MIER National Economic Outlook Conference 2012

2

Modern jobs for the high-income economy

High paying jobs are skill-intensive jobs

Flexible labor markets

Unlocking Women’s Potential

Outline

Traditional vs. Modern

Source: World Bank.

Traditional Modern Simple, routine and standardized tasks Complex, analytical and differentiated tasks High supply of low-skill labor that can perform the tasks à low wages

Tight supply of specialized labor and higher productivity à High wages

Most jobs in agriculture, labor-intensive manufacturing

Most jobs in knowledge intensive tasks across all economic sectors

Strict labor regulations make it difficult to hire and fire workers, effectively placing the burden of providing income security on firms at the cost of lower efficiency

Flexible labor regulations reduce the cost of hiring and firing and increase efficiency, while effective social safety nets protect workers

Rigid job structures and expectations that are not conducive to the participation of large segments of the population, especially women

Jobs that leverage on the entire stock of human capital by making it easier and more attractive for women to join the labor force

Competitiveness derived from institutions, security of investments

Competitiveness derived from the quality of human capital, in addition to good institutions

Employment grew at the same pace as the labor force, keeping unemployment low

Index, 1982=100

Source: DOS – Labor Force Survey Time Series Data, 1982-2010.

80

105

130

155

180

205

Employment (1982=100)

Labor Force (1982=100)

Labor markets have tightened recently Unemployment rate (left axis); Labor Force Participation Rate (right axis)

Source: Department of Statistics, Malaysia.

61

62

63

64

65

66

2.8

3.0

3.2

3.4

3.6

3.8

4.0

4.2

Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12

Unemployment Labor force participation rate

The share of the labor force with tertiary education increased Labor force by level of education, percent

Source: DOS – Labor Force Survey Time Series Data, 1982-2010

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

Tertiary

Secondary

Primary

No formal education

7.3 pct CAGR

Most jobs created in the past decade have been high- or mid-skill Net jobs created between 2000 and 2010, thousands

Source: DOS – Labor Force Survey Time Series Data, 2000, 2010. Note: See full report for explanation of skill levels.

910 826

37 0

100 200 300 400 500 600 700 800 900

1,000

High Skill Mid-skill Low-skill

But “stock” of jobs still mostly low-skilled Number of jobs in 2010, thousands

Source: DOS – Labor Force Survey Time Series Data, 2010. Note: See full report for explanation of skill levels.

Skilled agricultural and fishery workers

Craft and related trade workers

Plant and machine-operators and assemblers

Elementary occupations

3,188 3,007

4,934

0

1,000

2,000

3,000

4,000

5,000

6,000

High Skill Mid-skill Low-skill

Malaysia is still seen as a low-skill, low-wage investment destination Index, max=10

Source: A.T. Kearney and World Bank staff calculations. Malaysia

Malaysia

Malaysia

India

India

India

China

China

China

ASEAN*

ASEAN*

ASEAN*

Singapore

Singapore

Singapore

USA

USA

USA

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

Compensation

Business Environment

Exp. & Education

Enrollment rates still lag advanced economies Gross tertiary enrollment, percent

Source: World Bank EdStats. 0

20

40

60

80

100

120 19

90

1991

19

92

1993

19

94

1995

19

96

1997

19

98

1999

20

00

2001

20

02

2003

20

04

2005

20

06

2007

20

08

2009

Asean Median China

Malaysia Thailand

OECD Median Korea

The share of the labor force with tertiary education is middling… Share of the labor force with tertiary education

Source: World Bank EdStats.

0

5

10

15

20

25

30

35

40

… as are test scores, although regional differences are important PISA Scores

Source: OECD.

350

400

450

500

550

600 OECD-Science OECD-Math OECD-Reading Science Math Reading

Non-routine “soft” skills are required for modern jobs

Source: Acemoglu and Autor (2010).

Skills

Non-routine cognitive:

Analytical

Non-routine cognitive:

Interpersonal Routine cognitive Routine manual

Non-routine manual

physical

Analyzing

data/information

Establishing and

maintaining personal

relationships

Importance of

repeating the same

tasks

Pace determined by

speed of equipment

Operating v ehicles,

mechanized dev ices,

or equipment

Thinking creativ ely

Guiding, directing and

motiv ating

subordinates

Importance of being

exact or accurate

Controlling machines

and processes

Spend time using

hands to handle,

control or feel objects,

tools or controls

Interpreting

information for others

Coaching/dev eloping

others

Structured v .

Unstructured work

(rev erse)

Spend time making

repetitiv e motions Manual dexterity

Spatial orientation

Examples of occupations

demanding high levels of

these skills

Telephone operators,

book keeping, cashiers

Assembly line worker,

elev ator operator

Industrial truck

operator, security, food

preparation

Tasks

Lawyers, engineers, higher education

professionals, medical doctors, managers

Skills for “modern” jobs

Upskilling labor force to perform non-routine skills within existing jobs – agriculture, manufacturing, police…

Skills

Non-routine cognitive:

Analytical

Non-routine cognitive:

Interpersonal Routine cognitive Routine manual

Non-routine manual

physical

Analyzing

data/information

Establishing and

maintaining personal

relationships

Importance of

repeating the same

tasks

Pace determined by

speed of equipment

Operating v ehicles,

mechanized dev ices,

or equipment

Thinking creativ ely

Guiding, directing and

motiv ating

subordinates

Importance of being

exact or accurate

Controlling machines

and processes

Spend time using

hands to handle,

control or feel objects,

tools or controls

Interpreting

information for others

Coaching/dev eloping

others

Structured v .

Unstructured work

(rev erse)

Spend time making

repetitiv e motions Manual dexterity

Spatial orientation

Examples of occupations

demanding high levels of

these skills

Telephone operators,

book keeping, cashiers

Assembly line worker,

elev ator operator

Industrial truck

operator, security, food

preparation

Tasks

Lawyers, engineers, higher education

professionals, medical doctors, managers

Skills

Non-routine cognitive:

Analytical

Non-routine cognitive:

Interpersonal Routine cognitive Routine manual

Non-routine manual

physical

Analyzing

data/information

Establishing and

maintaining personal

relationships

Importance of

repeating the same

tasks

Pace determined by

speed of equipment

Operating v ehicles,

mechanized dev ices,

or equipment

Thinking creativ ely

Guiding, directing and

motiv ating

subordinates

Importance of being

exact or accurate

Controlling machines

and processes

Spend time using

hands to handle,

control or feel objects,

tools or controls

Interpreting

information for others

Coaching/dev eloping

others

Structured v .

Unstructured work

(rev erse)

Spend time making

repetitiv e motions Manual dexterity

Spatial orientation

Examples of occupations

demanding high levels of

these skills

Telephone operators,

book keeping, cashiers

Assembly line worker,

elev ator operator

Industrial truck

operator, security, food

preparation

Tasks

Lawyers, engineers, higher education

professionals, medical doctors, managers

Malaysia’s schools have limited autonomy compared to Korean peers School autonomy at lower secondary – TALIS 23-country study

Source: OECD (2009, Table 2.7) and World Bank staff calculations.

Malasia23 Country Rank

Malaysia Korea Talis Average of 23

1 Selecting Teachers 6.9 31.2 67.7 232 Firing Teachers 6.8 20.8 60.7 233 Establish Teacher Salaries 4.0 5.7 24.3 184 Determine Salary Increases 11.4 3.5 25.6 155 Professional Development 33.8 63.2 60.3 176 Formulate School Budget 68.8 77.3 75.3 177 Allocations within budget 62.5 94.9 88.2 218 Discipline Policies 56.7 56.7 93.1 239 Assessment Policies 21.6 91.1 88.9 23

10 Admission Policies 21.6 85.8 85.0 2311 Course Offering 35.4 88.7 72.2 2212 Course Content 33.3 85.4 65.7 2013 Choosing Textbooks 19.0 96.7 90.0 23

Average 29.4 61.6 69.0 20.6

Firms generally identify non-routine and other soft skills as a key constraint Percent of firms reporting skill as a constraint

Source: Productivity and Investment Climate Survey, 2009.

10 14

18 22 23 24 25

28 30

37 46 48

0 10 20 30 40 50

Teamworking Social

Adaptability Leadership

Time management Numerical

Problem solving Technical/professional

Creativity/innovation Communication

English language Information technology

The number of foreign workers quintupled between 1999 and 2008 Registered foreign workers, thousands

Source: EPU

410

807 850 1,068

1,470

1,869 2,063

1,803

0

500

1,000

1,500

2,000

2,500

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Migrant workers partly replaced young Malaysians who went to university Participation in the labor force, percent

Source: EPU, CEIC. 4

8 8 10 12 12 15 15 16 16 14 14

24 23 22 21 22 21 20 20 19 19 18 18

0

5

10

15

20

25

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Share of Foreign Workers in LF Share of 15-24 Year-Olds in LF

Can be helpful to correct market distortions if well-implemented possible supervision-wage trade-off and increase in labor force

participation can outweigh unemployment effects at appropriate level No panacea:

productivity growth key to sustained wage increases not the best tool to address poverty, inequality, industrial upgrading

Implementation is key predictable, evidence-based revision process rigorous monitoring and impact evaluation

What is the role of a minimum wage?

Migration inflows respond to demand-pull forces concentrate on addressing underlying factors for demand for low-

skilled labors by firms in some instances high foreign worker inflows reflect positive

developments à more young men in university

Additional options to increase the numbers of high-skilled migrants

tap into foreign students already in Malaysia improve livability of cities

Should there be a restriction in the number of foreign workers?

Sustainable path to higher wages is through greater productivity linked to higher levels of skills

Structural reforms to ensure sustained demand for skills more skills necessary but not sufficient for firms to upgrade

Towards more and better skills: targeting underserved groups and areas can yield quickest gains private sector involvement in skills provision curriculum reform emphasizing soft skills more autonomy and accountability for schools

Higher wages through more and better skills

Labor regulations generally flexible, but not uniformly WEF rankings

Source: World Economic Forum.

15 28

19 30 104

4

Cooperation in labor-employer

relations

Flexibility of wage

determination

Rigidity of employment

index

Hiring and firing practices

Redundancy costs, weeks of

salary

Pay and Productivity

Labor regulations generally flexible, but not uniformly Termination benefits, weeks of pay

Source: Doing Business.

Labor regulations generally flexible, but not uniformly Legally mandated notice period for redundancy dismissal, weeks

Source: Doing Business.

High levels of job protection a sensible strategy for lower-income countries

low capacity of government to tax and administer social insurance Malaysia can achieve a better balance between job flexibility and worker protection

ease regulations on retrenchment implement unemployment insurance as part of broader safety net

Package of reforms: job flexibility without worker protection socially unsustainable

Protecting workers rather than jobs

Gender equality is the right thing to do – and smart economics Gender gaps in… …lead to

Education

•  Reduced human capital stock in the economy •  Employment segregation by sector and occupation

Home vs. Market work •  Underutilization of human capital and talent

Sectors and occupations

•  Distorted allocation of talent (especially managerial talent) •  Earnings gaps, which discourage women from entering the

labor market, reduce savings for old-age and spending on children

MYS

10

20

30

40

50

60

70

80

90

100

4 5 6 7 8 9 10 11

Malaysia’s women’s labor force participation is low Female labor force participation rate, percent

GDP per capita, logs

Source: World Development Indicators, World Bank staff calculations

Over 500,000 “absent women” could be contributing to the economy

Source: World Bank staff calculations

Estimated FLFP (%) "Absent Women"

Regression (all countries) 52.3 504,169

Same level as Indonesia 53.2 576,419

Regression (excl. MENA) 57.0 896,881

Same level as Singapore 62.9 1,386,748

Same level as UK 69.3 1,921,397

Same level as Canada 74.2 2,330,738

4

8

16

0

2

4

6

8

10

12

14

16

18

Korea (FLFP=55%) Singapore (FLFP=60%) Sweden (FLFP=76%)

Significant gains from closing gender gaps Potential gains in GDP per capita from raising FLFP to the levels of different countries, percent

Source: World Development Indicators, World Bank staff calculations

0

10

20

30

40

50

60

70

80

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

Japan (2008) Korea (2007) Malaysia (2010)

Malaysia’s participation profile is single-peaked Participation rate, percent

Source: ILO Laborsta, CEIC

42

53

68

50

57

66

74

82 86

30.0

40.0

50.0

60.0

70.0

80.0

90.0

1960s 1970s 1980s

Korea Malaysia Singapore

Women’s participation has increased with new generations, but gaps remain Labor force participation of women 25-29, by birth cohort, percent

Source: ILO Laborsta, CEIC

Education levels affect FLFP: 70% of women with higher education work

Labor force participation of women by educational level and age, percent

Source: Department of Statistics, Labour Force Survey, 2010

30%

40%

50%

60%

70%

80%

90%

100%

20-29 30-39 40-49 50- 55

no certificate/not applicable

primary

secondary

post-secondary

tertiary

Women’s gross enrolment in secondary education, percent Higher secondary enrolment will help

Source: UNESCO Institute for Statistics

71 77 79 80 81 83

88

96 96

50 55 60 65 70 75 80 85 90 95

100

Married women are less likely to work

Labor force participation of women by marital status, percent

Source: Department of Statistics, Labour Force Survey, 2010

82.4

97.3 88.0 91.7

69.5

48.9 57.1

78.4

0 10 20 30 40 50 60 70 80 90

100

Never married Married Widowed Divorced, separated

Male, (age 20-55)

Female, (age 20-55)

…housework is the main factor for women being out of the workforce

Reasons for not seeking work

Source: Labour Force Survey

Women Men Housework

Schooling

Going for further studies

Increase secondary education enrollment

Flexible job arrangements part-time work, flexible working hours, telecommuting

Better child care increase the number of registered child care centers allow for deduction of child care expenses from income

Men as a source of child care

What needs to be done to increase women’s participation in the labor force?

The Malaysia Economic Monitor is available for

download at

www.worldbank.org/my