Unemployment

The unemployment rate (KILM 9) together with the employment-to-population ratio (KILM2) are the most well-known statistics utilized for explaining the labour market situation at any point of time in most countries around the world. KILM 9 is a stock indicator of employment for which further dynamic situational insights may be obtained through analysis of inflows and outflows of unemployment between observations periods. Information on unemployment flows contribute to a better understanding of variations in unemployment resulting from changes in the pace workers move from a status of employment to one of unemployment and vice versa.

Unemployment as defined by 13th International Conference of Labour Statisticians (ICLS) in 1982 refer to a worker “………..who during the reference period was without work, was seeking work in a recent period and is currently available for work………”. Mathematically the unemployment rate is calculated as a ratio resulting from dividing the total number of unemployed by the total working age population or the economically active portion of the population (or the workforce as defined in KILM 1: Labour Force Participation Rate). In Malaysia the working age population is composed of persons 15-64 years old. By definition the workforce would be composed of the sum of the total persons employed and the unemployed.

There are several issues related to this definition of unemployment. The most important one is the person who is currently without a job, who potentially could be available for work but nevertheless in currently not actively seeking a job – this person is not considered to be among the unemployed because he/she is also not part of the workforce. Following KILM 1, in general, the working age population who are not in the labour force are those persons who are in learning or training institutions; those who are retired and have no intention of re-joining the labour market; those who are physically or mentally or health-wise unable to work and those who are otherwise not actively looking for work. People who want to work but are not actively seeking work are sometime referred to as the “hidden unemployed”. This segment of the population whether by choice or circumstances are not in the workforce because they may have become disillusioned from past job search attempts and limited job opportunities, faced discrimination or cultural barriers, and have limited job mobility or relocation problems. Some countries consider that this definition of unemployment based on the need to be actively seeking work may not be very helpful, especially for an economy where informal economic activities are prevalent and many people are engaged in self-employment activities. To cater for these anomalies, the 19th ICLS in 2013 created a separate category of “potential labour force” which would be able to accommodate potential job seekers who may not have been actively seeking out a job to be counted as part of the unemployed.

The information for KILM 9 in Malaysia uses the 1982 13th ICLS definition of unemployment and is captured through Labour Force Surveys conducted by Department of Statistics of Malaysia (DOS) using the household survey methodology.

KILM 9 provides a measure of workers that are without a job within the workforce. It is usually accepted that an unemployed worker would be considered to be in an undesirable situation. Nevertheless, in some situations short-term unemployment could be considered normal, particularly if the economy is undergoing structural adjustments to better long-term economic sustainability, resulting in the shedding of jobs in failing industries and their replacement hopefully with better jobs in new growth areas. Unemployment may result from short-term or cyclical (seasonal) factors or from more complicating structural or longer-term competitive issues where possible policy responses would differ markedly. In some countries, the trends in the unemployment rates over time are also used to reflect business cycle conditions, with recessionary episodes often associated with higher than usual and/or prolonged unemployment rates.

In this connection, government policies during a down business cycle are usually directed at lowering unemployment to an appropriate level. In the economic literature there are voluminous research on what this appropriate level of unemployment should be and which policies are more effective in restoring employment to the economy sustainably. Analyst have developed a notion that unemployment should not be pushed below a “natural unemployment” level beyond which a trade-off involving accelerating inflationary impulses begin to manifest themselves.[1] Associated with this natural employment level is the concept that an economy is enjoying “full employment” if the level of unemployment is close to 3% or below. This level of unemployment may be the natural rate in the sense that the persons who are unemployed are considered to be in-between jobs, either through the normal process of leads and lags in changing jobs, or has the luxury to afford a longer search time to look for a replacement job which satisfy their desire (often referred to as frictional unemployment).

For many countries, unemployment rates can be further disaggregated by gender, age groups, occupation, economic sectors and geographically which provides useful information for addressing the vulnerabilities of any of these group of workers facing joblessness. For example, unemployment rates for women are generally higher than for men, which in most instances reflect the fact that jobs suitable for women are in narrower categories compared to those available for men. But most importantly, women have traditionally been most subjected to unemployment stemming from more numerous instances of exit from and re-entry into employment because of family-related issues and obligations. Access to education and training schemes may also have an influence on the unemployment status of women and their success is securing decent jobs.

While the unemployment rate may be the most important indicator of hardship suffered by the workforce, there are other supplementary labour market indicators that have to be viewed together in combination to offer a more wholesome view of worker joblessness difficulties. The unemployment rate measures the utilization level of the workforce and the inability of the proportion of workers actively searching for jobs to secure one. Other information on the educational qualifications, work experience, socio-economic background and even ethnic origin may have additional relevance. An important issue is whether there is a worker safety net for a worker who faces unemployment. These should include unemployment insurance benefits, redundancy payments from a previous job and access to employment services providing job search facilities, retraining or upskilling possibilities and relocation assistance to new growth areas.

While it is obviously desirable that a country would want to experience low employment rates, this indicator by itself may also conceal some underlying economic problems. Low unemployment could be closely linked to high incidences of poverty, particularly in less developed economies. In poorer and less developed countries in the absence of worker safety nets and effective social welfare systems, a person cannot afford to be without a job to survive and must eke out a living whether in the formal or informal economy. A person may be considered employed even if working just one hour during the week. Thus even if a person is not unemployed, he/she may still be faced with a dire financial situation due to the number of hours work, the wage rate, the location of the job, and other aspects that would need to be taken into consideration, to gauge the living condition of the worker. KILM 9 would need to be seen in conjunction with other indicators to provide a broader picture of the condition of the labour market; including the hours of work under KILM 7; KILM 2: employment to population ratio; KILM 12: time related underemployment; KILM 13: inactivity rates; KILM 3: status in employment; and KILM 18: working poverty and labour productivity. In combination, trends in the different components of the labour market may be evaluated with greater comprehensiveness to address the issues faced by the workforce.

The availability of statistical information on unemployment flows may contribute to a better understanding of why high unemployment persist in an economy. The dynamic factors which affect flows into unemployment can often be separated from the factors that affect the flows out of unemployment. The information provides insights into the speed which workers become unemployed following an economic disruption and how fast they are able to find re-employment and where. It can also contribute to estimating probabilities that a worker would become unemployed or when unemployed, the probability of getting another job. This information contributes to the design of policies to understand and address distress in the labour market affecting employment or unemployment. For Malaysia, information on inflows and outflows of unemployment are not yet well developed for analysis purposes.

Limitation/ Comparability

Due consideration must be given when making cross country comparisons of the unemployment rates, because as is a common issue for all KILMs differences would naturally arise from variations in data collection and estimation methods which each country utilizes. For KILM 9, other than labour force surveys (LFS), some countries also rely on population census, household surveys and official estimates in the presentation of the unemployment rate. Many countries (especially developed economies or those with unemployment insurance benefits) also show data for the registered unemployed, as compared to the total unemployment derived from LFS. There are also differences arising from the “potential labour force” where the notion of actively seeking work has been granted a more relaxed definition, thus giving rise to measurement anomalies in both the unemployment rate, the employment ratio and even the labour force participation rate.

Also the number of observations during the year on the unemployment situation may account for differences. In countries where there are greater frequency of observations, seasonality factors affecting the workforce would generate differences compared to countries with less frequent or only annual observations. Some countries may have geographical limitations in their collection of employment and unemployment data, and thus may only limit collections to urban settings or selected large cities, which of course is then not representative of the country as a whole. It is observed that unemployment in urban areas tend to be larger than for rural settings, wherein economic activities are largely agricultural and where workers have less of a choice and are more likely to be employed, whether they are under-employed, self-employed, informal workers, or unpaid family workers.

The differences in measures of unemployment may also come from variations in the conceptual framework underlying the meaning of a person actively searching for work. If a country follows the ILO convention, then a person actively looking for work should be using one or more of the following methods – a) applying directly to vacancies on offer by employers; b) visiting an employment exchange office if such services are available; or c) otherwise soliciting jobs by other means, e.g. by joining a job queue for contractors seeking daily helpers, visiting work sites like construction or farms, consider starting a self-employment or business scheme, etc. For example, some countries consider consultation of vacancy advertisements in a newspaper as meeting the active job search criteria. Whereas others consider that this is not sufficient and the workers must actually take steps to apply for the position before they are considered to be searching. In some countries, like in the Caribbean, discouraged workers who have withdrawn from looking for jobs are still considered to be among the unemployed.