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Nikkei Markets

Malaysia to launch job program from second quarter of 2020

Scheme aims to add 350,000 jobs in five years, pension fund to manage incentives

KUALA LUMPUR (Nikkei Markets) -- A proposed Malaysia@Work program costing the government 6.5 billion ringgit ($1.5 billion) will be launched in stages from the second quarter of 2020 and is expected to create 350,000 jobs over the next five years.

The move comes as Malaysia seeks to boost local hiring at a time when growth in the third-largest Southeast Asian economy has slowed. Malaysia's economy expanded 4.4% in the third quarter from a year earlier, its slowest pace in a year, as household spending and business investment softened.

In the longer run, the government is seeking to lift a sluggish wage growth and reduce the country's excessive reliance of cheap, low-skilled foreign labor as part of a broader initiative to lift the economy to the ranks of developed nations such as neighbor Singapore.

"As Malaysia strives to become a developed nation, we must ensure the prosperity we reap will be shared among all, leaving no one behind," Prime Minister Mahathir Mohamad said at an event.

Under the Malaysia@Work program, the government will credit cash incentives to an employee's account at the state-run national pension fund, offsetting the statutory contributions by employers and employees, Finance Minister Lim Guan Eng said at the same event. Wage earners in Malaysia's organized sector typically channels 11% of their salary, while employers pay 13% to the fund monthly to help build a corpus for post-employment benefits.

"Any excess amount of the wage incentive will be credited into a special account created by EPF that allows flexible withdrawal; any amount whenever needed," Lim said.

For nearly two decades, Malaysia's unemployment rate has hovered around 3%, a reading that economists consider as full employment. Compensation to employees, however, has stagnated at around 35% of gross domestic product, lagging that of regional rivals such as Singapore.

The Malaysia@Work program, mostly a subsidy scheme to employers and employees, was proposed in October during the 2020 federal budget announcement. The government also hopes the scheme will cut the number of foreign workers in the country by more than 130,000.

"Through this hiring incentive for employers, we want to connect ready, willing and able talent to jobs with dignity as we prepare our workforce for the future," Mahathir said.

Economists said the program could help to lower the double-digit rate of youth unemployment and boost women's participation in the economy.

"In the long run, if more can get into the job market, this will help to reduce unemployment, especially among the youths," said RHB Research Institute's Economist Peck Boon Soon.

Still, the government needs to look into the root cause of youth unemployment, which could include mismatch of skill sets, and implement structural reforms such as revamping the education system, said Hong Leong Investment Bank's Economist Felicia Ling.

For decades, Malaysia has been relying on cheap foreign labor to toil in its factories producing electronics parts, on palm oil plantations, and at construction sites as it transformed from a largely agrarian nation into one of the most industrial economies in the region.

Official data show there are more than 2 million migrant workers -- and at least as many undocumented workers in a nation of 30 million people, according to various estimates.

The abundance of such cheap labor is now thwarting prospects of wage growth, automation and the adoption of other technological advances that are crucial to boost productivity.

-- Sarah Nadlin Rohim and Yimie Yong

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