Long-term unemployment leads to the accumulation of a host of undesirable effects for the individual. Other than income loss and the shame of being unable to provide for the family, prolonged unemployment perpetuates diminishing employability of the worker. In many countries the presence of an effective worker safety net, like unemployment insurance, provides temporary loss-of-income compensation payments. Additionally, employment services may help the unemployed to seek a new position or facilitate training to upskill and thereby contribute to diversifying options for re-employment. However, such assistance are usually limited in duration and serves to sustain the short-term unemployed, but the longer-term unemployed would require distinct help to get out of their predicament. Such assistance becomes more difficult to put in place if the rate of long-term unemployment is high, leading to complications on the social and political front. The chances that the long-term unemployed become disillusioned with work life becomes very high leading to withdrawal into inactive status as described in KILM 13. In this instance, any reduction in the unemployment rate is probably not a favourable outturn.

An increasing ratio in long-term unemployment, as has been observed in developed economies in Europe and North America in the aftermath of the recent global financial crisis, usually signals that the economy must undergo structural changes in the labour and product/services markets to encourage the sustain creation of jobs for the workforce. Policies to address long-term unemployment merits special attention and have to be tailored to the special needs of this segment of diverse jobseekers. KILM 11 is thus useful for identifying the size and more importantly the trend of long-term unemployment and the characteristics of the persons within this group, e.g. gender, age group, their educational attainment and skill levels, and their geographic location. If the long-term unemployment is attributed to the lack of jobs then help has to be focused on job creation. It is generally accepted that the longer a person is without a job, the less likely he/she is likely to find one. In this situation, the personal attributes of the long-term unemployed then needs to be taken into consideration.

If a large proportion of the unemployed are older workers with skills sets and experience that are no longer in demand, which is likely the case when the country transforms from low performing industries to more dynamic ones, the retraining and reskilling efforts coupled with relocation would need priority. If the unemployed are mostly young people, their situation is likely to be more dire, as even assuming there is unemployment insurance, they are not likely to qualify thus making them face more pronounce financial hardship because they have insuffient to no savings to fall back on. Also, prolonged unemployment is likely to lead to the young to withdraw from the workforce in resignation. Policies to address the needs of the young would in addition to training and reskilling need to focus on special employment programs and apprenticeships for them to gather the work experience and improve their chances of landing permanent jobs in new areas of growth.

With prolonged unemployment, there is also the possibility that workers are pressured to take on any job available, which in many instances may not commensurate with their skill levels and experience, leading to skills related underemployment and the likelihood of a decline in their earnings potential and future employment outlook.

As is common for most KILMs, the limitation and comparability considerations relate mainly to the data collection process. This is especially relevant for KILM 11. Survey timing tend to strongly influence how the duration clusters are populated. Moreover, the presence or absence of effective workers safety nets like unemployment insurance or employment services has a bearing on how many people fall into long-term unemployment or the different duration clusters. For example, the more generous and lengthy the unemployment compensation pay outs persist, the more likely that a worker will stay unemployed to await a better job or take part in training as required by the insurance rules.

Another limitation is how individuals response to questions on their duration of unemployment. The responses may be imprecise, particularly if joblessness has been prolonged. The individuals may not recall exactly when they became unemployed, so that 10 months may seem to be one year or longer. Also, the person may have in the interim taken on a temporary job, which may not be considered as real employment and thus claim continuous status as an unemployed. Nevertheless, even with these caveats a measure of long-term unemployment provides an indicator that is important for addressing the special needs of this segment of the unemployed.

Ensuring that young people are gainfully employed is generally a major consideration of policy makers regardless of the stage of development of the economy. The term “Youth” used in this indicator covers the segment of the population in the 15 to 24 years age group, while those 25 years and older are considered to be adults. KILM 10 depicts four distinct aspects of youth unemployment: (a) the youth unemployment rate (youth unemployment as a percentage of the youth labour force); (b) the ratio of the youth unemployment rate to the adult unemployment rate; (c) youth unemployment as a proportion of total unemployment; and (d) youth unemployment as a proportion of the youth population. A supplementary indicator, which is useful to have if such information is collected, is a measure of the proportion of the youth population not in employment, education or training, or the “NEET” rate.

The NEET thus accounts for the young people who are either unemployed or not in the workforce all together for reasons other than education or training. KILM 10 can be further disaggregated by gender, by state and by strata.

The data for estimating KILM 10 is captured through the Labour Force Survey conducted periodically by the Department of Statistics Malaysia (DOS) using the household survey methodology.

In today's modern world, young men and women are faced with increasing challenges, elevated expectations and demands foisted upon them by family and the community, as well as great uncertainties as they embark into the next phase of life in search of gainful employment with financial independence. This experience could be sometimes traumatic for certain people, especially when they are burdened by education-related debts or tight family financial situations. Under these circumstances, the prospect of unemployment, or actual unemployment, or even underemployment may compound the anxieties of young people and lead to disillusionment which at worst may contribute to their withdrawal from participation in the economy. Evidence from industrial countries suffering large youth unemployment rates show that the psychological consequences for young people include greater likelihood of feeling ashamed, rejected, lost, anxious, insecure, down and depressed, isolated and unloved. Unemployed youths are likely to have problems with health, friendships and family life compared to those with work or studying. They have less confidence about the future, are more likely to turn to drugs, think that there is nothing to look forward to and sense that their life has no direction. Some long-term unemployed youth reported having suicidal thoughts. These sentiments are sometimes referred to as the 'scarring effects' of youth joblessness.

Youth unemployment has also been shown to have lifelong effects on income and employment stability, because the affected persons start out with weaker early-career credentials, and show lower confidence and resilience in dealing with labour market opportunities and setbacks over the course of their working lives.

Relatively large numbers or increasing amount of unemployment among youth could have particularly negative economic implications. Unemployed youth would not be able to contribute effectively to national economic development, especially in this important stage of economic life when their propensity to consume is the largest. In other words, if youth unemployment rates are unduly high, targeted policies to increase youth employment could have multiplier effects for the economy through the boosting of consumer demand and adding to tax revenue.

Structural economic changes may include shifts from agriculture and low-end manufacturing to other areas of economic growth. Agriculture and also some areas of manufacturing/factory work has traditionally provided many youth with jobs or apprenticeships. But the progressive shift to services and more dynamic cum innovative sub-sectors of manufacturing (see KILM 4: employment by economic sector in Malaysia) with less labour intensive processes have reduced job opportunities for youth overall, especially for those lacking the skills and educational level to transit into the new growth segments. Moreover, within the growing services sector, transformations stemming from rapid innovation in information technology has also reduced the need for low to semi-skilled office clerical and sales personnel, which has had a particularly negative impact for female youth.

Another noteworthy question that needs to be addressed is why unemployed youth cope with the situation much worse than unemployed adults. Everywhere in the world, youth unemployment rates are consistently higher than adult rates and there are some factors unique to young people that shape how the lack of a job is managed. Young people encounter difficulties in the labour market because of lack of work-relevant skills. They also have insufficient knowledge, information and connections on how to acquire the relevant or appropriate skills, especially youth from poor households. In some instances, there is a reputational issue because first-time young workers and their parents perceive that certain jobs or the qualifications identified with training institutions like vocational ones are considered “low” status. They fail to appreciate that these jobs may actually require a high level of skill or that vocational/ specialized training agency offer high skill accredited courses. In some instances, the career prospects and future earning potential may be superior to that of the academic as opposed to that of Technical and Vocational Education and Training (TVET) streams.

Young people searching for a job for the first time most often lack knowledge about what the world of work is actually like, and have insufficient understanding of potential career choices. They may also not possess the credentials that could get them started on an upward path, especially when there are limited opportunities for entry-level work that is career oriented. Employers are often reluctant to invest in training young people when more experienced adult workers are available, thus youth is unable to acquire workplace relevant skills, including on cooperation, communication, critical thinking, creativity, and the needs of the enterprise. Another factor accounting for reluctance by firms in hiring young workers maybe inflexibility in labour market regulations which may be antiquated and not responsive to newer job modules or structures of innovative future new growth areas, which calls for greater flexibility in hiring and laying off staff to reflect changing environments and in setting work hours matrices or workplace arrangements. Thus there may be a need to frequently review labour market policies that maybe inevitable affecting youth job prospects to make sure they continue to be consistent with economic realities which may call for greater agility, mobility and transferability in the workforce and the workplace settings.

In today's modern world, young men and women are faced with increasing challenges, elevated expectations and demands foisted upon them by family and the community, as well as great uncertainties as they embark into the next phase of life in search of gainful employment with financial independence. This experience could be sometimes traumatic for certain people, especially when they are burdened by education-related debts or tight family financial situations. Under these circumstances, the prospect of unemployment, or actual unemployment, or even underemployment may compound the anxieties of young people and lead to disillusionment which at worst may contribute to their withdrawal from participation in the economy. Evidence from industrial countries suffering large youth unemployment rates show that the psychological consequences for young people include greater likelihood of feeling ashamed, rejected, lost, anxious, insecure, down and depressed, isolated and unloved. Unemployed youths are likely to have problems with health, friendships and family life compared to those with work or studying. They have less confidence about the future, are more likely to turn to drugs, think that there is nothing to look forward to and sense that their life has no direction. Some long-term unemployed youth reported having suicidal thoughts. These sentiments are sometimes referred to as the 'scarring effects' of youth joblessness. Youth unemployment has also been shown to have lifelong effects on income and employment stability, because the affected persons start out with weaker early-career credentials, and show lower confidence and resilience in dealing with labour market opportunities and setbacks over the course of their working lives.

Relatively large numbers or increasing amount of unemployment among youth could have particularly negative economic implications. Unemployed youth would not be able to contribute effectively to national economic development, especially in this important stage of economic life when their propensity to consume is the largest. In other words, if youth unemployment rates are unduly high, targeted policies to increase youth employment could have multiplier effects for the economy through the boosting of consumer demand and adding to tax revenue. At the same time, there would be incremental enhancements in social benefits as youth disenchantment leading to potential for disturbances, violence or crime would be reduced and youth as a group would sense the inclusiveness of national policies and feel less vulnerable. Gainful decent work also helps youth to escape poverty, be self-sufficient and eschew social dependency while allowing them to fulfil their aspirations and dreams.

Limitation/ Comparability

As applicable for all KILMs, due consideration must be given when making cross country comparisons of the youth unemployment indicators. Differences would naturally arise from variations in data collection and estimation methods which each country utilizes. For example, the definition of the youth group differs among countries and even within countries different definitions of the youth groupings are utilized for varying purposes. Then there are also issues regarding the definition of unemployment as set out in KILM 9, which may add to differences when comparing country experiences. Most importantly, the timing in the collection of information is critical, as known periods within which people leave school or other learning institutions or the onset of school breaks or vacation time, would have a direct influence on measuring unemployment, which may vary significantly over the year.

Moving forward

For the future, attempts would be made to collect the ratio for NEET to better understand youth unemployment. ILMIA would also work towards further disaggregating the youth unemployed workers by their educational qualifications and fields of studies, analysis of which would be useful for improving the employability of youth, to the extent that such information is available and are sufficiently representative. It may also be useful to look into the factors that account for variations in KILM 10 indicators among states and the federal territories, so that state and federal administrators can better target policies to address youth unemployment. Finally, a benchmarking could be undertaken of the youth unemployment rates among countries in ASEAN and similarly situated economies from other regions.

KILM 8 provides a measure of employment in the informal sector. This information can be used to gauge the contribution of the informal sector to the economy which could then be subsequently treated as input for estimating the Gross Domestic Product (GDP) of a country (1993 System of National Accounts). This concept of informal sector employment is quite awkward and even bewildering to understand because of the wide variations in the definitions of what constitutes the informal sector and what makes up informal employment. It is useful here to clearly understand and to accept the differences in the terms being used, which are explained in the following paragraphs.

In accordance with the International Labour Organization (ILO), the informal sector refers to economic activities of workers and entities which are in law or practice not covered by formal arrangements. The informal sector refers to groups of unincorporated informal enterprises owned by households, including informal own-account entities and production units of informal employers. Informal enterprises are small-scale private unincorporated enterprises, with little to no equity capital, does not keep conventional accounts, which are unregistered with the authorities or professional bodies (operating with a trade license or business permit does not constitute registration) and which produce goods or services for sale or barter. All workers in informal enterprises are considered to have employment in the informal sector, whether this represent their main or a secondary job (see Figure 1, the sum of blocks 3 to 8). Informal wage employment refers to all jobs that lack contractual rights, legal status, social protection, health benefits and labour law privileges. Thus it is possible to be informally employed in the formal sector, which gives an aura of clandestinely to it (block 7). Such informal workers would include those that have jobs that are casual or seasonal and are in some instances paid household helpers. Employment in the informal economy (see Figure 1) thus is the sum of a) informal jobs in informal enterprises, including household workers (blocks 6 and 10); b) employers and own-account workers of informal enterprises (blocks 3 and 4); c) informal wage earners in formal sector enterprises (block 2); d) members of informal cooperatives (block 8); e) contributing unpaid family members in formal and informal sector enterprises (blocks 1 and 5); and f) workers producing goods or services for their own consumption (block 9).

The ICLS approach is based on the measurement of informal employment from an enterprise perspective, so that everyone engaged in an informal enterprise is considered to be in informal employment. Informal enterprises in Malaysia are small-scale private unincorporated enterprises with less than 10 workers and unregistered with Companies Commission of Malaysia (CCM) or professional bodies that produce goods or services for sale or barter. Enterprises have a wide usage here and include those that hire workers, those run by workers on their own account and those involving self-employed workers, sometimes assisted by unpaid family workers. For example, self-employed street vendors, taxi drivers and home-based workers all fall under the definition of enterprise in this usage. Agricultural and related activities as well as households producing goods and services for own consumption are excluded from this enterprise definition. Thus subsistence farming, domestic care and household work are excluded.The information on employment in the informal sector used in KILM 8 here follows the measurement and definitions in accordance with the 1993 Resolution of the 15th International Conference of Labour Statisticians (ICLS) which is also the approach followed by the United Nations Expert Group on Informal Statistics or the “Delhi Group”, established in 1997. The information for KILM 8 is captured through labour force surveys (LFS) conducted periodically by the Department of Statistics Malaysia (DOS) following the 15th ICLS approach, officially available starting in 2012.

In many countries the informal sector may make sizable contributions to the economy with associated importance in employment creation and income generation. The informal economy is found not only in less developed countries but also in middle income economies and some developed nations, where their presence may be quite notable. In countries where the pace of population expansion is faster than formal job creation can keep up with, the informal sector acts as an outlet to provide employment. Similarly, potential social issues from rapid urbanization or large shifts in rural to urban migration may be mitigated by a burgeoning informal economy and informal work. Sometimes, the informal economy is fostered by regulatory arbitrage involving the sub-contracting or outsourcing of economic activities by formal enterprises to the informal sector where compliance with legal, labour, health and environmental regulations are disregarded or deliberated overlooked through bribery. In developed countries, informal employment is associated with workers or enterprises seeking to supplement their income or profits by engaging in irregular activities or underreporting of income (for more details see “A Study on Employment in the Informal Sector of Malaysia” a report commissioned by ILMIA, forthcoming in ILMIA’s portal).

The output of goods and services from the informal sector usually costs less than those stemming from the formal market and may be accessible from locations which are more convenient to customers. These features help the clientele of informal sector outputs to stretch their limited financial resources further and save them valuable time in making purchases. Those who use the outputs of the informal sector as inputs in their formal sector productive activities then has a cost advantage to strengthen their competitiveness position relative to other producers. Thus the motivation for informal activity may be attributed to necessity-driven for survival factors and/or opportunity-seeking entrepreneurship incentives. The downside of consuming informal sector outputs are that health and quality standards may be compromised as they would most likely not be complied with. The process within which the informal sector outputs are generated may also lead to violations of labour, other social and environmental standards since they eschew such controls. On balance this may compromise the long-term sustainability objectives and liveability aspirations of the country.

The informal sector is sometimes thought of as being economic activities at the margins or fringes of officialdom or regulatory reach. In many instances the informal sector could be confused to being the underground or shadow economy which tends to associate them with criminal or illegal elements of society. Yet it is generally accepted that the goods and services generated by the informal sector are legitimate and satisfies the utility value of the customers who purchase them or barter for them. Outputs from the informal sector should thus be distinctly separated from the criminal activities of drug trafficking, human trafficking, prostitution, illegal gaming, weapons smuggling, the illegal movements of other goods (e.g. timber, cigarettes, alcohol, precious metals or stones, currencies or other monetary instruments, etc.) and money laundering and terrorist financing involving the transfer of proceeds of criminal activities, including funds from tax evasion, corruption, theft, misappropriation, embezzlement, etc. However, it is not often very clear cut as sometimes the line can become blurred, for example counterfeiting luxury and other high-valued goods is frowned upon but seems to have a market whereas counterfeiting currencies or medications are definitely criminal.

The existence of informal employment represents a challenge to the authorities as they strive to improve the wellbeing of citizens, ensure a safe working environment, strengthen social protection, foster inclusiveness and reduce income inequalities and poverty. The informal sector is most often associated with poverty, labour exploitation and low productivity. However, for the people actually forming the informal sector, this negative perception is irrelevant as they do not have much of a choice but to survive to the best of their abilities no matter the circumstances. Studies have shown that informal employment tends to expand when the economy experiences an economic downturn or suffers social or political turmoil.

The Limitations/Comparability

As is the case for all KILMs, due consideration must be given when making cross country comparisons of informal employment indicators. Differences would naturally arise from variations in data collection and estimation methods which each country utilizes. For KILM 8, differences could arise from the definition of informal enterprises, which includes their size as measured by number of workers and that they should be unregistered, where the understanding of what constitutes registration may vary from country to country. While agricultural activities are generally excluded some countries are more limited in their capability to cover all economic sectors and may only collect data from the manufacturing and main services sectors, while some may limit coverage to narrow geographical areas, i.e. mainly urban neighbourhoods. Countries may also differ in the broader coverage which includes informal cooperatives, domestic household workers and workers producing goods/services for own consumption. To enhance comparability among countries, the Delhi Group published a manual “Measuring informality: a Statistical Manual on the informal sector and informal employment”. This manual assist countries to collect informal sector statistics and provide practical guidance on technical issues.

Moving forward

For the future, attempts would be made to benchmark informal employment in Malaysia against other countries in ASEAN and similarly situated economies from other regions. It would also be useful to link the contributions of the informal sector workers to the GDP of the country. Further details and links to government agencies for facilitating the formalization of the informal sector or to assist informal sector participants would be provided where appropriate.

It is also possible that some workers in informal enterprises have formal employment. While such workers would be counted as informal sector employees by virtue of being part of an informal enterprise, for purposes of employment in the informal economy they should be excluded.