Introduction
The Covid-19 pandemic has clearly demonstrated that many are living from hand to mouth; unable and unprepared to face stormy weathers. These trying times have shown how pre-existing gaps in social protection are compounding the vulnerabilities of unprotected communities.
This article will look at the working age population to examine who these workers are, why and how they can be better protected beyond the immediate term. To quote a catchphrase from Rahm Emanuel, President Obama’s chief of staff and later mayor of Chicago: “Never let a serious crisis go to waste”.
This crisis could be an opportune moment to challenge and perhaps change the status quo. Instead of going back to the existing system, this could be the time to reimagine a better social protection system that is more inclusive, equitable and sustainable.
Except for essential services, the Movement Control Order (MCO) has halted income-generating activities for most in Malaysia. This is a worldwide phenomenon. By early April, based on the the Oxford COVID-19 Government Response Tracker, close to 150 countries have instituted movement restrictions at varying degrees of stringency.
With the prediction that the “Great Lockdown” will be the worst economic recession since the Great Depression, these measures come with a hefty—but worthy—price tag. In the case of Malaysia, Prime Minister Tan Sri Muhyiddin Yassin said the economy is losing RM2.4 billion each day during the MCO. Tentatively scheduled to end on 12 May 2020, the MCO is expected to last for 56 days, resulting in approximately a RM134.4 billion loss or roughly 8.7% of gross domestic product (GDP).
As of end of March, the International Labour Organization (ILO) estimated that social distancing has impacted 81% of the global workforce. The impacts, however, have been far from even. In Malaysia, this is supported by the Department of Statistics (DOS) Special Report on Covid-19. Whilst the survey may not represent the views of all Malaysians, the findings revealed that the outbreak has been impacting different individuals differently.
Who are the most affected?
Self-employed/non-salaried workers
As shown in Table 1, self-employed (or non-salaried) respondents reported overt negative impacts on their livelihoods. Typically, these are those who work for themselves without any hired help. Almost half of the self-employed respondents lost their jobs (46.6%), while almost all (94.8%) reported reduction in their income amid the pandemic outbreak. More worrying, 7 out of 10 claimed to have savings that can only last for less than a month. Employers (those who work for themselves but with hired workers) experienced a similar situation, albeit to a lesser extent.
On the flipside, employees (or salaried workers) are in a much better position, with a much higher percentage of them being able to work from home and receive usual income. It also matters who their employers are. From the survey responses, working with established companies reduces the odds of being adversely affected by the outbreak. For instance, while 41.1% of private employees reported income reduction, only 15.6% of GLC employees and 14.2% of MNC employees reported the same experience.
Table 1: Effect of Covid-19 outbreak by employment status (%), 2020
| | Lost job | Experiencing drop in income | Work from home | Receiving income | Savings less than a month | Savings more than a month |
| --- | --- | --- | --- | --- | --- | --- |
| Non-wage recipients | Self-employed | 46.6 | 94.8 | 25.1 | 4.7 | 71.4 | 28.6 |
| Wage recipients | Employer | 23.8 | 86.3 | 30.9 | 13.1 | 49.2 | 50.8 |
| Private employee | 41.1 | 15.6 | 73.7 | 84.1 | 38.9 | 61.1 |
| Multinational Company (MNC) employee | 0.4 | 14.2 | 80.8 | 85.2 | 31.2 | 68.8 |
These findings illustrate a stark contrast between non-wage recipients and wage recipients, with the latter faring much better than the former. It has been estimated that when the total employment is divided into these two categories, self-employed or non-salaried accounted for 25.3% (or about 3.8 million) in 2019. As will be discussed later, this group is excluded from the current job protection efforts deployed by the government.
Non-standard workers
Based on the survey, industries that are most affected by the outbreak in Malaysia do not necessarily match the ones categorised as the hardest-hit sectors at the international level. Yet, depending on the type of workers, the industrial analysis shows that not all industries are equally affected. There is particularly a clear negative relationship between the impact of Covid-19 and the prevalence of (full-time) wage recipients within each industry. In 2018, there were 8.8 million full-time wage recipients in Malaysia, equivalent to 60% of total employed individuals.
It is observed that industries with lower shares of full-time wage recipient—a proxy for standard employment—tend to be more affected by the pandemic. As illustrated in Figure 1, workers in agriculture and food & beverage service not only typically earn less but are more likely to lose their jobs and experience reduction in their incomes. By contrast, industries with higher shares of standard employment who typically earn more are also more likely to be able to work from home and to receive income as usual. These observations are consistent with the theoretical framework, where those with non-standard employment are especially vulnerable in time of crisis due to their nature of employment. In other words, those who were vulnerable are becoming more vulnerable amid this crisis.
Informal workers
By definition, informal workers are those who are not protected by the existing employment-related social protection schemes. In Malaysia, for private workers, these are typically those not covered by the retirement package under the Employer’s Provident Fund (EPF) and the employment-related insurance under the Social Security Organisation (Socso).
Due to data constraints, information on these workers is far from perfect. Alas, the latest estimate on workers without social protection indicates that 39% (5.6 million) of workers in Malaysia were informal workers in 2017. Put differently, 4 out of 10 workers in Malaysia are not entitled to employment-related social protection and benefits.
These schemes typically rely on workers having a clear employer-employee relationship, where workers as well as their employers are obliged by law to contribute to the workers’ EPF and Socso accounts. For those without a clear employment relationship like the self-employed, EPF and Socso have recently offered corresponding but voluntary schemes like i-saraan and Self-Employment Social Security Scheme. Therefore, it has to be noted that not all self-employed and non-standard workers are informal workers (or not covered by social protection).
Nevertheless, existing evidence suggests that social protection coverage for workers with atypical employment arrangements is sparser than that for typical workers. For instance, a 2018 Khazanah Research Institute survey on youth found that only 18% of self-employed youth contributed to at least one social protection scheme, versus 66% for those with standard employment and 47% for those with non-standard employment. A 2018 Zurich-University of Oxford survey on workers also found that only 18% of self-employed respondents in Malaysia were equipped with some form of income protection, versus 21% of employed workers. Finally, a 2019 online survey by the Centre on e-hailing riders found that full-time gig workers are less likely to have savings and employment-related insurance (44%) as compared to casual gig workers (61%) who are doing the work for supplementary incomes and maybe covered by employment insurance schemes elsewhere.
While confined to survey respondents and designs, these results still corroborate the point that those without full-time employment arrangements are less likely to participate in employment-related social protection. Putting aside minute differences, the findings presented thus far point to the fact that some workers are more vulnerable than others and their vulnerabilities are compounded in times of crisis as they are not covered by the existing employment-related social protection system.
The need to reimagine social protection
As of April 24, 2020, Malaysia is among the 151 countries identified to have created and expanded social protection measures in response to the pandemic outbreak. As illustrated in Figure 2, social insurance and labour market policies are confined to existing contributing members (i.e. formal workers). This includes but not limited to EPF contribution deferment for SMEs (e-CAP), savings withdrawals (i-lestari) and reduction in employee contributions; Socso Employment Retention Program (ERP), Wage Subsidy Program (WSP), Employment Insurance System (EIS) and Prihatin Screening Programme (PSP); HRD levy exemption; and foreign worker levy discount.
As the above-mentioned packages are exclusive to contributing members, the informal workers are automatically excluded from these assistances. This exclusion is also known as the “missing middle”. Instead of expanding the coverage of these packages to informal workers, the government opted for social assistance mechanism like the one-off categorical cash transfers known as the Bantuan PRIHATIN Nasional (BPN) to address the needs of the missing middle.
While these packages are far from perfect, they are good enough in the immediate term given the urgency to roll out aids. In fact, Malaysian social assistance programmes have been reported to cover at least 19,770,000 or 60% of its 2020 population. This is an impressive feat although the breadth and depth should be continuously improved. As we look to the future, there is an even more urgent need to learn from the current implementation hiccups and move beyond one-off measures in protecting livelihoods.
Three main reasons behind the need to reimaging social protection are laid out as follows. First, the pandemic’s impacts on incomes and unemployment are anticipated to be more far-reaching than initially expected. Practitioners have also argued that anticipating pre-pandemic level of employment by loosening social distancing measures is overly optimistic. This is in light of the expected prolonged (intermittent) social distancing required in the absence of vaccine as estimated by epidemiologists. There is also agoraphobia or “quarantine state of mind” where individuals will be less likely to spend and interact like in the past as observed in Wuhan. Considering these continuous mental and physical barriers, workers, for instance in the tourism industry, are still less likely to be immediately employed or be earning regular incomes even when the strict movement control order is relaxed.
Second, given the grim prospects, informal workers are expected to continue to be adversely affected in the future. This is supported by key survey findings summarised in the first part of this article. If we have yet to see the full extent of the impact, the one-off cash transfer measure will probably be insufficient. Note that the two-month duration of the cash transfer is also shorter than the global average of close to three months.
Third, hiccups in aid delivery reveals data gaps in the current registry. For example, as announced on 29 March 2020, Bantuan PRIHATIN Nasional (BPN) allocated RM10 billion targeting approximately 8.5 million recipients. Fifteen working days since the announcement, as of 19 April, only 7.6 million recipients (89% of the total targets) have received the transfer. Interestingly, as of 20 April, the Inland Revenue Board (IRB) has also received three million new applications from the M40 category who were not initially listed in the system. This surge of new applicants is puzzling since the M40 income bracket (RM4k to RM8k) actually makes many of them in the taxable income bracket (RM34k per annum or roughly RM2.8k per month). For comparison, it was reported that only 2.5 million workers (or 16.5% of 15 million workers) were subject to income tax in 2017.
Reimagining social protection
It is highly unlikely that this pandemic will be the last threat to the livelihoods of these informal workers. For most, the nature of their jobs makes incomes irregular and more susceptible to shocks. These shocks can occur at different points in time and for different reasons, ranging from displacement due to natural disasters to job skills becoming obsolete. These intersecting risks further underscore the need for a livelihood recovery support. To operationalise this, lessons can be drawn from countries with social pension system and/or private income protection insurance.
Instead of creating another scheme that requires careful vetting of new applications, exclusion errors can be minimised by making the support automatically approved for B40 individuals and households under the Bantuan Sara Hidup (BSH) database. This is justifiable insofar that informal workers are more likely to reside in than outside the B40 category. If the current target reach is any indication, the outreach of the current BSH database is rather impressive with 96.6% of B40 households and 92.3% of individuals receiving the allocated aids within the first two weeks of the announcement. This seemingly effective delivery performance could also be leveraged to centralise aid-related packages from other ministries. Efforts to improve coverage, accuracy and governance can then be narrowed to just one database. This can be a momentous opportunity to streamline what is described as fragmented and poorly targeted social assistance landscape.
To allow this cash transfer mechanism to provide a longer-term relief, an add-on feature can be introduced. This is where the livelihood recovery support can come in. Instead of reacting to the next crisis with more cash transfers, we can start building the reserve for a livelihood protection insurance with B40 recipients as the automatic members. Mirroring EPF contribution rates, 20% of cash handouts can be automatically transferred into the fund. If it is impractical to carve out 20% from the existing assistance budget, administrative cost savings from the centralisation or a fresh fiscal injection can be sought as a top-up. An opt-out feature could also be added so that recipients who are protected elsewhere or need to receive the cash in full can do so. Instead of opt-in, the automatic contribution to this fund ensures that most recipients can save to prepare for future crises. As the income of the recipients rises, their accounts can be then transformed into a semi-contributory.
Like the income protection insurance, eligible members can tap into this reservoir when necessary. For those who do not make any claims, they can be rewarded with retirement disbursements. As a forewarning and to avoid conflicts of interest, the selection of administrative agency must be well thought out and articulated to the public. Preferably, institutions with legislative-based infrastructure (and perhaps among existing institutions) should be executing this to ensure its sustainability and efficacy. Operational challenges and potential resistance may also be redressed by engaging practitioners and grassroot leaders in the design process. With more buy-ins, this scheme can be further extended to more individuals in the future. For instance, a proportion of individual tax contributions can be automatically disbursed into this scheme on behalf of income taxpayers as tax incentives. While the scheme will require deeper and careful thoughts to circumvent trade-offs, the need to start the conversation is more urgent than ever.
Conclusion
This article explores one potential way in rethinking social protection in Malaysia. This is in light of the increasing pressure on existing mandatory contributing funds, the lacklustre enrolment of voluntary contributing funds, and the seemingly limited fiscal space. The crisis has laid bare how the most vulnerable individuals tend to be informal workers who are relying on social assistance, primarily cash transfers, as their lifeline. The aim of social protection is clear: to reduce vulnerability so that communities can be more resilient to shocks. If we expect the future to be more volatile, the lessons drawn from this crisis should be utilised to redesign a system that is more inclusive, equitable and sustainable.
