RISING EFFECT OF UNEMPLOYMENT ON MALAYSIAN ECONOMY

Introduction

Recently, declining of Malaysian economies literally hits by factors such as oil prices, PEST
macroeconomics conditions and others. Its effects most can be seen in oil and gas industry, mining
and some SME’s sector. Unemployment is universally recognised as not something people will
look up for and economists and academics make clear statement and well research on how
unemployment convincingly will cause dead of loss variety and variability in volatility of economy
natural level that worse cast scenario enhance offsetting gains that everyone have to bear.

Something to ponder when unemployment arise, individual cannot sustain their low living
standards and loss huge benefit of employment such as non-financial benefits including structured
time, social status and pecuniary work benefits. People would still thinking on how much
unemployment will affect the country until its related to the economic problem. The costs of
unemployment to the individual are not hard to imagine but the person who suffers such situation
will often have an immediate effect and having serious financial trouble without incoming sources
of living. The problem of unemployment regardless its high or low is one of the issues in economic
moreover politic, social, technological and environmental. Unemployment cause deficiency and
categorise people to certain level of property and status in any country that prompt politician and
bank to have different opinion about price stabilisation which could prevent economist to analyse
what is the real solution, problem and issues that make one of the economic problem to happen.

Back to the basics, there is four proposition of well balanced government indicators in economic
portion. Firstly, the inflation rates that may disrupt cause of living. Secondly, unemployment rates in
Malaysia that being affected cause by economic downturn. Thirdly, the balance between export
and import trades that must surplus to maintain long term sustainability, show Malaysian capability
to compete and helping people as their main purposes of economics as government that applying
mixed economics. Lastly, GDP income per capita of our national earn must be positive. After all
above things being summarise together, the economics of Malaysia shall begin and ended with
positive tenure.

1
Definition and history

Generally, unemployment is rate that can be defined by either national definition or authorise body
definition according to what they researched for. Feyisetan (1991) defines unemployment as a set
of people or citizens of a country who are willing and are able to make available at any given point
in time their efforts for gainful employment and (World Bank, 1998) produces unemployment as
situation where people are willing to work but could not find employment, including those who have
lost jobs and those who have voluntarily left jobs. In Malaysia, unemployed persons are individuals
who are without a job and actively seeking to work.

The first thing to look is how Malaysia responds and evolves towards globalisation era. In 1985, the
uses of English Language and Economic development, work opportunities, industrialisation,
emergence of soft skills and working skills also changing rapidly according to time that make
unemployment really hard to be compared. In Malaysia, the races for this country divided by British
when they colonising Malaysia back at 1950s. Chinese and Indian working in some other sectors
while Malays in some other sectors. The market develop in both rural and urban areas that caused
internationalisation such as large population migration either its from outside or local. As the
economy continuously to grow faster, there is an increased competition among nations where
greater labour market flexibility and a lot of jobs need to be created to align with high demand.
Construction industry is the perfect example to describe evolution of market and job industry
because it has been experiencing short of labor since 1980s but the demand of labor has
increased. The graph below shows the rising effect of unemployment in Malaysia.

2
Types of unemployment

Unemployment can be divided into three types which is :

a) Frictional unemployment : People are deciding to move among job of the people, career
options and working location
b) Structural unemployment : Mismatch of skills of unemployed workers and availability of the job
is in the market that included seasonal unemployment (Wikipedia, Structural Unemployment)
c) Cyclical unemployment : Related to the economic cycle situation such as peak and recession.

Types of unemployment is really important to understand because frictional unemployment

considered as good such as career changing due to wages, location and personality and it
determines as healthy condition while structural employment happen when structure of economy
changes and technological advancement caused by methods of production that keep changing
while seasonal unemployment happen when changing seasons and cyclical unemployment.

Objective

Unemployment regardless its short term or long term for individual, society and country creates a
massive cost to the whole economy which affected national output, fiscal and monetary policy and
obviously social costs. The objective of this paper is to examine four important consideration
whether rising unemployment issues in Malaysia is getting worsen. In the sense of history of
Malaysia towards unemployment, recently, declining of Malaysian economies literally hits by
factors such as oil prices, PEST macroeconomics conditions and others causing a lot of temporary,
part time and contract workers being terminated due to the economy conditions. To prevent from
these matters continuous to happen that can lead to chaotic and disaster surroundings, this study
acknowledge some action, process and system that must be fix if Malaysia want to prevent expose
to the catastrophic situation.

I. Chronology of recent rising unemployment issues in Malaysia

II. Consequences of continuous unemployment in Malaysia
III. Main factors of unemployment in Malaysia
IV. Government action to overcome the issue of unemployment and recommendation to prevent
unemployment effectively going to happen

3
Literature Review

The landscape of globalisation era has caused dynamic capabilities of the market change and risks
become bigger. The old school method where teacher used black or white board intensively mix
with current tech such as slides and computer. The awareness of rapid changing become solid
evidence where employers challenging task to suit with all those criteria before they start hiring,
expanding and decently providing. Amanuddin, Khairon, Naim, Zahidah and Thevamalar (2013)
stated government took several initiatives to reduce unemployment issues such as 1Malaysia
Scheme Training (SL1IM) and graduates will have to develop market oriented skills to meet the
challenges as well as official retirement age has gone up, continuously FDI and Malaysian
Economics Program Transformation 2020 (NEP) where Malaysia try to transform to analyse future
challenge and cope with changing era of globalisation in the world without intangible boundaries
that can reduce unemployment in the future. Recently, the transformation programme of NEP
evolve to National Transformation 2050 (TN50) which sets the course for a new way forward for
Malaysia lead by YB Khairy Jamaluddin which what Malaysia need but still vulnerable if politics
and government ruling will changes that can cause main issues of economics such as
unemployment at stake.

The increase in labour costs, lower revenues and poor sentiments due to the ringgit’s volatility,
political uncertainties and rising costs of doing business will congruently affecting Malaysian
economy as a whole especially unemployment. Chimnani, Bhutto, Butt, Sheikh and Devi (2012)
raise issues besides inflation and interest rate, the relationship between exchange rate and
employment are the major factors that keep importance in country’s economic progress but
exchange rates are among the most observed, examined and governmentally manipulated
economic measures that cause unemployment symptom is another major problem. Besides that,
the level of unemployment is moving up and the most crucial reasons such as increasing rate of
population growth, unliterary, bribery in public sectors and government policers for reducing
inflation and trade deficit is raising up and some factors of labor migration and incapability of urban
areas to provide unemployment because of insufficient factors. Apart from that, Malaysia policies to
open up their degree of openness are affected more from exchange rate fluctuation and this
statement support by Kim (2005) in Chimnani, Bhutto, Butt, Sheikh and Devi (2012). Haddad, Lim,
Pancaro and Saborowski (2012) claimed trade opens reduces growth volatility when countries are
well diversified.

Elangkovan (2012) stated that the cause of unemployment due to the minimum wages that being
gazette by Malaysia Government is still low that make Malaysian want to emigrate to foreign
country. When there is an issue of foreign workers working at Malaysia and Malaysia now is full

4
with immigrant or foreign workers and Malaysian government want to bring more another 1.5
million foreign workers, some Malaysian that work currently in Singapore explains they become a
bit choosy because of wage rate they received in another country such as Singapore is much more
higher. The era of globalisation that make minimum wage policy in Malaysia also criticise by others
that claim they are not sensitive when they rise up prices but minimum wages is still low and put
them in poor level or status with salary less than RM 4000 is consider poor. It means almost half of
the country living in poor condition and government should reduce price and even Zulkfili and
Shanmuganathan (2016) stated that graduates choosing work and their too choosy attitude cause
them to not be hired, graduates do not seize the business opportunity that exist and promising
earnings commensurate, it does not proven at least 90% that it is problem that cause by people
who are unemployed yet because it contradict with what Elangkovan (2012) have stated in her
research and as best alternative choose to enhance motivation and prevent job burnout and stress.

However, the relations of job burnout and stress is very highly unrated to solve economics problem
who actually related so much with behaviour of their employee especially in lower level sector.
Darmi and Albion (2012) stated when students graduated from university and when they will search
for work, the criteria of graduates such as language proficiency and communication skills is the
main focus they will try to improve and impress but it is before the increases of job demand in the
market become highly frustrated. They compete and organisation offered lower to some new fresh
graduated that looking for a job throughout their results, experience and market liftings and since
2009, unemployment keep increasing and they stated graduates remain unemployed due to the
lack of knowledge and competency in the applied jobs but throughout the studies, it is not the main
factor unless the study only focus on fresh graduates.

Economic problem such as unemployment and inflation can cause demotivate to society that tend
to blame them if there is anything happen to our economic problem such as world oil prices
decreases and caused oil prices in Malaysia increases and highly affected in many goods and
services so to prevent demotivation such as work overload, emotional and work home interference
from public that may set up demonstration to ask why our country bear too high debt and causing
society to decrease their social support that finally can highly effected the health of workers and
insurance takaful bill will rise that can cause chaotic problem to Malaysia so Malaysian will
consider to stop from taking medical takaful and etc. When people unemployed too, it increase the
problem of mental health of workers that actually shorten lifespans. Life is consider as an engine
and as metaphor to unemployment issues on individual that work and have to earn payment to pay
their expenses, that ‘engine’ could be damage due to the stress, burnout and demotivate.
Schaufeli, Bakker and Van Rhenen (2009) explained that unemployment or resources of income
can be foster and overcome through a motivational process to prevent burnout or exhaustion,
cynicism and lack of professional efficacy that can prevent mental health of workers since
unemployment consider only people who search for work or attended a lot of interview but cannot

5
get the work yet. Linn, Sandifer and Stein (1985) exposing the effects of unemployment on mental
and more worse, physical health. From a prospective study of the impact of stress on health
depending on their psychological powers to secure basic life requirements through employment.
Uniquely, even after unemployment, symptoms of somatisation, depression and anxiety still higher
that may lead to lower self esteem and produce various of health consequences when efforts to
locate work are met with failure over a long period of time and both macro and micro perspective
and relate to strengths and weaknesses of individual itself to cope with the pressure. Marcus
(2012) proved that research on 1985 made by other researcher is correct stated there is health
implications of job loss and unemployment for those who directly affected and Browning et al
(2006) in Marcus (2012) impact their spouses too which will be explained later. Ajaegbu (2012) put
a statement that country will exposed to some crime if unemployment continuously to rise. Besides
economic prosperity that will be cancelled and channeled negatively, it will be huge loss to the
nations and causing economic that producing weak moral values and that will end up to the
economic instability and social unrest which could cause businesses scared to running and do their
daily transactions. One of the crimes that commonly associate with unemployment issues is snatch
theft that can cause breach of peace condition in focus of Malaysia.

Noordzij (2013) examine that counselling the unemployed is harder and effective method need to
be developed. The comprehensive method at work place could result to absenteeism and low
performance even in some other aspects some of these things can be more positive. The
resources predict burnout can be means as syndrome of exhaustion and lack of professional
efficacy due to high competitions that need to be expressed and manage by employees’ as they
have to maintain, preserve their work 24/7 and take care of their mental and emotions. In the most
simplest way, job demands and resources need to be balanced. The issue right now in our country
is the job open is to little and the requirement also at high standard. They cannot manage to go to
work and their effectiveness may take months before they can get a real job. This is the biggest
factors that been tolerated by Schaufeli, Bakker Rhenen (2009) to develop the characteristics that
can help employees’ to be much better employees that can statistically help organisation perform
better in some of nicest way with values and intensity. In order to be fair, the fresh graduated also
need to lower their demand. Personally, it is not organisation fault either to not accept
inexperienced workers with high wages and benefits without proven contribution or track record.
The job demand and resources need to be balanced with the ‘production’ of workers from
university and it can lead to work engagement and absenteeism due to the pressure they have to
cope.

Heng Guie (2011) in Elangkovan (2012) stated also the government has set certain minimum wage
that only recently changed when Malaysian citizens already comfortable and adjust their time at
current company. This produced negative impact towards Malaysian economy due to the problem
they caused as any potential loss of jobs will be more than covered by its multiplier effect as it less
decrease money for their workers that causing them to finally end of pension subsidy.

6
Chronology of rising unemployment issues in Malaysia

1) Comparatively, it started become like a wave of retrenchment started in 2014 where 10,000
employees being retrenched.
2) In 2015, Malaysian Airlines Berhad had retrenched 20,000 staff and rise on 2016 with 6,000
MAS jobs were cut.
3) Retrenchment in 2015 also saw the banking sector cutting down its workforce, starting with
Standard Chartered Bank laying off its Malaysian workforce by 11% followed by CIMB Group
Holdings Bhd with 3,5999 employees and RHB Capital Bhd with 2,700 employees or 15% of its
workforce.
4) In manufacturing industry, Naza Automotive Manufacturing Sdn Bhd laid 255 workers from its
plant in Gurun, Kedah followed by CCM Fertilisers Sdn Bhd laid off 232 employees as part of
plans to shut down of one of its plants.
5) American hard disk maker Seagate Technology Plc and computer data storage firm Western
Digital Corp (WD) relocate the bulk of their operations to Thailand results in downsizing.
6) Malaysian Employers Federation also frozen intake in 2015 that results 15,000 job
opportunities in the public sector is loss and ideas to downsize public sector will become more
worse with government reject the ideas return back who proposed such things will be the first
one to be reduced in their salary.
7) Some GLCs company started to retrench their non-permanent workers and lot of news
claiming they ready to cut thousands of jobs.
8) The Malaysian Employers Federation has opposed Putrajaya’s plan to introduce insurance
takaful scheme to protect retrenched workers which until that bad.
9) Over 2,000 retrenched in Penang this year alone according to Malaysian Trades Union and
241 employees of TS Solartech Sdn Bhd reportedly given 24-hour notice.
10) The Malaysian Employers Federation (MEF) asking government to postpone minimum wage
order and said about 30,000 employees, especially at lower level, may be retrenched.
11) Expansion of financial technology of services results 20,000 were retrenched
12) Nike and Adidas started shift their production factories in US and Germany due to rising labor
costs and companies find it viable to shift there(http://www.thesundaily.my/news/2072903)
13) UNIRAZAK retrench their interim teachers out of 209 local temporary teachers
14) Ministry of High Education stated there is 2,000 part time lecturer and contract were
terminated/ non-renewal contract
15) Datuk Shamsuddin Bardan, Executive Director of Malaysian Employers Federation noted that
the unemployment rate could increases high as 3.7 % from 3.5 %.
16) TESCO cuts about 600 jobs in Malaysia and a lot of other companies yet to declare their
retrenchments and expect another 3,000 will be retrench after that

7
Main factors of unemployment in Malaysia

Based on factors we manage to discuss in literature review part, the first main factors of
unemployment in Malaysia caused by the increase in labor costs and lower revenues. It is so hard
to imagine that company can survive without incoming prospect of economic stability due to a lot of
reason. It is explained in chronology of rising unemployment issues in Malaysia. Because of that
problem, they tend to reduce employment to make sure their operation cost not go to high or the
least they can do is cut off cost by reducing current employee wages and frozen future
employment to retain same productivity and output.

The second main factors of unemployment will be ringgit’s currency that not stable. Since mega
project of 1MDB case hit Malaysia with a lot of rumours, scandal, loss of foreign investment with
investor tend to loose their trust on ethicality of Malaysian government in term of transparency and
numerous action which hard to be explained, ringgit currency become worse time by time. The
USDMYR increased 0.0025 or 0.06% to 4.4275 and historically, the Malaysian Ringgit reached an
all time high of 4.71 in recent studies by Department of Statistics Malaysia. According to Wikipedia,
the ringgit would experience more acute plunges in the value since mid-2014 through uncertainty
of 2015-2016 Chinese stock market crash of turbulence that trigger another plunge in value of
Ringgit. Besides that, instability of Donald Trump election by United States political situation that
not helping at all and TPPA USA withdrawal caused high affect of worsen Ringgit currency because
China and United States both is Malaysian largest trading partners.

Next factors will be the increases of population and growth in Malaysia. This is the only situation
where almost every country facing the same problem and Malaysia seriously need to find an
alternative to cope with the situation through Islamic and proper management to help economy to
enlarge and embark challenges in the future. The increase of population and labor force in
Malaysia is conversely not accompanied with job opportunities offer. Studies in 2013 shows that
Malaysia Population and growth simultaneously increase to 29.7 million and because of that,
development of labor rates has become slow. Through data of world bank, the exact of Malaysian
population 30,331,007 and graduates keep increasing looking for a new job so the competition
continuously to rise.

The union concerned for job losses from bank merger that will result in some job redundancy and
closure of branches will cause highly magnitude of job cuts and catastrophic situation. This action
is right to raise before the implementation because after being implement, its hard to change the
outcome. Is this a time to take risk? The chronology above stated that some merger, acquisitions

8
and downsizing of company such as Western Digital and Seagate highly affected to contribute to
the major unemployment factors.

The technological change has become debate over the years whether machine can replace
humans and effectively doing the job productively with minimisation of mistake and high
productivity associate with efficient. The technical potential for automation in manufacturing side
especially caused worrying to a lot of active workers which they afraid their work can be replaced.
A robot for instance has mainly encourage dreamers or genius to develop something that can be
replaced current automation. In Malaysia, the sectors that highly affected is financial services.

Furthermore, migration issues of Malaysian to other country and foreign workers coming to
Malaysia for work is susceptible for some sectors is highly concerned issues to tackle
unemployment problem in Malaysia. Malaysia is very highly needed the workers that have high
skilled but Malaysian that study abroad choose to contribute elsewhere make Malaysia have no
choice rather than hired foreign too. Even standard of minimum wages set up by Malaysia
government currently not match with what neighbours country can offer such as Singapore and
Australia and weak of Ringgit volatility causing the problem of wages getting bigger, migration
issues is something that cannot be underestimated.

Last but not least, the degree of openness of trading by Malaysian government such as
liberalisation and national industrialism to the economy will make economies are naturally more
exposed to external shocks. The explanation towards non-technical summary of open trade and
economic volatility relationship is simple which is an open economy is expected to face higher
exposure of high risks that can cause we highly depending on certain sectors only. Economists and
expert manage to find relative importance of product diversification that clearly moderates the
effect of trade openness on growth volatility. The relationship results strong evidence pointing to
the important role of export if it diversify more in reducing the vulnerability of countries to global
shocks. It is support by noble prize recipient, Joseph Stiglitz as Stiglitz and Charlton (2012)
outlines an alternative path for aid for trade as part of a pro-development multilateral liberalisation
agenda and later also succeed to find liberalisation will cause high poverty and inequality. Its
interesting to quoted what Stiglitz and Charlton (2012) “Output was decreased, not increased. It
should have been obvious that the neoclassical model did not describe economies in which there
was, even before liberalisation, high levels of unemployment” which related to the main issues of
economic policies implemented by Malaysian government since 2012 causing bad effects to
Malaysia itself. Some local companies also will experienced losing of ownership if they’re not
aware with game changing environment losing their stakes to foreign which if fall to wrong
authorisation, that particular company will be a history.

9
Malaysian government policy towards unemployment issues

Malaysian government has taken certain action towards unemployment issues and regardless of
effectiveness the decision has being made, the action will be evaluate either it is really solved the
problem or make it worst.

a) Malaysian Employers Federation (MEF) action

According to the president of MEF, Datum Shamsuddin Bardan, more people are expected to be
retrenched in 2017 as compared with previous years due to the current economic challenges and
introduction of game-changing technology in some industries. The action that MEF legally speaks
is :

i. Requirement to retrench foreign workers first

Notwithstanding the “Last In First Out” or LIFO principle, employers are required to comply with
Section 60N of the Employment Act 1955 when carrying out retrenchment exercises. The employer
shall not terminate unless he has first terminated all foreign employees employed by him and
should there a breach of Section 60N, a complaint claiming that he is being discriminated against
in relation to a foreign employee.

However, LIFO exemption can be permitted as junior employee may have special skills or
qualifications required by employer.

ii. Compensation
Unless the employer is able to show reasonable and cogent excuse to depart from the law stated
above, employee who was unfairly retrenched or dismissed may recover not more than 24 months
back wages (based on their last drawn salary).

iii. Follow guidelines issued by Ministry of Human Resources

Comply with LIFO principle and any guidelines issued by ministry is very important to ensure
potential claims and reduce worsens situation. Ministry advised employers adopt the practices and
policies that are in accordance with fair and labour laws in Malaysia. The other guidelines is
employment insurance scheme that will explained later.

10
b) Official retirement age

Malaysian government has taken some serious policy in extending official retirement age that
effectively can solve unemployment issues and several other factors such as lack of expertise and
valuable talent before the knowledge can be transmitted by a lot of approach. Minimum retirement
age of an employee shall be upon the employee attaining the age of 60 years and the employers
can added higher than that such as using contract basis. They also protect employee so they
cannot be prematurely retiree by their employer before they reach minimum retirement age.

The increase in the official retirement age turned out to be an effective tool to increase employment
of older workers, Staubli and Zweimuller (2011) which massively caused increasing in the country’s
delaying labor market exit and increasing employment of older workers. Besides that, welfare
benefits shows that increasing in official retirement age caused a substantial increase in registered
unemployment and (Burtless (1986), Krueger and Pischke (1992), Borsh-Supan and Schnabel
(1998), Coile and Gruber (2007) in Staubli and Zweimuller (2011) claimed so it causes more and
more trend for public servant to retiring earlier. The trends raise concerns about the financial
stability of public pension systems because individuals tend to claim retirement benefits longer and
the ratio of workers to pensioners is expected to rise.

Usually, old workers that retiring from public services will use their experience to becoming CEO,
shareholders or businessman and using their experience to accumulating and generating new
income and put them back as employed workers or labor force. The transfer of knowledge through
apprenticeship and mentorships is time consumed and organisation feel appreciated because they
can mix up the ideas and propositions from youth and experiences to achieve best decisions
without any discrimination. At least, many private companies applying that and public sectors
should try the same way. Our prime minister, ex-prime minister and others also can be generally
belongs to the effective policy done by our government.

Besides that, according to the book “Advances in Production Management Systems Value
Networks : Innovation, Technologies, and Management” by Jan Frick Bjorge Timeness Laugen,
when highly skilled workers who are close to retirement age increasing, workers who need more
education and skill to product the increasing in the globally localisation plants reduced and many
adjustments need to be taken. It highly related to Malaysian country where they put high
investment to student to study overseas but they do not want to come back to Malaysia and
consider loss to highly skilled workers in long term period.

11
c) 1Malaysia Training Scheme (SL1M)

1Malaysia Training Scheme introduced by government in 2011 as a programme to enhance

capability, employability and ability of graduates to gain employment in collaboration with
government with Government Linked Companies (GLCs) and the private sector as part of its
corporate social responsibility (CSR) which includes that companies agreeing to provide training
and job placement to graduates who need opportunities for career advancement and eligible for
tax incentives. The main objective of this programme is to increase number of skilled workers in-
line with country’s aspiration The company involved is very well known such as Sapura Kencana
Petroleum, Tabung Haji, Telekom Malaysia (TM), UEM Group and etc which they assist and
recommend appropriate sort of method, tasks and training programmes covering soft skills and on-
the job training for a maximum period of one year and currently reduced only to six months with
opportunities if they performed, they will be absorb and hired as permanent. The target group for
this programme are unemployed graduates holding a bachelor’s degree and the company must be
a legitimate company involved in the training scheme and recognised by Economy Planning Unit
and companies must ensure all candidates appropriately employed before the end of programme.

d) Hiring foreign workers regulations

Government policy towards foreign workers extremely slow and confused. However, government
has decided to stop the recruitment of new foreign workers where Malaysia will frozen hiring
foreign workers because of worrying statistics due to almost 4 million workers is illegal. They are
Myanmar, Bangladeshi, Vietnamese, Nepalese, Pakistanis, Philippines and Indonesia. Foreign
workers that legally entering this country can increase productivity and national output. The reason
behind this frozen decision also logic and rational based on population of Malaysia that increase
over year and there is no room for illegal foreigners without permission since they stated this is
their priority to solved. How come they entered our country at the first placed? In addition,
employers who wanted to hire foreign workers should recruit existing foreign employees including
those whose permits had expired under Illegal Immigrant Comprehensive Settlement Programme.

Besides that, Malaysia try to not encourage foreign unskilled workers as they put more tax such as
levy to the manufacturers and others. The confusing of new policy would add pressure to margins
because production costs will rise and seller will past the cost to their customers. The prevailing
effort has been criticise by many experts because in the end, manufacturers will reducing benefits
and even increasing of unemployment such as what happen in Penang.

12
Executive Director of Malaysian Employers Federation (MEF) has urged Prime Minister Datuk Seri
Najib Tun Razak to intervene government action and has said nearly all industries were unhappy
over the decision forcing employers to pay the annual levy for foreign workers as the government
did not discussed it with them before enforcing it. SME Association of Malaysia National President,
Datuk Micheal Kang Hua Keong said the association opposed the decision that can caused
employers would face more risk of losing legal foreign workers. Besides that, MEF and Immigration
Department clearly have a lot of contradicting and failing mutual understanding such as recent
news Immigration Department to freeze the assets and bank accounts of industry employers who
hire and harbour illegal foreign workers and the implication towards that will result Malaysian and
legal foreign workers losing their jobs.

d) Fiscal and monetary policies issued by government & Employment Insurance Scheme

Generally, monetary policy should be cutting interest rates to boost aggregate demand while for
fiscal policy, they should be cutting taxes. In C, it’s clearly they raise up some taxes. In general,
fiscal policies can decrease unemployment by helping to increase aggregate demand and the rate
of economic growth. It means, if firms produce more, there will be an increase in demand for
workers as well real GDP and therefore it can lower demand-deficient unemployment. In general
for monetary policy, currently interest rates of Malaysia is moving up while they supposed to lower
interest rate that will reduce exchange rate and make exports more competitive. Currently, what
government do is really a vice versa which is when exchange rate is in torrid moments, they tend
to play with interest rates decision which was ineffective. There is a lot of article by economist to
ensure for 2017, government implement right fiscal and monetary policy to tackle not just growth of
GDP but everything else that going to be affected.

The proposition by MEF to introduce insurance scheme to protect employee who have been
retrench also will not effective enough because the claimed will be lesser than the amount given.

However, Employment Insurance Scheme (EIS) will be introduced around January 2018. It is
definitely a cost to employers and employees and the contributions rate is still uncertain at this
point, but it is definitely a new payroll tax for employees and most certainly a cost of doing
business for employers.

In terms of economic cycle, a declining and downturn business cycles towards recession affecting
businesses a lot. Ministry of Human Resources says the EIS merely makes companies realise a
cost that should have been set aside in the first place and retrenchment benefits are usually
contingent liabilities or off the balance sheet items recognised by companies. Human Resources

13
Development Fund (HRDF) also will plays an important role in these new things that will be
implemented next year and if its happen, government should also contribute by having a fund in
which at least one month of the retrenched employee’s salary is saved, thereby ensuring that there
is at least a three-month payout for the retrenched worker.

The other important issues raised by economist and researcher says the poling of resources by
HRDF and SOCSO, which some quarters believe have been tasked to manage the EIS, could also
be an alternative solution but for 2017, it looks like both employers and employees will just have to
wait patiently for the details of the EIS to be made public.

e) Foreign Direct Investment (FDI)

Foreign Direct Investment (FDI) with larger amount increased and produced more job market and
thus improving the Gross Domestic Product (GDP) of Malaysia. Apparently, the investment from
outside ensure continuity of project like Pengerang in Johor and many other. However, Malaysia
still lack of positive impact towards growth of economy and unemployment rate because of FDI that
still not match with other developing countries and as recession is unpredictable and sudden
exchange rate that influenced economic stability of Malaysia, injection of FDI and proper
management to manage FDI is needed.

Unemployment affect as a whole

Firstly, unemployment will create less spending situation due to the income they have not earn.
When they cannot have income, they would not spend and it cause seller cannot create the cycle
they should. They will contribute less to the economy and they will not involve in paying tax due to
lack of jobs and especially their income does not match with tax evasion. Besides losses of
income, unemployment also create expenditures and societal problems that negatively affect
whole community such as individuals and society due to their chaotic approach to continue their
life and earn as much helps as they can. Typically, an unemployed person must rely on a
combination of savings, income from family members and help from government for financial
support.

In term of GDP, increasing affect of unemployment also involves a loss of potential national output
such as the potential GDP exceeds real GDP and increased in spare capacity due to the output
gap that surely lead to negative because no employee manage to produce. When people in an
economy are unemployed, society will spend less towards goods and services and tax that being
charge to the goods and services is not helping. GDP gap also measures the loss of output only to

14
the extent of cyclical unemployment. On top of that, according to Okun’s law, there is negative
relationship between unemployment and and GDP which is more lower the unemployment, the
higher GDP should be produced.

By relation towards this matter, unemployment also cause affect to inflation. Furuoka and Munir
(2014) express their opinion regarding the relationship between unemployment effects towards
inflation through Phillips Curve model that was first developed by William Phillips in 1958. There
are few indicators and scenarios where inflation actually that can cause unemployment or vice
versa at least in short term. Even it depends on monetary policy of how the government respond
and set up, Phillips Curve model consistently showing prove there is trade off by inflation and
unemployment. Curve below shows how The Phillips Curve explained the rate of inflation and rate
of unemployment. Rate of inflation relations negatively with rate of unemployment. However, this
theory may not 100% true and depends on situation. Economist and expert researched and find
out in some periods, the falling of unemployment cause falling of inflation where unemployment
fell, inflation also stay low that against Phillips Curve model and this suggests strongly is possible
to reduce unemployment without causing inflation. This statement is strongly supported by results
of Furuoka and Munir (2014) that between 1975 and 2004, both inflation rate and unemployment
rate in Malaysia relatively low that showing hypothesis made by Phillips Curve not 100% correct
and they also stated low inflation is the main target when or if the unemployment rate is high. Error
on the relationship also stated by Gali et al (2005) shows the result of research has prompted the
realisation that a tradeoff between inflation and unemployment is only true for short term with little
impact while other research strongly producing results of positive relation of rate of inflation and
unemployment against the theory of Philliph curve model that stated negative while Gordon (1997)
stated results of negative relations is not constant.

Even though governments rightly fret about the consequences of inflation, rising unemployment
issues due to high debts that keep raising, focus in oil prices that keep declining, fraud and
mismanagement of fund given and waste of million and billion resources which even politics and
human sense cannot explained the action made by statesmen, awful statements towards people
life’s and numerous bulk of joke’s ideas in parliament showing our economic vulnerability and
some effective, efficient and productive action which include moral and ethical values to be
seriously taken.

On top of that, the productivity of organisation and country will decrease and being affected a lot
because when work is available and there is no one hired, productivity will surely goes down and it
turn out bad for the company because they can loose their money and generosity image producing
and sustaining sales and contributing to the society and economic. They also will incurred so much

15
loss because their inability to serve their customers’ needs and eventually will cost them a lot of
money and turn out they will fall down and bankrupt. The workers in the company will become
over-stress due to a lot of work because company does not hiring and overburdened that may
cause their employee cannot stay longer and it results new training to the new workers that lead
them to take extra time to learn from new work and it cause a lot of unhelpful situation. Customer
surely will search for new market and probably have to move elsewhere from their origin country,

For families, loss of jobs and resources cause by unemployment give high impact on their
survivability nowadays, Money and income is very important to pay debts, loan, mortgage and etc
and through jobs, they generate income and paying all those things and unemployment cause
them losing their stability to raise up their child and more worse if they lost their place to live.
Economic and psychological stress can lead to changes in family structure where these negative
consequences are concentrated too bad for their children. Unemployment in social issues also
create lower earnings that result the parents failed to pay their child tuition fees, school fees and
basic Maslow Hierarchy such as shelter, food and place to live. It cause them to divorce, hatred
and may lead to bigger occasion such as theft and robbery. Being jobless can influence them to
commit burglary and other crimes too.

16
Recommendation

a) Continuous Foreign Direct Investment (FDI)

According to Hamidah, Rosfadzimi, Hassan, Halim and Noorfazilah (2016), continuous foreign
direct investment (FDI) will help Malaysia as a developing country to expand, evolve and
emergence as world power and conquer. FDI will help to overcome unemployment issues such as
the visit by King Salman from Saudi Arabia that contribute RM 30 billion to Petronas and many
other funding as direct negotiation or corporate social responsibility not to be mention the
increasing of GDP. Proper take care of wealth investment and charity by King Saudi need to be
closely monitor to prevent money gone without being used to help Malaysia coming back from
economic nightmare situation. The penetration of foreign labor market system will avoiding the
shortage of labour with proper system need to set up because the fact of nowadays, Malaysia is
highly fully supplied by foreign company that have bigger financial effects on Malaysian. We cannot
hide the fact that foreign company such as Apple, Microsoft, Airlines industry, automobile and oil
and gas sectors actually is setting up their businesses for many years. However, cases such as
mining bauxite that affecting our environmental will be a lesson to us there is some boundaries
need to be adjust. On top of that, outward FDI also important to seize the opportunities and
develop network between countries. Malaysia as well diversified country with a lot of potential shall
focus on attracting FDI inward and outward to reduce unemployment rate start from 2017 onwards.

Despite FDI, savings related to domestic investment also can cause growth of result to ensure
domestic savings. It can reduce unemployment problems because government has extra budget to
secure job demand and supply that can alleviate ageing and immigration problem, Musyken (2008)

b) Assuring first job for every graduates after they finish their studies

Hamidah, Rosfadzimi, Hassan, Halim and Noorfazilah (2016) also stated it is not impossible for
country to achieve lower unemployment rate of less than 1% such as Cambodia (0.3%), Qatar
(0.5%), Rwanda (0.6%) and our neighbours, Thailand with (0.7%). As recommendation to achieve
that, assuring first job for every graduates after they finish their studies will be sort of effective
method to solve unemployment issues. Obviously, doing things like this is not an easy process but
it is definitely effective action because year by year, we keep producing graduates with no
guarantee they will be given job and it cause worrying trends with companies networking or ‘cable’
method in recruiting causing inequality in selection.

17
As per discussion during presentation, this action can be done through government collaboration
with all educational institution regardless public universities/college and private.

c) Reduce debt of country by having good Islamic governance

By cutting expenses that not needed such as using transportation that is too expensive for
government servant and proper management of budgeting, Malaysia can reduce their expenses a
lot. In economic Islamic perspective, To relate with the corporate governance and economy, al-
Imam al-Nawawi r.h (631-676H) asked by his king in his time to give fatwa that king can take
people’s properties to be used to defend their country. A lot of other ulama’ at that time were killed
because of not giving those fatwa. When King ask Imam Nawawi why he also doesn't want to
support his governance, Imam Nawawi replies, ‘I heard you have 200 female slaves and they got
box or belt of jewellery. If you spend it all first, until your men’s slaves only wear usual belt , and
your female slaves only wear the clothes without jewellery, and baitul mal have no money, your
own property and land, then I will give that fatwa”. The lessons that can be taken from this fatwa is
the luxury goods production should be checked if it’s necessary because beautiful economy
system of Islam is provides mechanism to keep them operate with their natural momentum without
creating monopolies and concentration of wealth as what Siddiqui (2015) stated. The dinar gold
value back in 2009 can be restored back in term of acceptability like Euro has established.

Besides that, creating debt capital market of Islamic economy hub will be a good wisdom of action.
The propose elements of islamic economics such as interest free loans and reducing gap between
wealth and poor by not choosing USA as their main trading partner anymore. According to Siddiqui
(2015) like what J.R Presley stated in his book, western financing with interest have allowed
individual enterprises, countries and even part of the world to a debt level which are beyond their
capacity to repay and H.I Leibling in his book stated in US the main reasons of secular decline in
the growth of capital stock has not been the lack of aggregate demand but higher interest. The
economics situation teaches and taught by the holy Qur’an and Sunnah is strong and if we have a
looked on history, Rasulullah Saw (PBUH) manage to beat Persia, Rom and Jewish race at that
time in business and more importantly lead economics world of Islamic countries to the excellent
situation.

18
d) More FTAs with other country

Benefits Malaysia can gain from direct FTAs besides eliminating tariffs and eliminate barriers flow
of goods and services between parties, enhance cooperation and encourage investment, e-
commerce and government procurement, FTAs indirectly increases job opportunities and reduce
unemployment because theoretically, both countries have to increases output to ensure demand
continuity and supply availability. Since 2010, GDP was increased until recently, it start to decline
like an economist has predicted. Most recent Malaysia FTAs with foreign countries currently with
India and Malaysian government manage to bring mega project into domestic and vice versa for
them. It should be “the light at the end of tunnel” to occupy some jobs especially for locals.

However, bad and weak implementation, management and strategy will caused unemployment
becoming more worse such as transfer of new technology that may end human or labour force,
poor working conditions as multinational companies may relocate jobs to emerging market
countries without adequate labor protections and taking advantages on country weakness as well
increased job outsourcing that may result in favour of one country that smart enough to spin the
situation unethically and unmorally.

e) Tighter regulations for Malaysian Students must come back to Malaysia after completing
their studies

After investing in their development, studies and research, Malaysia must gain back their
investment on students abroad by ensuring their expertise and skills is diligently utilise. Baruch,
Budhwar and Khathri (2007) investigates individual and students studying abroad are thought to be
inclined to return to Malaysia and the phenomenon is called “brain drain”. It is serious and
pressing issue for Malaysia because they losing people at a higher rate than other nations and
specifically, factors that affecting Malaysian students’ inclinations to remain abroad after completing
their studies is monetary factors, to get permanent residence in their new “home” country, socio-
psychological factors, quality living standards and better career prospects which ended are true
based on unemployment issues and instability in exchange rate as well political vulnerability.
Researcher also added economic and educational policies factors in Malaysia causing current
brain drain.

The tighter regulations and strict law imposed to them will solved long term problem of highly
skilled workers in Malaysia that usually Malaysia hiring and outsourcing them.

19
f) Maintain sufficient high level of demand to create enough new jobs

From series of chronology in earlier section and what action government has took to solve
unemployment, Malaysia need to bolster their effort with 100% focus to marginalise new jobs and
drafting new opportunities so unemployment issues can be solved. It is important for our children,
grand children and next. Anticipating and building enough job opportunities for future needs are in
emergence situation with identifying global drivers of change, opportunities and challenges for
economy to face.

g) Implement economy policies accordingly to what experts of economy have been

suggested

Malaysia is a example of country that fall under category of thinking they was right in every of their
decision and whoever give the opinion or argue with their decision, democratic system will be
forgotten and political issues will be fully entail and between them is economy stability harm and
jeopardise by series of antagonist and weak leadership. Based on what noble prize of economy
has been said which is Joseph Stiglitz and a lot of other economists had stated, the fiscal and
monetary policies, trade openness of well diversified country will causing exchange rate problem,
country’s debt and reliance on USA economy , currency and financing method should be taken
seriously as they researched and examined for the better intention to help Malaysia without
purposely involve in any profitable and political interest.

h) Encourage entrepreneurship and innovation

Instil an entrepreneurial mindset throughout Malaysia’s lower and higher education system starting
from primary school until universities will create a system that produces individual with a drive to
create the jobs rather than to only seeks a jobs and by entrepreneurial meaning, the differentiation
between businessman and entrepreneur must be corrected and well understood so the innovation
purposes can be succeed and in normal situation, entrepreneurship and innovation will create
more jobs like USA entrepreneur such as Mark Zuckerberg, Steve Jobs and Bill Gates that help
their nations becoming an entrepreneur and successfully creating jobs more than you can ever
imagine. This is also big objective of TN50 lead by current minister of Sports, Khairy Jamaluddin.

20
Conclusion

As summary of this issue, government took some action that really effectively solve a lot of
unemployment issues while some action causing a high gap or lag time that critically influence
current statistics of Malaysian unemployment rate. If we take a closed steps on what happen to
Greece, we are hoping that Malaysia will be not be the same like them and few others country
such as Panama, Bolivia, Uruguay and luckily escaped from agreement such as NAFTA. On top of
that, Malaysia successfully overcome some main factors of unemployment while some other main
factors of emergence dangerous of unemployment economics issue is not yet being handled
carefully and rationally but there is still a room for improvement in order to bitter and solve the
situation of retrenchment wave and unemployment issues. The government and MEF prediction
regarding unemployment rate will raise to 3.7% from 3.5% for 2017 is very tense. Effective action
need to be taken and frankly speaking, Malaysia has what it takes such as a lot of expert concern
about what happen in Malaysia, citizens start to realise the importance of globalisation, proper
management on the fund received and how important to tackle unemployment rising effect to
reduce crime rates because it will spread to other issues like inequality and poverty.

As a student, lack of knowledge, understanding and expertise to understand economy problem

causing limitations towards few factors such as fiscal and monetary, inflation and deflation,
government action and etc. The improvement on constructive criticism is very welcomed and
appreciated. The other limitations towards this study is MEF declaring some companies did not
declare their retrenchment.

Despite there is companies not reporting their retrenchment, Malaysia as our beloved country has
take care of their citizens well and shows they are capable to compete, develop and succeed like
any other giant country. Worse still, some of the worst effects of unemployment are both subtle and
consumer and business must remain confidence of very long-lasting and term future of this country
in order to develop right skills needed to build and save besides praying to God everything will be
eased and recover.

Lastly, I want to thank Dr.Salina Kassim for your attention, assessment and education as your
guidelines ensure this topic can be materialise and finalised. May Allah Swt return your favour.

21
References

Online Magazine & Newspaper articles

(1) Vasantha.G (2016) TESCO Cuts about 600 jobs in Malaysia, The Edge Markets, http://
www.theedgemarkets.com/en/node/299423

(2) Martina.E (2016) Another wave of retrenchments hits Penang manufacturing sector, News
Straits Times, http://www.nst.com.my/news/2016/09/176226/another-wave-retrenchments-hits-
penang-manufacturing-sector

(3) Ruddick.G (2016), TESCO considering cutting store staff by 39,000 over three years
https://www.theguardian.com/business/2016/feb/26/tesco-considering-cutting-store-staff-
by-39000-over-three-years

(4) Sathasivam (2016) Challenging times for employers, employees News Straits Times, http://
www.nst.com.my/news/2016/10/177667/challenging-times-employers-employeesThe Star

(5) Melati.A.J (2016) 20,000 lost their jobs in 2015, worse in 2016, says employers’ Trade Union
Congress group http://www.mtuc.org.my/20000-lost-their-jobs-in-2015-worse-in-2016-says-
employers-group/

(6) Bernama (2017),Employers against assets-freeze action over illegal workers, The Sun, http://
www.thesundaily.my/news/2203571

(7) Business Times and Just Read Online (2016) Seagate confirms closure of manufacturing
facilities in Malaysia http://www.justreadonline.com/2016/07/15/seagate-confirms-closure-
manufacturing-facilities-malaysia/

(8) Cheng.L (2017) Out of the 209 local temporary teachers whose services were terminated but
later reinstated following public outrage http://www.theborneopost.com/2017/02/23/unirazak-
puzzled-by-recent-interim-teachers-retrenchment/

(9) Paniirchellvum.V (2016 )MEF : Over 31k Malaysian Workers retrenched this year, The Sun,
http://www.thesundaily.my/news/2072903

22
Online Book with One Author :

(1) Frick, Jan, Laugen, Bjorge Timenes (2011), Advances in Production Management System
Value Networks : Innovation, Technologies and Management

Online Journal Article :

(1) Stiglitz J.E & Charlton.A (2005) The Right to Trade, Commonwealth Secretariat Report

(2) Chimnani.H, Bhutto.A, Butt.F, Shaikh.S, Devi.W (2015), Proceedings of 2nd International

Conference on Business Management, Sukkur Institute of Business Administration, Sukkur

(3) Marcus.J (2015) The effect of unemployment on the mental health of spouses - Evidence from
plant closures in Germany, Health, Econometrics and Data Group, The University of York

(4) Gali.J and Gertler.M (1999) Inflation dynamics : A structural econometric analysis, Journal of
Monetary Economics 44(1999) 195-222, www.elsevier.nl/locate/econbase

(5) Furuoka.F and Munir.Q (2014) Unemployment and Inflation in Malaysia : Evidence from Error
Correction Model, Malaysian Journal of Business and Economics, Vol.1 No.1 June 2014, 35-45,
ISSN 2289-6856

(6) Irpan.H, Mat Saad.N, Shaari.A.H, Halim.A and Noorfazilah.I (2016)

Impact of Foreign Direct Investment On The Unemployment Rate In Malaysia, Journal of Physics :
Conference Series 710 (2016) 012028 IoP Publishing

(7) Elangkovan.K (2012), Minimum Wage Laws in Malaysia : An Answer To The Increasing Rate of
Unemployment, International Journal of Academic Research in Economics and Management
Sciences, September 2012, Vol.1, No.5

(8) Nurizal.I and Syafii.M.A (2012) Islamic Wealth Management : An Analysis from Ibn Sina’s
Perspective, Journal of Islamic Thought and Civilisation, Volume 2, Issue 1

(9) Haddad.M, Lim.J.J, Panaro.C and Saborowski.C (2012) Trade Openness Reduces Growth
Volatility When Countries Are Well Diversified, European Central Bank Report

(10) Amanuddin.S, Hamizah.K, Naim.M, Nafisah.Z, Thevmalar.A (2013) Graduate Unemployment :

The Awareness and Peception of Graduates Towards Government’s Initiatives, International
Journal of Business, Economics and Law, Vol 3, Issue 1 (December)

(11) Zulkifli.M.C and Shanmugathan.R (2016) Unemployment among Graduates in Malaysia,

International Journal of Economics Commerce and Management, Vol IV, Issue 8, August 2016

23
(12) Schaufeli.S, Bakker.A and Rhenen.W.V (2009) How changes in job demands and resources
predict burnout, work engagement and sickness absenteeism, Journal of Organisational
Behaviour, 30, 893-917 (2009)

(13) Ajegbu.O.A (2012) Rising Youth Unemployment and Violent Crime in Nigeria, American
Journal of Social Issues and Humanities, Vol.2(5) pp. 315-321, September 2012 *(Definition for
Unemployment pages 2 also cited from this article)

(14) Staubli.S and Zweimuller.J (2013) Does raising the Early Retirement Age Increases
Employment of Old Workers?, HHS Public Access, J Public Econ, Dec 2013

(15) Siddiqui.S (2009) Islamic Economic System and Poverty Reduction, Research Gate, http://
ssrn.com/abstract=1332618

(16) Darmi.R and Albion.P (2013) Malaysian Graduates : What and Why 3rd Malaysian
Postgraduate Conference (MPC2013) 4-5 July 2013, Sydney, New South Wales, Australia

Others

(1) Unemployment Dynamic In Malaysia : Macroeconomics Paper

(https:firmansyahshidiqwardhana.files.wordpress.com/2012/10/unemployment-numbers.jpg)
(Coutesy by google.com)

(2) Dr.MAZA.COM : Religion is not the opium to playing poor people’s life
(http://drmaza.com/home/?p=808)

(3) “I Am Not Going Back-Lah” An Econometric Analysis Of Post-Study Inclinations Among

Malaysian Students In The United States, Yi Rong Hoo, Honors Thesis, Department of
Economics, University of North Carloina at Chapel Hill, April 25th 2014

(4) Malaysia Unemployment Rate 1985-2017, Department of Statistics Malaysia,

www.tradingeconomics.com

(5) Malaysian Exchange rate https://en.wikipedia.org/wiki/Malaysian_ringgit

(6) Related Data From the International Monetary Fund, file:///BUSINESS%20ECONS

%20JOURNAL/Malaysia%20Unemployment%20rate%20-%20Economy.webarchive

(7) Slide from Dr.Salina Kassim, Chapter 8 Unemployment, Inflation and Business Cycles

24