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

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