LABOUR DEMAND ELASTICITY AND MANPOWER demand elasticity and manpower requirements of skilled...

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  • IJER Serials Publications13(5), 2016: 2235-2250

    ISSN: 0972-9380


    Abstract: The objective of this study is to analyse short term and long term effects of labourdemand, which are professional and technical labour using the dynamic panel model. Byusing the seemingly unrelated regression, this study estimates the elasticities of labourdemand for these two high-level occupations. Based on the elasticities, this study forecastthe requirements of these two occupational categories. The data of fifteen sub sectors of themanufacturing sector from 1990 to 2010 period obtained from the Industrial ManufacturingSurvey, Malaysia were utilized. The findings show the elasticity of labour-output is generallypositive, while the elasticity of labour-wage are positive and negative depending on theoccupational category. The forecast of the manpower requirements both for professional andtechnical group are highly dependent on the output growth of a sector, and the initialmanpower stocks are dominated by the technical labour group.

    Key words: Labour demand elasticity, manpower requirement, skilled labour, manufacturingsector

    JEL codes: J2, J23, J24


    The rapid change in technology and globalization has transformed the practice ofproduction, transition of the economic sectors, outsourcing of products and services,management practices and so forth. These factors lead to change in demand for labour,particularly demand for labour by skills in terms of proportion and the number oflabour required. Due to change in demand for labour market, firms attempt to copewith such changes that imply the need of manpower planning. Moreover, themanpower requirements would be able to forecast the manpower needs whether atsectoral level, industrial level or national level.

    * School of Economics, Faculty of Economics and Management, the National University of Malaysia,43600 Bangi, Selangor, Malaysia.

  • 2236 Noorasiah Sulaiman, Rahmah Ismail and Mohd Nasir Mohd Saukani

    The projection of manpower planning can be strategies into two types of planning,i.e. short term and long term planning. The short term planning concerned with theprocess of matching the existing employees with their present jobs so that they performefficiently, while the long term manpower planning taking into account a dynamicprocess of technological advancement strive to develop that organisational structurewill meet future manpower requirements in the best possible manner. Therefore, tomake as far as possible correct estimates of future manpower requirements is the mainfocus of manpower planning.

    Therefore, new manpower requirements over and above the replacements,matching the existing employees with their job specifications in terms of qualificationsand abilities needed for different types of jobs will minimize mismatch problem, sothat worker can performed efficiently. It can be concluded that manpower inventoryand analysis provides valuable information pertaining to present and future employeesneeded in any level. The information may not be completely accurate but it is valuableand provides basis for the recruitment, selection and training processes.

    In Malaysia, globalization and rapid change in technology has transformed demandfor labour entirely. Transformation of the economy from agriculture sector to themanufacturing sector has also attributed to change in labour demand by industry. Thedecreases in the contribution of the agricultural sector reflects the structural changestaking place in the Malaysian economy as shown by the increase in the contribution ofthe manufacturing sectors and services to the Gross Domestic Product (GDP) andemployment. In the face of international competitive market, should be formulatedeconomic strategies in order to maintain the competitiveness of the country. Increasedcompetitiveness depends not only on physical inputs such as capital and labor, but italso depends on the productivity of the labor. In efforts to get to the advanced industrialcountries by 2020, labor quality and marketability of all the skills that are required.

    The manufacturing sector has contributed significantly to growth of the Malaysianeconomy, though its current contribution however relatively smaller compared toservices sector. Until October 2012, the value added of the manufacturing sectorincreased by 5.2%, an increase of RM 25.6 billion in the first ten months in 2012. Thenumber of manpower in this sector has increased by 1.7%, an increase of 16,867 personsto 1,024,352 persons (Malaysia, 2013). For the same period, the average sales value peremployee has increased by 3.5%, where the increase is a positive sign of economicgrowth. Despite the slower growth as mentioned above, the manufacturing sector isstill needed a larger workforce, especially for unskilled category approximately 34%,while skilled category comprise of 26%. The overall of contribution of the totalemployment in the manufacturing sector is about 17.8% (Malaysia, 2013). Given thesignificant contribution of the manufacturing sector to economic growth, it is desirablethat the manufacturing sector is supplied with sufficient manpower requirements, sothat it can continuously drive the economy. But in ensuring that the needs sufficientmanpower needed in every sector, Malaysia is still facing various issues in the labourmarket, particularly unemployment and mismatch problem.

  • Labour Demand Elasticity and Manpower Requirements of Skilled Labour... 2237

    Unemployment is a problem that may arise due to the change in productiontechniques from labor-intensive to capital-intensive and mismatch problem. In a tightlabor market, to find a job is very competitive among graduates, so in turn it mayincrease the unemployment rate. In 2012, the number of unemployed workers inMalaysia is about 396,300 people (LFS, 2013). To overcome that problem, skill is veryimportant to enhance employability among the graduates (Rasul et al., 2009). Technicalstudents in Malaysia has more than sufficient technical skills, but some employersfeel less satisfied, especially in terms of motivational skills, communication skills,interpersonal skills, critical thinking, problem solving and entrepreneurial skills thatare part of the employability skills that are not controlled in circles this technicalgraduates (Ramlee, 2002).

    Data and information on the labor market and manpower projection needs of theeconomy and employment by sector is very important in planning and policyformulation and economic development strategies, particularly human capitaldevelopment planning. However, the issue of lack of information on labor marketdemand has also been a main issue for the policy maker discussion. Where it is one ofthe major challenges faced by institutions of higher education, particularly for theprovision of skills training in education planning and training (Siti Nor Habibah et al,2012). These challenges include determining the courses offered and the number ofstudents required being consistent with labour market needs. So the suitable manpowerplanning must be implemented to ensure that the labour supply at this sector hasalways been sufficient in the future.

    Though a number of studies have been done on labour demand analysis,particularly on the manufacturing sector, none of the studies have analysed labourdemand in the context of dynamic-panel model. Therefore, this study has advantagein observing labour demand both in short term and long term period. The first objectiveof this study is to analyze the effect of labour demand for output and wage rate fortwo high-level occupations, which are professionals and technical workers. The secondobjective of this study is to project the requirements of these two occupational categoriesin the future. This paper is organized into the following section. The next section is areview of existing literature followed by a section on the methodology, data and modelspecification. The fourth section presents the findings and discussion. The final sectionentails the conclusion of the study.

    Literature Review: Over the past decade, there has been a choice of techniquesand approaches been used in quantifying manpower labour requirements. Thetechnique of forecasting attempts to achieve the optimal number of employees withthe right skills and ability for the right type of job, so that is able to minimize themismatch problems as well. However, experts in this area still dispute in terms ofpertinent and effective methods or techniques used for manpower planning forecasting.In principle, debates between two schools of thoughts is still prolonged betweenstructuralists and neoclassical. The former group perceives the manpower requirements

  • 2238 Noorasiah Sulaiman, Rahmah Ismail and Mohd Nasir Mohd Saukani

    through the employers perspective. From the viewpoint of employers, they alwaysrequire a capable worker in achieving and maintaining desired production levels,reduction in labour turnover, effective utilisation of manpower resources andundertaking program for the development of employees. The labour market isrelatively stiff (Hughes, 1991). Hence, the manpower requirement forecasts is essentialto balance demand and supply in labour markets as well as to ensure that labour isobtainable in the required quality and quantity in each occupation in the future.

    Meanwhile, the latter observes labour as the supplier of workforce. Neoclassicaleconomists incline that labour markets are flexible, skill substitution is relatively freeand that wage differentials adjust spontaneously to any imbalances that arise (Papps,2001). These two contrast viewpoint analyse using different models. The ManpowerRequirements Approach (MRA) is appropriate for the demand side of manpowerplanning, while for