workforce.

Additionally, the paper discusses non-standard employment in Malaysia, defined as workers without the regular full-time jobs and the standard employer-employee relationship. While there are diverse forms of non-standard employment, this type of work arrangement is relatively more unstable and “precarious”, with workers bound to face similar deficits in decent work as in informal employment. This employment precarity is in parallel with what Guy Standing refers to as the “precariat”. First used by French sociologists in the 1980s, the precariat describes persons “working precariously, usually in series of short-term jobs, without recourse to stable occupational identities or careers, stable social protection or protective regulations relevant to them”2. Standing argues that the precariat has been expanding amid the shrinking of the “salariat”, a term originated in the 1900s for salaried workers who enjoy employment security and employee benefits like paid leave and retirement savings3.

1 For discussion on the differences between firm-based, employment-based and informal economy refer Nur Thuraya Sazali and Tan Zhai Gen (2019). 2 Standing (2011) 3 Ibid.

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 7 If left unchecked, the rapid informalisation of jobs and encroachment of non-standard jobs on traditional full-time jobs could pose a challenge to the Malaysian social protection system as many schemes are typically built around standard employment relationships. Hence, it is important to cautiously monitor this development especially if the “salariats” or salaried workers with standard work arrangements are increasingly being replaced by the “precariats” or non-salaried workers with non-standard work arrangements that are more flexible but unsecured.

For ease of reference, the terms used in this paper are succinctly outlined below. Note that the meanings and uses of these terms are distinct and they are not necessarily interchangeable.

Table 1.1: Commonly used terms

Term Description Workers without social protection (e.g. retirement fund, employment injury Informal employment insurance, etc.) Referred as “worker-based informality” Non-standard Workers without permanent, full-time jobs employment Unregistered firms Informal sector Referred as “firm-based informality” Workers whose salaries are fixed and paid regularly (typically on monthly basis). Salariat They typically hold formal and standard jobs Referred as “salaried worker” Workers whose employment and income are unsecured. They typically hold informal Precariat and non-standard jobs Referred as “non-salaried worker”

Source: Authors’ descriptions

2. Decent work and quality of jobs

The performance of the Malaysian economy has been generally impressive by international standards. Sustained economic growths were achieved over the past years and were initially pursued via agricultural diversification and import-substitution policies. The nation then underwent industrialisation in the 1970s before evolving into a service-based economy from the 2000s. The diversification into manufacturing and services not only provided new sources of growth, but also created more jobs and opportunities for the population to earn higher incomes.

The transformation of the economic structure has significantly changed the sectoral employment compositions, from agriculture to manufacturing and services. In 1970, half of the labour force worked in agriculture, while another 32.5% and 14.0% worked in services and industry respectively4. By 2019, these shares had changed, with 61.8% in services, 27.9% in industry, and only 10.2% in agriculture5. Although not spared from the effects of several global economic crises, Malaysia’s economic growth has generally been supported by conducive macroeconomic environments with low unemployment, low inflation and a stable currency6. A long-term view

4 Hawati Abdul Hamid et al. (2019) 5 DOS (2020c), ibid., DOS (2020d) 6 Nations Encyclopedia (2020)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 8 indicates that the Malaysian labour market is stable and functioning close to full employment. The unemployment rate was relatively higher in the 1980s, peaking at 7.4% in 1986 amid the1985/86 commodity price shock7. However, since the 1990s, the rate has come down to hover around 3.3%. Positive developments can be seen in terms of a growing share of skilled workers (from 15.2% in 2000 to 27.5% in 2019), increasing labour productivity (from 17,585 US dollar per capita in 2000 to 25,866 US dollar per capita in 2019), and declining number of workers living in poverty (from 1.04% in 2000 to 0.02% in 2019)8.

However, these macro labour market indicators may not adequately capture the reality on the ground. In the context of decent work, quality of employment involves looking beyond the quantitative measures. Apart from emphasising the importance of full and productive employment, the International Labour Organization’s (ILO) Decent Work Agenda outlines another three strategic pillars of “good work”, namely: (1) adequacy of social protection (2) rights at work and (3) promotion of social dialogue9, with non-discrimination or promotion of equality as a cross-cutting objective10.

Hence, although the unemployment rate and other existing headline employment statistics continue to be important indicators of the labour market performance, they could not provide a complete picture of labour market conditions as the quality of employment is largely left unchecked by these measures. For example, even if the majority of working age population are employed in some form of economic activity, many could be working in poor working conditions with insufficient social safety nets such as employment injury protection, unemployment insurance and old-age savings.

While standard full-time jobs remain the dominant form of employment, accounting for more than 70.0% of jobs, informality and non-standard employment continue to persist (if not rising), undermining the economic and social security of a number of our workforce. Notably, the household income data shows that the income from paid employment has steadily fallen from 66.6% in 2012 to 61.6% in 2019, although it continues to be the largest source of income11. However, the share of income from self employment had remained flat at around 17.0% during the same period despite the increasing number from below 2.0 million in 2011 and the prior years, to 2.7 million in 2019. In fact, the self employment income as a share of total household income shrank from 17.2% in 2012 to 15.6% in 2016, before gaining the share of 17.3% again in 2019. This raises the question of whether the self-employed workers were oppropriately compensated with decent earnings12 in tandem with the rise in their numbers.

7 DOS (2020c) 8 Nur Thuraya Sazali and Siti Aiysyah Tumin (2020) 9 Social dialogue includes all types of negotiation, consultation or simply exchange of information between, or among, representatives of governments, employers and workers, on issues of common interest relating to economic and social policy. Source: ILO (n.d-b) 10 ILO (2013a) 11 DOS (2020a) 12 There is no authoritative defintion for a decent earning and it is often used to refer a living wage that affords one a minimum acceptable standard of living. A living wage is typically higher than a legally mandated minimum wage or a minimum level of renumeration. See Nur Thuraya Sazali and Siti Aiysyah Tumin (2020)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 9 At the back of the above-mentioned developments, several mega trends are taking place at the global and local levels. For instance, the expansion of global value chains has led to the growth of employment in the informal economy via hidden and often multi-party employment relationships that have gone largely unrecognised under the existing labour laws and social protection system13. Meanwhile, the rapid growth of digital technology has spurred the “gig” economy that offers specialised and non-specialised jobs via digital online platforms, yet without the standard employer-employee relationship14. In Malaysia, government initiatives to inculcate entrepreneurship culture as a strategy to address unemployment and drive economic growth could explain the rise of self-employment or one-person enterprises and small business start- ups15.

The interactions between technological development, globalisation and socioeconomic policies have accelerated a structural change in the economy, resulting in a changing working environment and new forms of employment. Subsequently, these changes pose a challenge to the social protection systems, especially those that are “employer-tied” to cope with these fast emerging trends. Understanding how the emerging trends are changing the nature of jobs becomes key in assessing whether workers are having productive and quality jobs and for policies to adapt to ensure no workers are left behind.

3. Consequences of informal and non-standard employment

Informal and non-standard employment have several key advantages in facilitating labour mobility and flexibility, which can be beneficial to both employers and workers. For employers, the flexibility allows them to remain agile in adapting to changing demands. For workers, informal employment may lower the barrier to entry and may temporarily make up for income loss during an economic contraction, while non-standard employment provides them with working flexibility and autonomy16.

Nonetheless, informality and non-standard employment also pose risks to individuals, firms, governments and societies. Firstly, informal employment exposes individual workers to decent work deficit17 due to lack of regulatory oversights. It is also harder for the government to reach and provide them with the necessary assistance as they are largely “invisible” for not being part of the formal system. While non-standard employment (such as part-time and digital platform jobs) provides flexibility in terms of where, when and how much to work, it may come at the cost of increased working hours and blurred the boundaries between work and personal life. From a social protection standpoint, the core concerns of the informal and non-standard employment arrangements centre around the lack of economic and social security of the workers as they are

13 ILO (2016) 14 Ibid. 15 MEDAC (2020) 16 See Nur Thuraya Sazali and Tan Zhai Gen (2019) for further details 17 The decent work deficit here refers to “the absence of sufficient employment opportunities, inadequate social protection, the denial of rights at work and shortcomings in social dialogue” and it provides “a measure of the gap between the world that we work in and the hopes people have for a better life.” Source: ILO (n.d-a)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 10 more likely to be left out of the social security system compared to those in the formal and standard employment. Additionally, a lack of participation in retirement plans that could maintain living standards well after the working age is more likely to be prevalent among informal and non-standard workers than formal and standard workers.

Secondly, unregistered firms face challenges in securing financing from financial institutions and accessing public services and infrastructure. Subsequently, these challenges affect the firms’ productivity, resilience and continuity. On the other hand, informal firms can be viewed as an unfair competition to formal firms as they do not bear typical regulatory costs. Yet, many informal firms like unregistered own account workers still have to pay other types of taxes and fees to operate18. In some cases, informal firms are also found to complement, not compete with, formal firms by providing intermediate goods and services19.

Thirdly, a higher incidence of informal and non-standard employment means less income tax revenue for the government, which would restrict spending on public goods and limit governments’ redistribution functions, undermining inclusive development. It is more likely for workers with informal and non-standard working arrangements to be reliant on the state non- contributory welfare assistance since they often lack access to employment-related health and contingency benefits and receive low or no employer’s contribution to retirement savings. Subsequently, on a net basis the society as a whole would have less than optimal living standards.

4. Informality in Malaysian labour market

4.1. Malaysia’s (firm-based) informal sector

The Department of Statistics Malaysia (DOS) has been publishing employment statistics for the informal sector using the firm-based concept in the biannual Informal Sector Workforce Survey20. Here, informality is assessed based on the registration status of the entity that the workers work for. Workers are considered informal if the firm or the employer that hire them are profit- oriented, not registered with the Companies Commission of Malaysia or local government or professional bodies and had less than ten workers. Workers in agricultural activities and government employees are, however, excluded from the survey due to sampling demands and operational complexity of surveys of agricultural activities21.

In 2019, 1.26 million workers were recorded to be working in the informal sector, making up 8.3% of the total employment22. Employment in the sector was trending up between 2010 and 2015 with the number of workers rising from 0.95 million to 1.4 million. However, the number have been trending down since 2015, declining by 146,900 workers to 1.26 million in 2019.

18 WIEGO (2015) 19 Ibid. 20 Between 2010 and 2013, the Informal Sector Workforce Survey was conducted annually. Since 2013, the survey has been conducted biennially. Statistics for 2010 was available in the dataset for 2015 but data was limited to aggregation in certain categories only. 21 See ILO (2013b) page 98 – 102 for further details. 22DOS (2020b)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 11 Between 2011 and 2019, at 2.9% CAGR, employment in the informal sector grew marginally faster than the total employment and the employment in non-agricultural sector (2.5% and 2.7% respectively).

With less than 10.0% of total employment, informality in Malaysia appears to be small. As a comparison, the ILO estimated that informal employment accounted for more than half of the total global employment (61.2%), while the estimate for developing and emerging countries is even higher at 69.6%23. The huge difference between Malaysia’s informal sector and the global average largely stems from the exclusion of agriculture activities and the adoption of a narrow definition of firm-based informality that did not include informal employment that could reside within the formal sector, further rendering cross country comparison unfeasible. While the incidence of decent work deficit as well as economic and social insecurity of these workers can be high, similar deficits faced by workers residing in the formal or registered setting are not accounted for.

The low incidence of informality as reported by the official statistics is also not congruent with the types of firm operating in Malaysia. Statistics in Box Article 1 shows that the number of medium and large enterprises in Malaysia is small (in 2015, only 3.7% of the total establishment). A notable three-quarters of the remaining establishments were micro enterprises and another 20.9% were classified as small. From a legal status standpoint, 60.3% of all establishments operated as sole proprietorships and 6.7% were partnership. The fact that a very large proportion of enterprises in the country are micro and small enterprises and are individually owned raises questions to whether these enterprises are able to provide formal employment for their workers (characterised by adequate provision of employment protections and benefits).

23 ILO (2018b)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 12

Box Article 1: Firms in the formal private sector in Malaysia

Based on the latest available data, i.e. the Economic Census conducted in 2016 (reference year 2015), the number of formally registered firms increased 7.3% annually from 648,260 in 2010 to 920,624 in 2015.

Figure 1 shows that the number of micro enterprises was considerably high, comprising 75.2% of the total number of establishments, followed by small enterprises (20.9%). Together, small and micro enterprises employed 42.5% of the total workers. Large firms comprised only 1.5% of the total share, yet they employed 35.7% of the total workers in what is considered the formal private sector in Malaysia. In terms of contributions to value- added, large firms commanded more than half of the share despite being small in number, while the remaining share was shared among micro, small and medium enterprises (SMEs)24.

Figure 1: Share of establishment, workers engaged and value added, by establishment size, 2015

RM983.1mil 920,624 8.7mil 1% 100% 2% 90% 21% Large 80% 35% 70% 57% 60% 16% Medium 50% Small 40% 15% 75% 27% 30% 20% 20% Micro 10% 22% 8% 0% Value added Number of Number of workers establishments engaged

Source: Authors’ calculations based on DOS (2016)

In terms of the legal status of the firms, the share of sole proprietors (individual entrepreneurs) was notably large at 60.3% of total number of establishment yet employing only 21.9% of the total workers. A large proportion of the workers (66.3%) was employed by private limited companies who made up almost one-third of the total number of establishments (Figure 2).

24 Definition of SMEs Manufacturing: Sales turnover not exceeding RM50 million OR full-time employees not exceeding 200 workers. Services and Other Sectors: Sales turnover not exceeding RM20 million OR full-time employees not exceeding 75 workers. Source: SME Corp. (2020)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 13 Figure 2: Share of establishment and workers engaged, by establishment legal status, 2015

920,624 8.7mil 100% 90% 22% 80% 5% Sole proprietorship 70% 60% 60% Partnership 50% Private limited companies 40% 66% 7% Public limited companies 30% Others 20% 29% 10% 1% 3% 6% 1% 0% Number of establishments Number of workers engaged

Source: Authors’ calculations based on DOS (2016)

Looking across the key economic sectors, Figure 3 shows that firms in Malaysia were highly concentrated in the services sector, accounting for almost 90% of the total number of firms and employing slightly more than half of the total workers. Meanwhile, the proportion of firms involved in manufacturing and construction sectors was around 5.0% each. Although the number of firms in these two sectors was relatively lower, together they employed close to 40% of the “formal” workforce.

Figure 3: Share of establishment and workers engaged, by economic sector, 2015

920,624 8.7mil 100% 90%

80% Services 70% 55% Construction 60% 89% Manufacturing 50% Mining & quarrying 40% 15% 30% Agriculture 20% 24% 10% 4% 5% 0% 5% Number of establishments Number of workers engaged

Source: Authors’ calculations based on DOS (2016)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 14 4.2. Estimates of Malaysia’s worker-based informality

Arguably, the data from the Informal Sector Workforce Surveys is insufficient to show the true extent of informality in Malaysia as the emphasis was only placed on the registration status of the firms. Although the exact number of unregistered firms is largely unknown, the country’s effort to enhance its “ease of doing business” has made it easier for enterprises, small or large, to be registered25. This hints to the fact that an increasing number of businesses may have come on board to get themselves registered, contributing to a lesser number of the unregistered ones.

Moreover, besides registrations with the national business registration authority, i.e. the Companies Commission of Malaysia, registrations with local authorities and professional bodies are also considered as being in the formal sector. Traditional informal sector activities such as street hawkers and night market traders, to some extent, are well regulated at the local authority level. The inclusion of employment in these kinds of establishments as part of the formal sector would have trimmed the size of the informal sector further. Yet, it is arguable whether employment in these types of activities would fulfil the standard features of formal employment, characterised by decent working conditions and adequate social protection.

As part of the Decent Work Agenda, the ILO has been promoting for a broader concept of informality, emphasising the worker-based approach26. Workers are considered to have informal jobs if their employment arrangements, in law or in practice, are not subjected to national labour legislation and tax policies, not covered by a formal social protection system or not entitled to certain employment benefits such as paid leaves and medical insurance.

Measuring informality based on the characteristics above using data collection methods requires granularity in the design of survey questionnaires since the emphasis should be placed on measuring the actual employment situation (de facto) than the legal entitlement (de jure)27. Undeniably, the process can be demanding and costly, which may explain the slow adoption of the ILO recommendation in full by some countries, although currently more than 100 have data on informal employment28.Although Malaysia is currently not among the countries covered in the ILOSTAT harmonised database on informal employment, the Department of Statistics is now in progress to develop a full framework of informal employment comprising of workers in both informal and formal enterprises as well as households.

The latest publication of the Informal Sector Workforce Survey Report for 2019 has provided the directly measured worker-based informality statistics. It suggests that the number of informal workers was 2.5 million or 16.8% of total employment in 2019. However, socio-economic breakdown is currently not available, and the absence of past data renders trend analysis not possible. Similar to the informal sector coverage, the reported informal employment also excludes workers in the agricultural sector.

25 World Bank (2020a) 26 ILO (2002) 27 Nur Thuraya Sazali and Tan Zhai Gen (2019) 28 ILO (2018b)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 15 Self-employment and unpaid family workers

In light of data scarcity, one of the intermediate approaches proposed by the ILO is to estimate informality based on the information of employment status already available in the Labour Force Survey. In this regard, the number of informal workers can be deduced by looking at the statistics of workers in the following categories29:

i. Self-employed workers working for their own enterprises (or own account workers as defined by DOS) ii. Unpaid family workers, regardless of whether they work for a registered or unregistered enterprise

The underpinning reason that these two groups are given attention is because they are often considered as more vulnerable forms of employment, with workers typically not having formal working arrangements, hence are more likely to suffer from decent work deficits30. Additionally, participation in social protection schemes can be highly voluntary in nature, while the majority of existing schemes are enforced upon the employing firms via the relationship of employees with their workers.

Based on this classification, Figure 4 shows that 3.3 million workers or 21.9% of total employment in 2019 can be considered as informal. Longer time series data in Figure 5 shows that informality when measure via this definition is declining, with the share of self-employed and unpaid family workers as percentage of total employment falling from 33.7% to 21.9% between 1982 and 2019. However, when broken down further, it can be seen that the shrinking in the share was largely contributed by the decline in the unpaid family workers’ share that has fallen from 11.6% to 3.8%. Self-employment, despite the past declining trajectory when viewed over a longer time horizon, has trended up in recent years. For example, the share of self- employed alone has risen from the lowest point of 15.6% in 2003 to 18.1% in 2019, mirroring the shares in the late 1980s and early 1990s. This alludes that while the traditional forms of informality continue to persist, new forms of work and informality is emerging in the labour market.

29 For detailed descriptions see ILO (2013b). Informal employment outside the informal sector includes informal paid domestic workers and persons engaged in unpaid production of goods exclusively for own final use and volunteer workers, if included in employment. It also includes informal employees working for formal sector enterprises. In other words, informal employment outside the informal sector includes the phenomenon of informalisation of labour relationship. Concern is focused on the flexibility and unprotected nature of the employment contract rather than on the type of activity or economic unit. 30 ILO (2018a)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 16 Figure 4: Number of workers by employment Figure 5: Share of workers by employment status, status, 2019 1982 – 2019

16.0 mil 90% 40% Employer & employee [LHS] 14.0 80% 35% 3.3 22% 34% 78% 12.0 70% 30% 60% 66% 10.0 Informal [RHS] 25% 23% 8.0 50% 22% 15.1 20% 40% 18% 6.0 11.8 15% 30% Self-employed [RHS] 4.0 11% 20% 10% 2.0 10% 5% 0.0 4% Unpaid family worker [RHS] Total Employer & Informal 0% 0% Employment employee (Self-employed

& unpaid family

2002 1985 1988 1992 1996 1999 2005 2008 2011 2014 2017 worker) 1982

Source: Authors’ calculations based on DOS (2020c)

Recent trends based on gender and age dimension are worth mentioning. Figure 6 shows that the number of self-employed workers stood at 1.7 million for men and 1.0 million for women, representing around 18% of each gender’s employment. However, the share of women in self- employment has grown more rapidly compared to men. Figure 7 shows that despite the recent dip, the share of self-employment among women has increased by 5.6 percentage points (or 4.3% CAGR) from 12.1% to 17.7% between 2010 and 2019. In comparison, during the same period, the share of self-employment among men has shrunk by -1.8 percentage points (or -1.1% CAGR) from 20.1% to 18.3%. Considering many women are working in the informal unpaid care and doing household work, this trend amplifies the fact that more and more working-age women are working (regardless of paid or unpaid) but without formal social protection coverage.

Figure 6: Number of self-employed workers by Figure 7: Share of self-employed workers by sex, sex, 2019 2010 – 2019

30% 16.0mil Unpaid 14.0 25% 2.7 family 20.1% worker Male (CAGR = -1.1%) 18.3% 12.0 20% Own 10.0 account 15% 17.7% 8.0 1.7 worker Female (CAGR = 4.3%) Employee 10% 6.0 11.2 12.1% 1.0 4.0 6.9 5% Employer 4.4 2.0 0% 0.1

0.0 0.6 0.5

2011 2012 2013 2014 2015 2016 2017 2018 2019 Total Male Female 2010

Source: Authors’ calculations based on DOS (2020c)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 17 The prevalence of self-employment also increases as workers aged. For example, half of the workforce aged 60 – 64 years were self-employed in 2019, while the share was lower among younger workers (Figure 8). This is not surprising considering that the mandatory retirement age in Malaysia is 60 years old. However, over the last 10 years or so, self-employment has grown more rapidly among the younger age groups. For instance, self-employment increased by 12.5% and 9.6% CAGR for 15 – 19 years old workers and 20 – 24 years old workers respectively (Figure 9). This may be attributed to the entrepreneurial desire to run their own business or simply due to the flexibility of self-employment and freelancing that may be more valued by the younger generation. However, we should also be cautious if the trend arises due to lack of employment opportunities and young workers settling with more random working arrangements which can be precarious in nature.

Figure 8: Share of self-employed workers vs Figure 9: Compound annual growth rate of the others by age group, 2019 share of self-employed workers by age group, 2010 – 2019

100% 60 - 64 2.6 90 55 - 59 2.7 80 50 - 54 2.6 70 Others 45 - 49 1.0 60 40 - 44 0.7 50 35 - 39 4.0 40 48 30 - 34 6.6 30 33 25 - 29 8.0 20 27 22 20 - 24 9.6 10 18 16 19 13 12 12 15 Self-employed 15 - 19 12.5 0 Total 4.0

Total 0% 5 10 15

20 - 24 - 20 29 - 25 34 - 30 39 - 35 44 - 40 49 - 45 54 - 50 59 - 55 64 - 60 15 - 19 - 15

Source: Authors’ calculations based on DOS (2020d) Source: Authors’ calculations based on DOS (various years- b)

Workers without formal social protection

Beyond the self-employed and unpaid family workers, workers hired by an employer31 are considered to have informal jobs if their employment relationship is, in law or in practice, not subject to national labour legislation, income taxation, social protection or if they are excluded from certain employment-related benefits such as paid annual, sick and maternity leaves.

This means that informality can exist and is increasingly found within the formal sector. This phenomenon is commonly referred to as the “informalisation” of jobs. While most employees in registered firms are considered to be working in the formal sector, workers who are inadequately covered with social protection benefits (either employer-sponsored, a joint contribution from

31 These are those who are classificed as employees in the Labour Force Report

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 18 employer and employee, or voluntary self-contribution) are considered to have informal jobs. This is despite the hiring firms are formally registered with the relevant authorities. In addition, non-standard working arrangements such as temporary, part-time and casual work without a clear employer-employee relationship could also render some non-standard workers informal when their employment is not covered with social protection benefits.

To account for these forms of informalisation and in the absence of granular data, a deductive approach can be used to indirectly estimate the extent of informal employment that could exist in both the formal and informal sectors. This is done by calculating the discrepancy between total employment and formal employment (defined by workers covered by social protection schemes).

In the Malaysian context, information on contributions to statutory social protection schemes can be used as a proxy for workers in formal employment (See Box Article 2). This would help differentiate workers with and without the typical employment-tied protections assuming other benefits such as entitlement for paid annual, medical and maternity leaves are well covered by the employers once the contributions to these employment schemes are provided accordingly32.

32 It also important to note that while one of the subsequent statistics focus on the coverage of retirement savings among workers, having a retirement saving account does not guarantee enough savings for old age. Indeed, the issue of inadequate retirement savings among EPF members has been well documented and has received considerable attention in recent policy discourses. See Adam Firouz (2020) and World Bank (2020b)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 19

Box Article 2: Social protection system for workers in Malaysia

Malaysia has a combination of legislative-based contributory and non-contributory social protection system aiming to protect Malaysian workers during and after the working age. The system can generally be classified as (1) social insurance, (2) social assistance and (3) other labour market related regulations and policies. Separate schemes are operated by different social protection institutions to manage the programmes for workers in the private and public sectors.

1. Social insurance

The schemes can be categorised based on the types of risks they intend to cover. For the private sector workers, protections against employment-related risks during their working age are managed by the Social Security Organisation (SOCSO). The schemes under SOCSO provide protection against work-related injury including occupational diseases and commuting accidents, as well as invalidity or death due to any cause outside working hours and not related to employment. Both schemes provide cash benefits to workers and their dependants in the event of unforeseen incidents, in addition to providing medical treatment, physical rehabilitation or vocational training.

Additionally, SOCSO’s Employment Insurance System (EIS) provides protection to workers who have lost their jobs through income replacement, reskilling and upskilling training allowances to enhance their employability as well as employment services so that they can transition to other suitable jobs faster33.

For civil servants, similar work-related injury protection is covered under the Ex-Gratia Bencana Kerja scheme overseen by the Ministry of Finance. The benefits under the scheme involve a lump sum and/or monthly payments for work-related accidents resulting in permanent disability. If the accident leads to death, the ex-gratia payments will be made to the family members or eligible dependents. Besides that, civil servants are also entitled to disability pension under the pension scheme if they could not work due to injury or contacting a disease while performing official duty.

For old-age contingencies, a defined-contribution pension scheme is managed by the Employees Provident Fund (EPF). Contributors of the EPF are mostly workers in the private sector, non-pensionable public sector employees and voluntary contributors such as self- employed workers and business owners.

33 SOCSO (2020a)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 20 The civil servants have a defined-benefit pension scheme administered by the Public Service Department together with Kumpulan Wang Persaraan Diperbadankan (KWAP). Another similar agency is the Lembaga Tabung Angkatan Tentera (LTAT) that provides a pre- and post-retirement benefit and other benefits to members in the armed forces. The pension benefits also extend to a deceased pensioner's dependants if they passed away either while still in the Government service or after retirement.

A private retirement scheme (PRS) is also available for private and public sector workers but participation and contribution are voluntary. This scheme is administered by the Private Pension Administrator Malaysia (PPA).

2. Social assistance

Besides the social security schemes that are instituted legislatively above, Malaysia also has non-contributory safety nets, or social assistance programmes without legal basis, mostly targeting low-income and vulnerable groups. Vulnerable workers could be entitled to direct transfers to protect them from falling into poverty. Examples of the programmes include assistance for paddy farmers, fishermen and rubber tappers as well as allowance for disabled workers, single mothers and members of Malaysian Volunteer Corps Department (RELA). Ministries and agencies administering these programmes include the Ministry of Women, Family, and Community Development (MWFCD), Ministry of Agriculture the Ministry of Rural Development and the zakat institutions.

3. Labour market regulations and policies

Beyond social insurance and assistance schemes, most matters affecting the labour market are governed in accordance with various laws, with the Ministry of Human Resource (MOHR) being the principal responsible agency. These include matters pertaining the minimum wage, working hours, leave, termination and lay-off benefits, industrial relation and occupational health and safety.

Additionally, active labour market programmes (ALMPs) are also implemented by the related ministries, including but not limited to the MOHR and the Ministry of Entrepreneur Development and Cooperatives (MEDAC), as part of promotive measures to enhance productivity, build resilience and safeguard the population against potential vulnerabilities. The main purpose of active labour market policies is to intervene in the labour market to help the unemployed find jobs—as distinguished from passive policies (income support). The main types of ALMPs are employment services, training schemes and employment subsidies.

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 21 Estimation via the indirect method using administrative data shows that the incidence of worker- based informality goes up even higher to around 40.0% compared to the informal sector employment (8.3%) and the preceding estimates based on self-employment and unpaid family workers (21.9%) for 2019. Figure 10 shows that there were 5.9 million workers or 38.9% of total employment, without retirement arrangements that could protect them against the old-age risks. Meanwhile, the number of workers without protection for work-related accidents were 5.2 million or 34.2% of total employment34 (Figure 11).

Figure 10: Number of workers covered and Figure 11: Number of workers covered and uncovered with retirement arrangements, 2019 uncovered with employment social security, 2019

16mil 16 mil 14 14 12 5.9 39% 5.2 12 34% 10 10 Public Public 8 1.6 1.6 8 15.1 15.1 6 6 Private Private 4 4 7.6 8.3 2 2

0 0 Total With Informal Total With social Informal employment retirement (without employment security (without social arrangements retirement security) arrangements)

Source: Authors’ calculations based on DOS (2020d), EPF Source: Authors’ calculations based on DOS (2020d), (2020) and PSD (2020) SOCSO (2020b) and PSD (2020)

Note: 1.6 million public sector workers refer to the actual number of individuals filling public posts (i.e. pengisian), not the total public posts (i.e. penjawatan). This figure covers both civil servants and the armed forces. Private sector workers refer to EPF/SOCSO active individual members who made at least one contribution or more in 2019. Private sector workers for SOCSO covers the number of active contributing employees under the Employment Injuries Scheme and Invalidity Scheme (Act 4) for both citizens and non-citizens

A longer time trend indicates that worker-based informality increased quite considerably between 2005 and 2015. For example, Figure 12 shows that the number of workers unprotected by social security insurance increased by 2.1 million or rose 55.5% during the 10-year period, compared to total employment which has increased slightly lower by 40.0%. In recent years, the incidence of informality is observed to improve only marginally. The notable decline of workers without social security (45.8% in 2015 to 34.2% in 2019) can be explained by expansion of coverage by these schemes under Act 4 to include non-citizens in 2019. As a proportion of total

34 This was estimated using the number of active contributing employees under the Employment Injuries Scheme and Invalidity Scheme (Act 4) for both citizens and non-citizens. It excludes individuals contributing to Self-Employment Social Security Scheme (Act 789), which was intially exclusive for self-employed taxi drivers and later expanded to 19 other sector from January 1st 2019. Source: SOCSO (2020e) and SOCSO (2020b)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 22 employment, Figure 13 shows that while the shares have moved in a downward trajectory since 2010, comparison between 2005 and 2019 revealed that the trends remained relatively flat. This coincides with the increasing number of self-employed workers in the labour market that has risen as rapidly as total employment in recent years, hence may partly explain the flattened trend. More importantly, the incidence of informality is found to be four times higher than the official statistics based on the employment in the informal sector (firm-based informality).

Figure 12: Estimated number of informal Figure 13: Estimated share of informal employment employment by four informality definitions, 2005 by four informality definitions, 2005 – 2019 – 2019

8 mil 55% Informal (without social security) 6.4 50% 47% 6.0 45% 6 45% 42% 5.2 6.0 5.7 5.9 40% 4.2 43% 39% 41% 4 35% 38% 34% Informal (without retirement arrangements) 3.9 30% 3.1 3.2 3.3 25% 21% 22% 22% 2 1.4 1.4 1.3 20% 2.1 20% Informal (self-employed 15% & unpaid family worker) 10% 0 8% 8% 2005 2015 2017 2019 10% Informal (without social security) 5% Informal (without retirement arrangements) Informal sector (unregistered) Informal (self-employed & unpaid family worker) 0%

Informal sector (unregistered)

2008 2012 2016 2006 2007 2009 2010 2011 2013 2014 2015 2017 2018 2019 2005

Source: Authors’ calculations based on DOS (2020c), DOS (various years-a), EPF (various years), EPF (2020), SOCSO (various years), SOCSO (2020b), PSD (2015) and PSD (2020) Note: The Informal Sector Workforce Survey is bi-annual. The line chart for informal sector was smoothed for years without survey. Data coverage noted for Figure 10 and 11 applies here

These findings underscore the pervasiveness of workers active in the labour market without statutory social protection arrangements. Non-participation in the social security schemes offered by SOCSO for example would leave the workers unprotected from work-related risks, undermining their wellbeing should a crisis hit, or when unforeseen events occur (See Box Article 3). The issue of social protection coverage is of particular importance considering that there has been a declining participation in the statutory schemes from both individuals and firms. While the total number of contributing workers and firms has grown in recent years (Figure 14), the proportions of these contributors as a percentage of total employment have actually shrunk (Figure 15). On average, the percentage of employers/firms contributing to these agencies have declined from about 4% in 2008 to 3% in 2019, while the percentage of contributing members/individuals to retirement savings dropped from around 53% to 50% within the same period (Figure 15). As mentioned previously, the rise for SOCSO (from 53% to 55%) is attributed to the recent inclusion of non-citizens for schemes under Act 4, effective 1st January 2019.

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 23 Figure 14: Number of active contributors to Figure 15: Share of active contributors to retirement and social security schemes, 2005 – retirement and social security schemes, 2005 – 2019 2019, (% of total employment)

60% 55.3% 9 mil 53.2% Active EPF member 8 (individual) Active EPF member 50% 53.5% (individual) 50.6% 7 40% Active SOCSO member 6 (individual) Active SOCSO member (individual) 5 30% 4

3 20% Active EPF Active SOCSO Active EPF Active SOCSO contributor contributor contributor contributor 2 (employer) (employer) (employer) (employer) 10% 4.1% 1 3.5% 3.7%

0 0% 3.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2005

Source: Authors’ calculations based on DOS (2020d), EPF (various years), EPF (2020), SOCSO (various years) and SOCSO (2020b) Note: Active contributors and members refer to those who made at least one contribution or more in a year. Active SOCSO members includes the number of active contributing employees under the Employment Injuries Scheme and Invalidity Scheme (Act 4) for both citizens and non-citizens

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 24

Box Article 3: Schemes under SOCSO and profile of contributors

The Social Security Organization (SOCSO) is a government agency responsible for the provision of protection schemes for workers who predominantly work in the private sector. In total, there are five schemes provided by SOCSO to workers depending on their employment status and citizenship. The entitlements for the related benefits are paid out in accordance to the schemes that workers are contributing to, as described in Table 4.1:

Table 4.1: Five social security schemes under SOCSO

Employee's Social Security Act 1969 (Act 4) Self- Employment Employment Insurance Social Security System Act Act 2017 (Act 2017 (Act 800) 789)

Employment Invalidity Scheme Employment Self- Employment Injury Scheme Injury Scheme Employment Insurance for Foreign Social Security Scheme Workers Scheme

1. Medical Benefit 1. Invalidity 1. Medical Benefit 1. Medical Benefit 1. Job Search 2. Temporary and Pension 2. Temporary and 2. Temporary and Allowance Permanent 2. Invalidity Grant Permanent Permanent 2. Reduced Disablement 3. Survivors' Disablement Disablement Income Benefit Pension Benefit Benefit Allowance 3. Constant- 4.Facilities for 3. Constant- 3. Constant- 3. Training Fee attendance Physical/ attendance attendance 4. Training Allowance Vocational Allowance Allowance Allowance 4.Facilities for Rehabilitation. 4.Rehabilitation 4.Facilities for 5.Early Re- Physical/ 5. Funeral Benefit (except for Physical/Vocati Employment Vocational 6.. Education Dialysis, onal Allowance Rehabilitation. Benefit Vocational or Rehabilitation. 5. Dependants' Return to Work 5. Dependants' Benefit Program) Benefit 6. Funeral Benefit 5. Dependants' 6. Funeral Benefit 7. Education Benefit 7. Education Benefit 6. Repatriation Benefit Benefit (up to RM 6,500) * coverage is limited to specific social security plan.

Contribution rates (%)

Employer: 1.25% Employer: 0.5% Employer: 1.25% Employer: 0.0% Employer: 0.2% Employee: 0.0% Employee: 0.5% Employee: 0.0% Employee: 1.25% Employee: 0.2% Total: 1.25% Total: 1.0% Total: 1.25% Total: 1.25% Total: 0.4%

Source: SOCSO (2020a)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 25 1. Employment Injury Scheme and Invalidity Scheme

The first two schemes covered under the Employees’ Social Security Act 1969 (also known as Act 4) are the Employment Injury Scheme and the Invalidity Scheme, both of which apply to contributing Malaysian workers only.

Benefits in the form of financial and non-financial aids are given to workers facing work- related mishaps. In the event where death occurs or the person being treated subsequently succumbs to one’s injuries, the deceased’s family will be compensated for their loss through financial aid for funeral expenses, bereavement and some one-off monetary assistance. Others would be accorded financial security by means of an invalidity pension if the person is deemed to have a permanent disability that renders one unfit to work.

In 2018, there were around 435,000 active employers35 contributing to SOCSO while the number of active contributing workers were around 6.9 million. 5.4 million contributors or close to 80% were working with corporations (private and public limited companies), 1.1 million with sole proprietors (15.9%) and 0.3 million in partnership firms (4.3%). The proportion of active contributors is similar to the distribution of firms by legal status at the national aggregate level (Figure 16). Comparison with the national establishment statistics indicates that a higher proportion of employers in sole proprietorship and partnership firms are not SOCSO’s participants compare to corporations (i.e. 42% sole proprietorship, 25% partnership firms and 14% corporation are not participating). The number of active contributing workers has increased by more than four times from 1.3 million in 1982 (4.7% CAGR) to almost 7 million in 2018, in tandem with the growth of the Malaysian labour force. As a percentage of total employment, the proportion has risen from 25.2% to 47.8% during the same period (Figure 17).

35 “Active” refers to contributing to the scheme at least once in a year

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 26 Figure 16: Number of SOCSO active Figure 17: Number of active SOCSO contributors (employers) (2018) and total contributors (workers) as percentage of total number of establishment (2015), by legal status employment, 1982 – 2018

9 mil 0.1 7.0 mil 60% 8 Others 49.3% 1.9 6.0 47.8% 50% 7 0.1 Sole 0.4 5.0 6 1.1 proprietorship 40% 0.3 5 Partnership 4.0 25.2% 30% 4 3.0 Corporation 3 6.3 20% 5.4 2.0 2 1.0 10% 1 0 0.0 0% SOCSO active Total number of

employer establishment

1988 1984 1986 1990 1993 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 contributors 1982

Source: Authors’ calculations based on DOS (2016) and Source: Authors’ calculations based on DOS (2020c) and SOCSO (2020b) SOCSO (2020b)

Out of the 6.9 million active contributing workers, 4.2 million or 58.8% were working in the services sector. Another 1.3 million or 18.6% of them worked in the manufacturing sector (Figure 18). Manufacturing sector singled out from others in terms of work-related accidents recording 12,970 cases in 201836. Contributing workers from agriculture sector was notably lower at around 143,000 or only 2.1% compared to around 1.6 million agricultural workers or 10.6% of total employment according to the Labour Force Survey. 11.0% of the contributors however did not declare their economic sectors.

The monthly contribution amount to SOCSO is calculated based on the maximum wage of RM4,000 per month. By income group, 73.2% of the active contributors were earning below RM3,900 and only around a quarter were contributors earning above the threshold amount (Figure 19).

36 Nur Thuraya Sazali and Siti Aiysyah Tumin (2020)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 27 Figure 18: Number of SOCSO active Figure 19: SOCSO active contributors (workers), contributors (workers), by sector, 2018 by income group, 2018

16mil 35% Undeclared 14 29% Services - non- 30% modern 12 25% Services - modern 25% 8.3 10 Construction 20% 20% 8 Manufacturing 15% 15% 6 1.0 Mining and 10% 1.3 quarrying 3.1 10% 4 Agriculture, forestry 2.5 and fishing 1.0 2 0.5 5% 1.3 1.6 0 0.1 0% SOCSOSOCSO activeLabour Totalforce labour survey ≤1k >1-2k >2-3k >3-3.9k >3.9k force

Source: Authors’ calculations based on DOS (2019a) and Source: Authors’ calculations based on SOCSO (2020b) SOCSO (2020b)

2. Employment Injury Scheme for Foreign Workers

Starting from January 2019, coverage under Act 4 has also been extended to protect the foreign workers via the Employment Injury Scheme for Foreign Workers. However, the benefits under the scheme are more limited (for example for rehabilitation purposes, the cost of dialysis and the vocational or return-to-work programme are not included) and the scheme does not cover invalidity pension or death compensation to their respective survivors.

According to SOCSO’s administrative data, there were about 1.14 million registered foreign workers as at December 2019, employed by 44,659 active employers. 35.5% of the protected foreign workers were hired in the manufacturing sector, 13.3% in agriculture and around 10% in construction. 84% of these foreign workers were male. Selangor, Johor and Kuala Lumpur had the highest numbers of both male and female foreign workers37.

37 SOCSO (2020c)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 28 3. Self-Employment Social Security Scheme (SESS)

The self-employed workers are protected under the Self-Employment Social Security Scheme that comes under Act 789. This Scheme provides protection for self-employed insured persons against employment injuries including occupational diseases and accidents during work-related activities. Implemented in June 2017, the scheme initially only covers Passenger Transportation Sector (taxi, e-hailing and bus drivers) who technically are more at a risk of facing automobile accidents. Effective from January 2020, the scheme is extended to nineteen (19) other sectors such as agriculture, arts, online business and hawkers38. The total number of self-employed workers actively contributing to the scheme stood at 71,425 as at the end of 201939, a minuscule number compared to the 2.72 million self-employed workers reported in the 2019 Labour Force Survey report40. Despite the low current participation rate, the introduction of the scheme is an important step in broadening the coverage of social security protections as the trend of self- employment is likely to stay, if not expand.

4. Employment Insurance Scheme (EIS)

Lastly, the Employment Insurance System (EIS) Scheme was introduced by SOCSO in 2018 under Act 800. The aim of EIS is to provide immediate financial assistance to employees who have lost their jobs for reasons other than misconduct, voluntary resignation, retirement and expiry of the terms of contract employment. Two types of benefits are offered, namely monetary benefits and job search assistance. The monetary benefits include job search allowance, reduced income allowance, training fee, training allowance and early re-employment allowance. Meanwhile, under the EIS active labour market program, the insured workers are also assisted with career counselling and re-employment placement that matches them with suitable vacancies.

SOCSO reported an increase of 42% year-on-year of unemployment benefit claims in the first quarter of 2020, which is expected to increase from April 2020 onwards as the Covid- 19 pandemic continues to grow. The majority of these claimants were from the manufacturing and services sectors and high-skill workers (professionals, managers and technicians)41.

38 SOCSO (2020e) 39 SOCSO (2020b) 40 DOS (2020d) 41 SOCSO (2020d)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 29 4.3. International comparison

At the global level, worker-based informality (including agriculture) comprised 61.2% of total employment in 2016. An inverse correlation between the share of informal employment and the countries’ income levels can be observed with developed countries experiencing a lower prevalence of informal employment (Figure 20). By geographical region, informal employment is notably large in Africa at 85.8% while the share is the lowest in the European and Central Asian region (25.1%).

Figure 20: Share of informal employment of total Figure 21: Share of workers in informal employment, 2016 employment, selected Asian countries, latest available year

100% 100% 90 85.8 90 80 80 69.6 68.668.2 70 61.2 70 60 60 50 50 40.0 40.0 40 40 30 25.1 30 18.3 20 20 10 10

0 0

Lao

India

Africa

China Nepal

World

Japan

Brunei

Vietnam

Pacific

Pakistan

Myanmar

Americas

Sri Lanka Sri

Malaysia*

Indonesia

Cambodia

Asia & the & Asia

Developed

Europe & Europe

Bangadesh

Emerging

Arab States Arab

Central Asia Central

South Korea South Developing & Developing

Source: ILO (2018b) Source: Data for Malaysia is estimated by authors (2019 share of workers without social security); otherwise ILO (2018b)

As mentioned earlier, official statistics in Malaysia only measured the firm-based informality which was found to be quite small (8.3% of 2019 total employment). When estimated via an indirect approach, the extent of Malaysia’s worker-based informality is found to be around 40.0% of total employment. While Malaysia’s worker-based informality is higher than its firm-based informality, the share of its worker-based informality is lower compared to other countries in the ASEAN region, only second after Brunei (31.9%) (Figure 21). Unlike the other countries shown in Figure 21, the figure for Malaysia was imputed indirectly and was not estimated through micro data. This not only hampers international comparison but may also indicate that the actual informality (if measured directly) could be higher or lower than the estimated value42.

42 This is supported by the finding from the World Bank that found Malaysia’s coverege of retirement savings to be slightly below given its GDP per capita. Source: World Bank (2020b)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 30 5. Non-standard employment

Besides the informalisation of jobs, another trend that is taking place in the labour market is the rise of new forms of non-standard employment. While freelancing and part-time jobs have long existed, technological innovation has contributed to the rise of “sharing economy” that enables the demand and supply of electronically transmittable or physical labour-intensive services to be matched via a digital platform.

As there has been no official definition, a straightforward way of understanding the non-standard employment is to consider any employment that falls outside the standard employment framework. In this regard, standard employment refers to a full-time job with indefinite employment contract and operates within a recognised employer-employee relationship43.

Typically, workers under the standard formal employment face relatively lesser deficits in decent work compared to their counterparts in non-standard employment. Due to their indefinite employment contracts and fixed full-time working hours, they generally have a more secure working arrangement, more stable and consistent source of income, have ample access to legally mandated benefits such as paid leave (rest, sick and maternity) and other forms of social protection. Due to better regulatory oversights, workers in the formal sector may also enjoy more conducive and safer working environment. The right to organise and to bargain collectively would allow them to voice their concerns more effectively and be treated more fairly with less discrimination compared to informal and non-standard workers.

Undeniably, employment with the standard employer-employee relationship is still a dominant feature of Malaysia’s labour market (the “salariat”). Statistics by employment status shows that in 2019, 74.4% of the workers are classified as employee—defined as persons who work for a public or private employer and receive regular remunerations in salary, wages, commission, tips or payment in kind. Another 21.9% of the workers are own-account workers and unpaid family workers while the remaining 3.7% are employers44.

Since non-standard employment is the flipside of standard employment, the subordinate employment relationship is not clearly established between the workers and their employers, although they may have a formal fixed term employment contract. In the case when these workers are hired without a legally binding contract and do not enjoy social protection benefits, they are not only non-standard workers, but also informal workers45.

The ILO identifies four types of non-standard employment namely: (1) temporary employment; (2) part-time and on-call work; (3) temporary agency work and other forms of employment involving multiple parties; and (4) dependent self-employment (with disguised employment relationship)46. See Box Article 4 for further details.

43 ILO (2015a) 44 DOS (2020d) 45 Informal employment is also one type of non-standard employment, see Nur Thuraya Sazali and Tan Zhai Gen (2019) for further discussion. 46 DOS (2020d)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 31 Non-standard versus informal employment

Non-standard workers do not always enjoy the same employment benefits as their counterparts in standard employment such as paid leave and medical benefits. Non-standard employment may also have similar features to informal employment in terms of being precarious, but this does not necessarily mean that all non-standard workers are informal (without social protection) and vulnerable.

Depending on the employment terms and the working conditions, some non-standard workers may enjoy similar level of benefits as their standard counterparts or compensated in a different way when some benefits are not made available to them. For example, a graphic freelancer may be compensated with a higher pay to make up for uncovered fringe benefits compared to a permanent full-time staff doing the same job.

Essentially, non-standard and informal employment can overlap in terms of deficit in decent work, yet one is not a subset of the other. It is possible to distinguish the differences between non- standard and informal employment via the chart below:

Figure 22: Overlap of informal and non-standard employment

Deviate from standard employment Deviate from standard • No social protection employment • Unregisterd Informal Non-standard • Without or ambigious E.g. employer-employee (1) Daily-paid street No social relationship, or multiparty vendors protection • Fixed term contract (not (2) Full-time fixed open-ended) salary restaurant • Part-time and on-call employees but E.g. without EPF/SOCSO (1) Part-time restaurant workers but with EPF/SOCSO E.g. (1) E-hailing drivers (2) Full-time contract- for-service freelancers, without EPF/SOCSO contributions

Source: Authors’ illustration

Figure 22 shows a spectrum of the principle features of informal and non-standard employment. As we can see, both types of employment can intersect in the middle when a worker does not have a clear employer-employee relationship, the job is not full-time, the length of tenure is fixed (not open-ended) and contributions to formal social protections are not provided. Non-standard workers can also be informal when the activities of the hirers are not officially registered with the relevant authorities. They can be pushed further into deficit in decent work when their working conditions are not conducive, and they are not earning decent pay that compensates their labour accordingly.

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 32

Box Article 4: Four forms of non-standard employment47

1. Temporary employment

In temporary employment, workers are engaged for a specific period of time, where the term can either be fixed, or project-based, as well as casual/seasonal work. Fixed-term contracts can be either written or oral but are characterised by a predefined term and in many countries are regulated by specific legal provisions on the maximum duration of the contract, the number of renewals, and valid reasons for recourse. Meanwhile, casual work is the engagement of workers on an occasional, seasonal and intermittent basis, for a specific number of hours, days or weeks, in return for a wage dictated by the terms of agreement.

2. Part-time and on-call work

In part-time employment, normal work hours are fewer than those of comparable full-time workers. Many countries have specific legal thresholds that define part-time work in relation to full-time work. In Malaysia, full-time work is considered as working more than 30 hours per week or 6 hours per day for at least 20 days per month. Hence, part-timers are those who work less than 30 hours per week. In some instances, working arrangements may involve very short hours or no predictable fixed hours. The employer is also under no obligation to provide a specific number of hours of work. Such working arrangements take various contractual forms depending on the country but are commonly referred to as “on- call work”.

3. Temporary agency work and other forms of employment involving multiple parties

Temporary agency workers are those who are not directly employed by the firm to which they provide their labour. They may be performing work under contractual arrangements involving multiple parties. For example, a worker may be deployed and paid by a private employment agency to perform work for its client firm. In most countries, the agency and the worker enter into an employment contract or relationship, whereas the agency and the client firm enter into another commercial contract. The client firm pays fees to the agency, and the agency pays wages and other benefits to the workers. Although temporary agency workers are commonly recognised as being in an employment relationship, there may be limitations imposed on the rights of the workers.

4. Dependent self-employment with disguised employment relationship

Ambiguous employment relationships may arise when the respective rights and obligations of the parties concerned are not clear, or when inadequacies or gaps exist in the legislation, including regarding the interpretation of legal provisions and their implementation.

47 This section is reproduced from ILO (2015a)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 33 One area that sometimes lacks legal clarity is dependent self-employment, where workers perform services for a business under a civil or commercial contract but depend on one or a small number of clients for their income and receive direct instructions regarding how the work is to be done.

Another emerging form of disguised employment is the digital platforms that trade labour services either via web-based platforms where work is outsourced through an open call to a geographically dispersed crowd (“crowd work”), or location-based applications which allocate work to clients in a specific geographical area (“on-demand”). The terms and conditions of non-standard employment of these two types of employment can be very different but both typically operate without specified employer-employee relationship. Instead, they are based on client-service provider (or partners) relationship.

Dependent self-employed workers are typically not covered by the provisions of labour or social security laws, although a number of countries have adopted specific provisions to extend some protection to them. Digital platform workers may be part of this, where the “self-employed” are still subjected to managerial control by online platforms firms that procure the services.

Flexibility versus security

Besides getting monetary compensation for their contribution of labour, workers under non- standard employment enjoy other non-monetary benefits such as the flexible working hours and freedom to choose when or where they want to work. This flexibility may be valued more by some segments of the workforce due to constraining conditions they faced. For example, part-time or working hours outside the “9-to-5” convention could better suit students or housewives when they need to accommodate educational or family obligations yet want to earn some incomes. For freelancers, they may be working in good working conditions at home or elsewhere outside the normal office setup and not necessarily face major decent work deficits.

Similarly, flexibility is also the main reason for hirers to resort to the non-standard work arrangement. Due to seasonal fluctuations, firms in the retail sector for example would hire part- timers during festive seasons to accommodate the temporary increase in sales activities or agriculture produce during harvest seasons. For jobs in the arts and entertainment industry, the adoption of fixed term contract or “contract-for-service” is common as the works are usually project-based. Aside from seasonal factors, three other major reasons include: (1) cost advantages as this source of labour can be relatively cheaper48, (2) flexibility to deal with specific skill gaps not available in-house49, and (3) technological innovations that have enabled firms to assemble teams of workers that reside in different locations in the world or provide a platform for freelancers to offer their services and earn commissions50.

48 Nesheim et al. (2007) 49 Kalleberg et al. (2003) 50Brews and Tucci (2004)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 34 While the notion of earning decent income and simultaneously enjoying flexibility or being “free and easy” is appealing, this is likely the case for only a proportion of skilled workers who can command appropriate compensation for the specialised knowledge or services they offer. In the case of digital labour platform, decent pay is more likely to be enjoyed by skilled workers engaged in “crowd work” whereas those involved in “on-demand” jobs (location-based) are more likely to be low-skilled such as delivery workers potentially earning less pay. When the non-standard jobs are largely low-skilled and seasonal in nature, it is less likely that the workers can negotiate for a decent or higher pay. In addition, the nature of some jobs simply does not offer any avenue for career progression.

In a situation where there is no other options and workers are forced to depend heavily on these forms of jobs, the non-standard employment becomes less desirable for three main reasons: it (1) increases job insecurity, (2) offers less social protection and (3) has limited opportunity for career advancement51.

5.1. Estimates of Malaysia’s non-standard employment

Globally, the number of workers and growth of non-standard employment vary significantly across countries. For example, in 2013 the proportion of temporary workers was 0.1% in Qatar but was nearly 65% in Vietnam52. While the situation in Malaysia could not be disaggregated by the four types of non-standard employments identified by the ILO, estimation at aggregate level can be done by using a residual approach.

To do so, we utilise the wage and salary recipients data available in the Salary and Wages Survey (SWS) and cross-tabulate the information with the employed persons data available in the Labour Force Survey—both are published by DOS annually—to derive the residual numbers that could well serve as an estimate of non-standard employment .

This is plausible since the respondents of the SWS survey are fundamentally the standard employee employed in the public or private sectors and working full-time for pay for at least six hours per day or 20 days per month. The survey does not include employers, own account workers, unpaid family workers, domestic helpers, temporary workers, apprentices, volunteers and casual workers (doing work on daily or piecemeal basis, without formal binding contract, short work duration, no skills, no permanent industry, uncertain working hours and without fixed earnings)53.

As the frame used for the selection of sample for the SWS is based on the Household Sampling Frame which is similar to the frame used for the LFS, the difference between the employed persons reported in the LFS and the wages and salaries recipients in the SWS can be considered as an approximation of the non-standard workforce. As extensive SWS data at the disaggregated

51 ILO (2016) 52 Refer Nur Thuraya Sazali and Tan Zhai Gen (2019) for a summary of the global estimate. 53 See technical notes in DOS (2019b).

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 35 level does not include foreign workers, the estimates of non-standard employment we present below are strictly restricted to Malaysian workers only.

Figure 23 shows that non-standard employment comprises around 30% of total employment and the share has increased marginally by 0.4 percentage points between 2010 and 2018. The number of non-standard workers grew 2.8% CAGR during the same period from 3.1 million to 3.8 million (+764,200 workers). This annual growth rate slightly outpaced the standard employment growth of 2.6% CAGR.

Figure 23: Number of standard vs non-standard workers (million), and share of non-standard employment (%) [LHS], 2010 – 2018

30.4% Non-standard 14 mil 30.0% 30.1% share (%) 30% 12 CAGR 3.8 2.8% 10 3.6 28% Non-standard 3.1 8 26%

6 24% 2.6% 4 8.3 8.8 7.1 Standard 22% 2

0 20% 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Authors’ calculations based on DOS (2019b) and DOS (various years-b) Note: The data refers to Malaysian citizen workforce only

In 2018, the number of non-standard workers in urban areas almost doubled (2.7 million) than in rural areas (1.1 million) although the prevalence of non-standard was higher in the latter (Figure 24). Non-standard employment is also observed to be growing more rapidly in urban areas, rising by 6.0% CAGR between 2010 and 2018 compared to standard employment that grew slower at 3.9%. Meanwhile, both standard and non-standard employment contracted in rural areas during the same period (Figure 25).

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 36 Figure 24: Number and share of standard vs non- Figure 25: Number of non-standard employment standard employment, by urban-rural strata, 2018 and CAGR, by urban-rural strata, 2010-2018

0% 20% 40% 60% 80% 100% 3.0 mil 2.7 CAGR 2.5 6.0% 2.5 Rural 1.4 1.1 Urban 2.0 1.7

Urban 7.4 2.7 1.5 -2.3% 1.4 1.0 1.1 1.1 Total 8.8 3.8 Rural 0.5 mil 0.0 Standard Non-standard 2010 2012 2014 2016 2018

Source: Authors’ calculations based on DOS (2019b) and DOS (various years-b) Note: The data refers to Malaysian citizen workforce only

Corroborating with the national labour force participation by gender, the number of male non- standard workers was 1.5 times higher (2.3 million) than female (1.5 million). However, the proportion of standard and non-standard employment within both genders were almost the same (Figure 26). The number of female non-standard workers also grew faster (5.7% CAGR) than the males (1.2% CAGR) underscoring the inherent scenario among the female workforce who, by choice or by circumstance, had to opt for part-time and temporary jobs (Figure 27).

Figure 26: Number and share of standard vs non- Figure 27: Number of non-standard employment standard employment by sex, 2018 and CAGR by sex, 2010 – 2018

0% 50% 100% CAGR 2.5 mil 2.3 2.1 2.1 1.2% Male Female 3.6 1.5 2.0

1.5 5.7% 1.5 Male 5.2 2.3 1.5 Female 1.0 1.0

Total 8.8 3.8 0.5

mil 0.0 Standard Non-standard 2010 2012 2014 2016 2018

Source: Authors’ calculations based on DOS (2019b) and DOS (various years-b) Note: The data refers to Malaysian citizen workforce only

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 37 Figure 28 shows that non-standard working arrangement gradually became more significant as the workers age. The share of non-standard workers reached as high as 70.4% among workers in the 60-years-old-and-above age group. This scenario may reflect the hardship workers faced in getting full-time, permanent and stable jobs as they grow older. Another possible reason is, as one gets older, more would be employers or in managerial positions which are on contractual basis. This is likely the case as statistics of the share of non-standard employment is high among managers (see Figure 34). Non-standard jobs expanded slightly slower for workers in the middle age groups (between 20 and 49 years old), growing on average 2.8% CAGR between 2010 and 2018 (Figure 29).

Figure 28: Number and share of standard vs non- Figure 29: Number of non-standard employment standard employment, by age group, 2018 and CAGR, by age group, 2010-2018

0% 50% 100% 4.0 mil CAGR 3.9% ≥60 ≥60 0.1 0.3 3.5 0.3 0.3 0.9 3.0 50-59 50-59 1.0 0.8 0.2 0.8 3.5%

2.5 0.6 40-49 1.7 0.9 40-49 0.9 1.1% 2.0 1.0 30-39 2.7 0.8 0.9 2.8% 1.5 20-29 2.8 0.7 0.9 3.7% 30-39 0.8 1.0 0.7 <20 0.2 0.1 3.5% 20-29 0.5 0.6 0.6 0.7 Total 8.7 3.5 -0.1% <20 0.0 mil 2010 2012 2014 2016 2018 Standard Non-standard

Source: Authors’ calculations based on DOS (2019b) and DOS (various years-b) Note: The data refers to Malaysian citizen workforce only

Figure 30 indicates that the incidence of workers engaging in non-standard employment is inversely related to their education levels. The proportion of non-standard employment is significantly lower among workers with tertiary education (17.9%), compared to workers without formal education (65.9%). However, the growth of non-standard employment was notably higher among workers with tertiary education, growing at a rate of 8.3% CAGR between 2010 and 2018. As a comparison, standard employment grew at lower rate of 3.4% CAGR.

The expansion rate of non-standard employment was much lower for workers with secondary education (rose 4.1% CAGR) and primary education (contracted 3.0% CAGR) during the same period (Figure 31). The growing trend reflects the tendency of tertiary educated workforce to be working outside the “9-to-5” job arrangement and have more freedom and control over what they do. However, we should also be mindful of potential issues of under-employment (i.e. workers performing tasks that they are overqualified for). For example, more of recent graduates taking up casual or temporary jobs while trying to find a job in their field. As non-standard jobs allow for quick hiring, they provide easier access to employment especially for workers in transition.

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 38 However, if left unchecked, studies have shown that this type of employment can lead to negative long-term effects on workers’ career trajectories, productivity and even mental health54.

Figure 30: Number and share of standard vs non- Figure 31: Number of non-standard employment standard employment, by education level, 2018 and CAGR, by education level, 2010-2018

0% 50% 100% 4.0 mil CAGR

3.5 8.3% Tertiary Tertiary 3.4 0.7 0.7 0.7 3.0 0.4 Secondary 4.8 2.4 2.5

2.0 Primary 0.5 0.6 2.4 1.8 2.1 4.1% Secondary 1.5 No formal edu 0.1 0.1 1.0

0.5 0.7 -3.0% Primary Total 8.8 3.8 0.7 0.6 -6.7% No formal mil 0.0 education Standard Non-standard 2010 2012 2014 2016 2018

Source: Authors’ calculations based on DOS (2019b) and DOS (various years-b) Note: The data refers to Malaysian citizen workforce only

Figure 32 shows the share of non-standard employment by sector was significantly larger among Malaysian citizens working in the agriculture sector (79.9% non-standard vs 20.1% standard) than those in the services sector (27.1 non-standard vs 72.9% standard) Yet, the absolute number of non-standard workers in the services sector was higher (2.3 million citizens) compared to the other sectors (e.g. 0.9 million citizens in agriculture). Excluding mining and quarrying sector, Figure 33 shows that the growth in the volume of citizen workers in the non-standard manufacturing and services sector has been among the fastest with CAGR of 5.4% and 4.4% respectively, adding a total of 0.8 million non-standard jobs between 2010 and 2018. Considering the services sector alone, non-standard jobs were significantly higher in the other services compared to the modern services activities55. While these statistics are useful in highlighting the differences in the degree of non-standard employment by sector, the type of jobs in each would differ. For example, self-employed in the forms of small holders would dominate the agriculture sector while services sector might be hiring more contract and part-time workers. Nevertheless, we are unable to unpack this with the available data.

54 García-Pérez et al. (2015), Eichhorst (2014) and Moscone et al. (2016) 55 Modern services include: Information and communication; Financial and insurance/takaful activities; Real estate activities Professional, scientific and technical activities. Other services refer to the remaining services such as wholesale and retail trade, hotel and restaurant, transport, storage and communications.

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 39 Figure 32: Number and share of standard vs non- Figure 33: Number of non-standard employment standard employment, by economic sector, 2018 and CAGR, by economic sector, 2010-2018

0% 20% 40% 60% 80%100% 4.0mil CAGR

Other services 5.4 2.2 3.5 Modern services 0.8 0.1 Other services 3.0 4.8% 2.2 Services 6.2 2.3 1.9 2.5 Construction 0.7 0.3 1.5 2.0 Modern services Manufacturing 1.6 0.4 -0.4% 0.1 0.1 1.5 0.1 Construction 0.3 0.3 0.1% Mining and quarrying 0.1 0.004 0.3 Manufacturing 1.0 0.2 0.4 0.4 5.4% Agriculture, forestry and 0.2 0.9 fishing 16.2% Mining 0.5 0.9 0.9 Total 8.8 3.8 0.9 -0.6% Agriculture Standard Non-standard mil 0.0 2010 2012 2014 2016 2018

Source: Authors’ calculations based on DOS (2019b) and DOS (various years-b) Note: The data refers to Malaysian citizen workforce only; Modern services refer to Financial and insurance, Information and communication, Real estate activities and Professional, scientific and technical activities based on Ng et al. (2018)

Consistent with the observation above by economic sector, Figure 34 shows that the proportion of non-standard employment to be high among skilled agricultural workers (91.9% or 0.8 million workers). Managers charted the second highest prevalence of non-standard employment as 61.6% of them were non-standard (although the number contracted between 2010 and 2018). In terms of volume, Figure 35 shows that non-standard workers are predominantly services and sales workers (1.3 million) with the fastest growth between 2010 and 2018 (11.0% CAGR). The second highest number of non-standard jobs were agriculture workers (0.8 million) followed by craft workers (0.6 million). Similarly, when the occupational groups were clustered by skill level, we observed a higher prevalence of non-standard employment among semi-skilled workers (i.e. clerical workers, services & sales workers, skilled agricultural workers, craft workers and machine operators) than other skill groups. At 4.4% CAGR, the semi-skilled workers (0.2 million to 0.3 million) also saw the highest growth between 2010 and 2018, compared to -1.2% for skilled workers (i.e. managers, professionals and technicians) and -1.0% for low-skilled workers (i.e. elementary occupations).

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 40 Figure 34: Number and share of standard vs non- Figure 35: Number of non-standard employment standard employment, by occupation, 2018 and CAGR, by occupation, 2010-2018

CAGR 0% 50% 100% 4.0 mil Elementary -1% occupations Elementary Occupations 0.7 0.3 3.5 Machine 3% operators Machine Operators 1.2 0.2 0.6 3.0 0.6 5% Craft workers Craft Workers 0.7 0.6 Skilled Skilled Agricultural Workers 0.1 0.8 2.5 0.4 0.8 agricultural 0.8 -1% workers Services Services and Sales Workers 1.7 1.3 2.0 &sales workers 0.9 Clerical Clerical Workers 1.2 0.0 11% 1.5 workers 1.2 1.3 Technicians Technicians 1.3 0.2 -3% 1.0 0.6 Professionals 1.7 0.1 Professionals -3%

Managers 0.2 0.4 0.5 8% Managers 0.5 Total 8.8 3.8 0.4 0.4 -2% 0.0 CAGR 2010- 2018 2010 2012 2014 2016 2018 Standard Non-standard mil

Source: Authors’ calculations based on DOS (2019b) and DOS (various years-b) Note: The data refers to Malaysian citizen workforce only

5.2. Part-time employment: workers working less than 30 hours per week

This section provides some statistics of part-time workers (defined here as those employed less than 30 hours a week) along with their sociodemographic characteristics. While these statistics cannot be distinguished between informal and formal employment, they still provide valuable insights as part-time employment is one of the main forms of non-standard employment56. Part- time working arrangement has substantially receded with its share contracting from 7.7% in 1982, 4.4% in 2009 to an all-time low of 2.2% in 2019 (Figure 36). This is equivalent to about 0.34 million of part-time workers in 2019, where it shrunk at -3% annually during 2009-2019. In contrast, total employed workers grew at 3% annually during the same period. While there have been less part-time workers in both percentage and absolute numbers, more and more of part- timers cited “insufficient work” as their main reasons for working less hours, from 57.8% in 2011 to 70.1% in 2019 (Figure 37). In 2019, 29.9% cited “other reasons” like old age, housework, leave, illness, and weather conditions for working less than 30 hours. Within the 14 percentage points increase for “insufficient work”, the majority came from those who worked less hours even when they were willing to accept additional work (8.7 percentage points). The other 3.7 percentage points came from those who worked less hours by choice considering that they were unwilling to accept additional work. These statistics indicate that while there are less individuals working part-time, there are more part-timers who wish to work more now than before.

56 Note that unlike the non-standard employment presented earlier in this paper, the part-time employment statitics cover non-citizens and non-employees too.

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 41 Figure 36: Number (LHS) and share of part-time Figure 37: Reasons for working less than 30 workers (RHS), 1982 to 2019 hours, 2011 to 2019

('000) % 100% 1,000 16 14.0 90% 900 14 Other reasons 29.9 80% 42.2 800 12 70% 700 60% 10 600 7.7 50% Willing to accept Insufficient 500 8 56.8 40% additional work work/ 400 48.1 6 30% nature of the job 300 4 20% 200 2.2 Unwilling to accept 10% additional work) 2 9.7 13.4 100 0%

0 0

2011 2013 2014 2015 2016 2017 2018 2019 1982 1987 1993 1999 2004 2009 2014 2019 2012

Source: Authors’ calculations based on DOS (2020c) Source: Authors’ calculations based on DOS (various years- b)

This overall declining pattern can also be observed across different genders, locations and major industries. Notwithstanding the decline, part-time employment continues to be more prevalent among female workers, rural workers and those who work in agricultural sector (Figure 38 and Figure 39). In terms of growth, male, rural part-timers and those in mining and quarrying experienced the fastest declines between 2011 and 2018.

Figure 38: Share of part-time workers (working Figure 39: Share of part-time workers (working less than 30 hours) by sex and urban-rural strata, less than 30 hours) by major industry, 2011 to 1982 to 2019 2019

20% 18 %

16 16 14

12 12 10

8 8 Agriculture Rural 6 4 Female 4 Overall Urban Services Male 2 Manufacturing 0 Construction

0 Mining

1996 1985 1988 1992 1999 2002 2005 2008 2011 2014 2017 1982 2011 2013 2015 2017 2019

Source: Authors’ calculations based on DOS (2020c) Source: Authors’ calculations based on DOS (various years- b)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 42 Similar to the overall trend, the shares of part-time workers within sociodemographic groups that cited insufficient work (and willing to work more) have also increased in recent years57. Between genders, there were more male than female part-time workers who reported to be working part- time due to insufficient work although willing to work longer (Figure 40). A similar pattern could be observed between industries, with manufacturing seeing the biggest hike in share of workers working part-time due to insufficient work or the nature of job (Figure 41).

Figure 40: Reasons for working less than 30 hours Figure 41: Share of workers working less than 30 by sex, 2011 to 2019 hours due to insufficient work by industry, 2011 to 2019

100% 36.4 23.5 48.3 34.3 75.0 90% Services 60.4 Other reasons 80% 64.0 63.4 Construction 70% 48.5 60% 52.2 54.8 65.7 50% Manufacturing 41.0 44.9 2019 40% Willing to accept Insufficient 50.0 2011 additional work) work/ Mining & quarrying 30% nature of 45.6 the job 20% Unwilling to accept 62.1 Agriculture 10% additional work) 59.4 8.8 13.1 10.7 13.6 0% 70.1 Overall

57.8

2011 2019 2011 2019 0% 20 40 60 80 Male Female

Source: Authors’ calculations based on DOS (various years-b)

57 Note that there is no further breakdown in terms of reasons by location and in terms (un)willingness to accept additional work by industry released by DOS.

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 43 6. Discussion and concluding remarks

The ILO’s recommendation concerning the transition from the informal to the formal economy in 2015 (Recommendation No. 204) underscores a renewed global consensus that the transition is essential in achieving inclusive development and realising decent work for all58. This is further reinforced by the inclusion of indicator 8.3.1. (share of informal employment in non-agriculture employment, by sex) to monitor progress towards Goal 8: Decent Work and Economic Growth in the Sustainable Development Goals (SGDs).

While Malaysia has yet to formally adopt the non-binding Recommendation No. 204 to competent authorities (usually Parliament), it has officially adopted 17 Sustainable Development Goals (SDGs) in 2015 like all the Member States of the United Nations. More recently, the 2019 development blueprint of Shared Prosperity Vision 2030 reaffirmed the country’s commitment to the SDGs. Like the Eleventh Malaysia Plan, the SDGs will be further operationalised in the Twelfth Malaysia Plan (2021-2025) and the Thirteenth Malaysia Plan (2026-2030)59. These recent developments signal Malaysia’s broad agreement to the international aspirations. Yet, for the SDGs to be achieved, understanding of the national context is key in informing policy development, monitoring and subsequently evaluation.

Statistics assume an important role not only to fulfil the measurement objectives as set by the international bodies, but also for policy makers to assess, diagnose and monitor national performance. Without a proper baseline assessment of the situation at hand, causes may be misdiagnosed, and progress may be poorly monitored. The assessment, in turn, requires detailed statistics. In the case of the informal economy, the importance of producing directly measured informality statistics that is regularly collected by statistical agencies has been stressed. This is because indirect estimates are often imprecise and do not contain enough detailed information needed for policymaking.

Our estimate of around 40% of informal employment in Malaysia is derived indirectly using published administrative data. What has been clearly demonstrated in this paper is that the size of worker-based informality (i.e. workers uncovered by social protection) is estimated to be almost four times larger than the size of firm-based informality (i.e. workers working with unregistered firms). The recent Informal Sector Survey Report 2019 also attempts to directly measure worker-based informality using micro data. Based on DOS’s preliminary estimates, the number of workers in worker-based informality stood at 2.5 million or 16.8% of total employment in 2019.

Based on our deductive estimation approach, the much higher percentage of worker-based informality (40%) than firm-based informality (8.3%) may also signal a higher compliance for business registration but not in the compliance of social protection contribution (i.e. contributions to EPF and SOCSO).

58 ILO (2015b) 59 Ministry of Foreign Affairs (2019)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 44 Nevertheless, the composition of informal employment remains unknown as the estimation cannot be further disaggregated by sex, level of education, location and other socio-economic characteristics. This deductive estimate not only hinders international comparability but also restrains efforts for a more targeted approach to assist informal workers. As stressed by the ILO, this again highlights the need for Malaysia to expand its regular data collection or dissemination beyond the firm-based (i.e. informal sector) to include worker-based concept of informality (i.e. informal employment)60.

With no available data at hand, this paper uses estimates of non-standard employment (i.e. deducing from the residual of total full-time wage recipients from total employed individuals) to analyse the socio-economic composition of non-standard workers. While non-standard workers are not synonymous with informal workers, they both are in a relatively disadvantageous position relative to their counterparts (i.e. workers with standard or formal employment). Limited to citizen-only data, we observe that non-standard employment is more prominent among older (over 60 year), rural, semi-skilled, and agricultural workers with no formal education. It is worthwhile to note that these socio-demographic profiles are in line with the characteristics of informal workers for South-Eastern Asian and Pacific countries as reported in the 2018 ILO Informal Economy report61.

Beyond its prevalence, we have also seen faster growth of non-standard employment among urban, female, tertiary-educated and services and sales workers. These growths signal the encroachment of non-standard employment into jobs that were used to be associated with standard full-time employment for tertiary or manufacturing workers. Indeed, this pattern of growth is consistent with the informalisation trend that has been noted in the literature and observed worldwide in recent years.

This increasing informalisation—or in other words, the “salariats” are dwindling while new forms of “precariats” are emerging and its traditional forms continue to persist—comes with real consequences especially in light of the Covid-19 pandemic hitting informal workers particularly hard. Survey findings such as the ones conducted by DOS confirm that those who are most vulnerable to shocks (i.e. informal and non-standard workers) have become more vulnerable amid the pandemic62. True to the definition, individuals who are more likely to be informal workers are also more likely to not be covered by measures announced in the economic support packages, especially the ones mobilised through formal platforms such as EPF and SOCSO. Instead, they have to rely on household-based social asisstance or on-off assistance for “platform/gig workers”.

60 ILO (2013b) 61 ILO (2018b) 62 DOS (2020e)

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 45 In the context of the rapidly changing nature of work and an ageing society, this current pandemic further underscores the importance of facilitating the transition from the informal to the formal economy or, at the very least, in making precarious jobs more decent. While the high share of informal employment highlights the need to expand coverage to reach presently uncovered workers and economic units, the adequacy and comprehensiveness of the current system should not be discounted. To be resilient to shocks, it is not enough to just be covered or included in the system, but one’s coverage has to be adequate (depth of financial protection) and comprehensive (breadth of risks covered).

Finally, it is apparent that there are gaps between what is currently being measured via micro survey data and what the administration data are suggesting. As rightly pointed out by DOS, to address this deficiency “information coverage and informal employment profile should be expanded by maximizing the usage of administrative data and big data between Ministries/ Agencies that directly involved in this issue. A database related to informal employment needs to be created as an information medium to help this group from continuing to be set aside from social protection by Government. Therefore, strong cooperation from the Ministries/ Agencies are very important through comprehensive and constantly updated data sharing”63.

63 DOS (2020b)p.32

KRI Discussion Paper | Shrinking “Salariat” and Growing “Precariat”? Estimating Informal and Non-standard Employment in Malaysia 46 7. References

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