Monday, April 16, 2012

Unemployment Insurance Under Study

Last week, the World Bank issued its latest Economic Monitor issue for Malaysia, subtitled “Modern Jobs” (you can get a copy here). The issue makes a point of calling for going beyond “quick wins” and getting on with implementing the harder but more important structural reforms required (i.e. the SRIs). Their forecast for Malaysia’s GDP growth this year has been cut from 4.9% to 4.6%.

Ordinarily, I wouldn’t bother covering something like this, except for what was mentioned in the press conference afterwards (excerpt; emphasis mine):

Malaysia's GDP growth seen at 4.6%

…As Datuk Dr Rahamat Bivi Yusoff, director-general of the Economic Planning Unit (EPU) in the Prime Minister's Department, saw it, “the next structural evolution will happen to the labour force”…

…Rahamat Bivi concurred that in moving Malaysia up to a high-income economy, transformation of the types of jobs available from “traditional” to “modern” was necessary for the country.

“By introducing the right interventions and programmes, and with more involvement of the private sector, we are confident that the share of skilled workers will increase to one-third of total labour force by 2015 and 50% by 2020, which will be at par with that of OECD (Organisation for Economic Cooperation and Development) countries,” she said.

Meanwhile, Rahamat Bivi also said the EPU was currently studying the possibility of having unemployment insurance scheme to provide better social safety net for workers. The study, she said, was expected to be completed by next year.

It’s mentioned almost in passing, but that’s pretty quick work if in fact looking at unemployment insurance was prompted by the IMF’s suggestion in the recent round of Article IV consultations. Whatever the genesis, we’re looking at adding another piece of the high-income puzzle – as jobs move downstream in terms of skills and value-added, I believe retraining and reskilling the present work force will prove incomplete, and some people will fall through the cracks.

If that’s the case, unemployment insurance is one aspect of a social safety net that may be needed, while at the same time allowing for greater work force flexibility (code for: it’ll be easier to fire, and thus to hire, workers). I’m not necessarily sold that the latter will be a good idea over the long term, but there’s pros and cons to both sides of that debate.

Technical Notes:

“Malaysia Economic Monitor: Modern Jobs”, The World Bank, April 2012


  1. Hi,
    Thanks for blogging about the Malaysia Economic Monitor.
    Just a note that unemployment insurance was recommended in the New Economic Model, and implementation is part of the SRI on Human Capital Development. So actually it has been in the works for some time. The ETP annual report notes that the ILO has been commissioned to work on the study.
    More info here:

  2. Thanks for the info Frederico, I hadn't known that. In which case :) what took them so long?

    J/K (Yes, I know the SRIs have only been up and running for the last nine months or so).

  3. Unemployment insurance is good so long as it is privatized just like vehicle accident insurance. The insurance companies must be able to assess the risks of the employer and employee and adjust the premium accordingly. So if an employer has a good track record of being a stable employer, the employee working in a company for long periods, etc, the insurance premium should be lower. On the other hand if the employer keeps firing the employee after a year, or the employee quits and joins every 6 months, the premium should be higher. It is important that we do not decouple risk and premium. Otherwise irresponsible companies simply hire staff at high salary, pays a low unemployment premium and then fires the employee after 1 year.