Youth unemployment and jobs guarantee — Jason Loh Seong Wei

DEC 26 — While the unemployment figure at the national level is a respectable 3.3% which in economics denotes full employment, the figure for youth unemployment, which has been in the news lately remains depressing, persisting between 10 to 11 per cent – three times the national level.

No wonder youth unemployment continues to be a cause for policy concern as confirmed by the recent release of EMIR Research’s poll findings.

Among the rakyat’s concerns as measured by the National Worry Index (NWI) are lack of job opportunities and youth unemployment at 77 per cent overall.

Youth unemployment is partly the result from the jobs cum skills mismatch where 86.9 per cent of the jobs in the market comprised low-skilled categories that require only primary education followed by 8.4 per cent in semi-skilled categories.

Of particular interest is graduate unemployment and under-employment. Approximately 140,000 were graduates out of the 290,000 youths up to 24 years old who were unemployed or underemployed. This represents some 3.5 per cent of the total number of graduates. In terms of percentage alone, it appears to be very insignificant.

But as it is, the numbers are big and can potentially snowball in time to come if no serious efforts are undertaken to address the issue on a sustainable basis.

The Government’s targeted response to this problem via the Budget 2020 was the [email protected] initiative. To repeat here, RM500 per month is to be paid into the EPF account of graduates who secure employment after more than 12 months of unemployment, with employers receiving a hiring incentive of up to RM300 per month for a period of two years.

By mitigating the impact of youth unemployment through the [email protected] scheme, the Government is characteristically taking steps to incentivise the market.

However, as the saying goes, “prevention is better than cure”.

There is an alternative option which equally applies to unemployment as a whole that seeks to do more. It is both a simultaneous direct intervention by the government as well as leaving the dynamics of the market alone.

And so, the best of both worlds.

In addition, this policy might have the potential to contribute towards the reduction and reliance on migrant labour.

It is known as the “Jobs Guarantee” (JG) and is copied directly from the policy experience of the Western nations such as the UK, with particular reference to the aftermath of the Second World War.

JG strikes the balance between welfare and workfare. Furthermore, it stands between the two extremes of free market fundamentalism and socialism.

The concept of JG simply entails the Government taking on the role of the (temporary) “employer of last resort”.

This is analogous to the central bank’s role as the “lender of last resort”.  The Government creates a “buffer stock” of jobs (akin to its role in maintaining a buffer stock of commodity supply) in response to layoffs in time of recession.

What exactly is a “buffer stock”?

It is simply a scheme whereby the supply of excess goods is purchased by the State to offset price fluctuations.

As applied to JG, it means that the excess supply of workers relative to demand by employers – as a result of layoffs or retrenchments – in the market is purchased by the State.

That is, JG is a direct intervention in the creation of jobs by the State targeted at absorbing the unemployed.

Hence, the Government plays a role as the ‘gateway’ for the unemployed to the mainstream jobs market by easing the transition and filling in the gap during the unemployment period.

This contrasts with indirect intervention in the market by the tendering of public works projects and government procurement. In the case of the latter, the State would be involved and therefore competing with the private sector to bid for resources.

Normally in big ticket projects such as the construction of the Klang Valley Mass Rapid Transit (MRT), the State would be – via the contractors concerned – bidding up the price of the raw materials as well as competing for labour in the same industry or sector. This means that the State’s role and participation would contribute to inflationary pressures.

In underpinning the JG, direct State intervention will not end up distorting the dynamics and mechanisms of the free market – in line with the broader policy direction and framework of rationalising efforts.

This would mean an increase in the deficit as part of the wider counter-cyclical measures. Hence, the Government would be required to be flexible and adaptable in its approach to deficit reduction.

The wage structure of the JG scheme should not compete with the market – so that it should be set at the statutory minimum level and fixed – complemented by contributions to the EPF, without the concomitance of employee contribution during this period.

In addition, the JG could be facilitated by the Ministry of Human Resources working together with and through Socso to manage the jobs matching and clearing systems at the “bottom end” of the spectrum.

In socio-economic terms, although the JG is neither welfare nor workfare, it can be regarded as being supplemented and complemented by Bantuan Sara Hidup, Peduli Kesihatan B40 and state-level schemes such as Kasih Ibu Smart Selangor (KISS) and Skim Peduli Sihat.

And because the nature of JG is such that it is not reliant on the private sector, impressions and perceptions of crony capitalism and rent-seeking will be neutralised vis-à-vis the opposition.

JG might also, paradoxically, result in some blunting of the Malaysian Trade Union Congress’ (MTUC) wage demands that will in turn help to curb in any inflationary pressures associated with the implementation of statutory minimum wage.

However, it is also argued here that the concept of JG might also be appealing to MTUC. This is because the Government is pro-active in solving the unemployment problem by directly providing jobs for the unemployed. This contrasts with the attitude that unemployment is a necessary evil.

As such, friendlier relations between the Government and MTUC could be better forged and fostered.

Not least, JG could also strengthen the concept of the tripartite (trilateral) relations that include the employers.

In the final analysis, the Government will be seen to be not interfering in the market and thus by extension not to be crowding out private sector investment, on the one hand.

And at the same time, taking direct responsibility and ownership of the welfare of the unemployed, including in the case under consideration here of youth unemployment.

All of this without imposing trade-offs in the form of higher taxation and higher debt level. JG also resolves the Pareto (i.e. the trade-off) dilemma – which means that it is either one or the other. Simply put, under the JG, the trade-off between inflation and employment or between taxation or debt level and employment does not exist.

That alongside the concrete policy recommendations for youth unemployment in the context of JG are the subject of further elaboration for another occasion.

*Jason Loh Seong Wei is head of social, law and human rights at EMIR Research, a think tank focused on data-driven policy research, centred around principles of Engagement, Moderation, Innovation and Rigour.

**This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.

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