What Is Structural Unemployment and How Can It Affect Malaysia?

According to an economist, the Covid-19 pandemic has exposed Malaysia to the heightened risk of structural unemployment.

The pandemic's persistence and Malaysia's push towards digital transformation has left many citizens jobless. Meanwhile, many of those who still have jobs are forced to work fewer hours, decreasing their salaries, and stifling demand for goods and services.

Paolo Casadio of HELP University explained to FMT that Malaysia's slow growth would create structural unemployment. He described it as a new and shocking scenario for this country. 

Structural unemployment

Structural unemployment occurs when there's a mismatch in employees' skills and what employers need, with underlying factors such as technological advances and shifting demographics. 

Casadio said the 4.75% or 5% of growth in normal times has been necessary for this country to accommodate the hike in the labour force (about 0.5% per year) coming from the population's growth.

He also said that the lower growth would create a structural imbalance, with an excess supply of workers unable to find a job, thus becoming jobless and creating systemic downward pressure on salaries. 

He stressed that structural unemployment is a severe problem the country must solve. He noted that supporting workers and fiscally incentivising employers to retain their employees is the only practical method in the short term. 

The types of unemployment.

Solving the problem

Besides boosting investment and enhancing coordination between agencies, Casadio said that the government needs to scale up programmes that help SMEs to develop and incentivise entrepreneurship.

He added that it should also include short-term reskilling and retraining programmes. 

Warning about the automation and the Fourth Industrial Revolution's (IR4.0) impact on jobs, Casadio emphasised that there should now be a shift to train for jobs that will be in demand in the future. 

He said there should be a push to recognise more professional qualifications and certifications, not just university degrees. 

HRDF on structural unemployment

The Human Resources Development Corporation (HRD Corp) is also well informed of the dangers of structural unemployment. The HRD Corp defined it as a skill gap between employers and employees.

In its 2020's report, HRD Corp noted that although its existing mechanisms, processes and experiences can help manage structural unemployment to a certain extent, it does not have enough resources to address the issue on a larger scale.

HRD Corp warned that while the stimulus package may help to mitigate some of the cyclical unemployment's effects, structural unemployment is a different problem to manage. 

Casadio said that HRD Corp, just like Malaysia, does not have the experience to manage any massive structural unemployment. 

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