THE unemployment rate could go up to 6.5%, the equivalent of one million job losses, from the recession caused by the Covid-19 pandemic, said think-tank Socio-Economic Research Centre.

This is based on the 5% unemployment rate posted in April, the highest in 30 years, said SERC executive director Lee Heng Guie at a recent briefing on its economy tracker.

Based on government data, SERC projects the unemployment rate to rise from 5% in April to 5.5% to 6.5% in the second and third quarters of 2020, he said.

If retrenchments do not slow down in the third and fourth quarters and more people lose their jobs, this could trigger a vicious cycle that could hamper Malaysia’s economic recovery in 2021.

In the short term, Putrajaya must focus on reducing unemployment by helping hard-hit SMEs survive for the rest of the year and to create jobs by spurring more investment.

Of the current 15.7 million workforce, the number of unemployed increased to 778,800 in April 2020.

This caused the unemployment rate to jump to 5% in April 2020 as compared with 3.9% in March and 3.3% in February, before the country went into partial lockdown to beat the coronavirus.

About 54,000 individuals lost their jobs between January and June, according to data from the employment insurance scheme, mostly because of the movement-control order (MCO), which shut down most of the economy for six weeks from March 18.

Of those retrenched, 23% were in the manufacturing sector, accommodation and food and beverages industry (15%) and wholesale and retail services (14%).

Professionals, managers, executives and technicians made up 58% of those who lost their jobs, said Lee.

But of those laid-off, 62% earned a monthly wage of below RM3,000. However, the rate of job losses would have been worse had Putrajaya not stepped in with its wage-subsidy programmes under the Prihatin and Penjana schemes, said Lee.

“As of July 6, 310,622 employers were approved for the wage-subsidy programme (WSP), benefitting 2.5 million employees.”

In its Penjana economic stimulus package, Perikatan Nasional said it’s extending the WSP by another three months to August.

Under the scheme, small- and medium-sized firms are given an RM600 subsidy per worker on condition employers do not retrench them.

Further job losses could continue in the third quarter from July to September but the rate at which it can be slowed is critical if the economy is to recover next year, Lee said.

Job losses result in a loss in income for households, crippling their consumption and spending.

“This causes weaker domestic demand and it leads to further job losses in industries that were initially unaffected by the MCOs and Covid-19,” Lee said.

“When this happens, it leads to even weaker demand in the market which then causes more businesses to close and workers to lose jobs. It’s a vicious cycle that has to be prevented.

“So it’s important at this juncture to preserve the incomes and the jobs of those who still have them.”

For this reason, SERC proposed the extension of the wage-subsidy and employment protection schemes in next year’s budget, which is to be tabled in early November.

Penjana’s incentives for companies to relocate their operations to Malaysia would also help create more work, he said.

Foreign firms which relocate to Malaysia will enjoy a 0% tax rate for 10 years for investments amounting from RM300 to RM500 million and 15 years for those investing more than RM500 million.

To encourage new businesses, financial relief will be provided in the form of income-tax rebates of up to RM20,000 per year for three years of assessment for newly formed SMEs between July 1cand December 31, 2021. – July 10, 2020.