As the country’s real economy continues to take hits from the global financial bear, the question of how Malaysian jobs will roll with the punches is beginning to creep into the forefront after showing signs of weakness towards the end of 2008.

The worst hit will be the manufacturing sector, which has shed more than 10,000 jobs since the beginning of the second half of 2008. The export-driven economy has reported slowing orders in all sectors, especially in electrical and electronics (E&E).

One particularly drastic measure taken since the start of the financial crisis is the closure of Western Digital’s (WD) media substrate plant in Sarawak. If it goes according to plan, some 1,500 workers will find themselves jobless by March.

Citing weaker demand and a more competitive market, the hard-disk manufacturer said earnings were being mauled by the economic tailspin and it needed to restructure to survive. The closure of the plant is the largest job cut in Malaysia that can be directly attributed to the global financial pandemic.

Although the loss of the 1,500 WD jobs pales in comparison to the 533,000 jobs lost in the US for November alone, the lost jobs are worrying because captains of industry are unequivocal that things will get worse in 2009 before they get better.

Case in point is Human Resource Minister Datuk Dr S Subramaniam’s statement earlier this month that at least 4,749 workers would be retrenched in the first quarter of 2009, with the majority coming from the electronics sector.

To put things in context, the manufacturing sector has already retrenched 13,677 workers by the end of the third quarter (3Q) this year with the majority of jobs (10,182) being cut in 3Q, according to Bank Negara Malaysia.

Retrenchment in 3Q08 alone, which stood at 11,561 workers, was up more than three times the number of workers retrenched in 2Q08 (2,821 workers).

What’s worse is that macro trends aren’t promising a quick rebound either — Malaysia’s industrial production index is continuing its decline and the global purchasing manufacturing sentiment is experiencing its steepest drop. The market-leading US Purchasing Managers Index contracted at its fastest pace in 26 years in November.

Data from Japan, the world’s second largest economy, is also indicating a bearish future shrouded in uncertainty. The latest sentiment index for manufacturers, compiled by Japan’s Cabinet Office, was -44.5 in 4Q08 compared to -10 in the previous quarter. This was the fastest drop in its manufacturer’s confidence ever recorded.

With the economy of two of Malaysia’s biggest trading partners in crisis, the prospects of a quick recovery in Malaysia are bleak at best.

Employment likely to be further hit in 2009 as manufacturing slumps
Federation of Malaysian Manufacturers president Datuk Mustafa Mansur told The Edge Financial Daily that the country’s manufacturing sector was not expected to recover until at least 3Q of next year.

In that respect, the forecast of some 4,700 workers being retrenched in 1Q of next year by the human resources minister was a low ball-park estimate, he said.

“I believe that the full impact of the crisis will be felt by the middle of next year,” Mustafa said. “In the first quarter, unemployment would definitely be higher.”

Some of the plants, Mustafa said, employed about 2,000 to 3,000 workers each, so a significant downturn would send retrenchment rates up if their orders remained in the basement.

However, he noted that uncertainty was still the keyword as no one foresaw the pandemic effect of the US credit crisis. As suddenly as the crisis gripped the world, he said, it could also as suddenly end.

“Who would have expected at the start of 2008 that the US economy would tumble down the way it did?” he said. “Manufacturers who supply directly to the US have been hit, as well as those who supply components and parts to manufacturers in other markets such as Japan, Korea, Taiwan and China.”

Another indicator that retrenchment could rise next year is the fact that layoffs had yet to be fully explored as a viable option for companies, said the Malaysian Trades Union Congress (MTUC) secretary-general G Rajasekaran.

Not only was retrenchment expensive for companies, but employers are also reluctant to let go of workers whom they have trained and invested in.

“The companies are uncertain. They don’t want to let their workers go because it is uncertain how much longer the global crisis situation will continue,” Rajasekaran said. “They need them available for when the economy rebounds because things will move very fast then.”

Instead, he added, companies are still trying to institute cost-saving measures such as cutting down on shifts and putting a stop to overtime. This is not to say that employees have not felt the sting of the crisis even if they had so far avoided retrenchment, he added.

“Many of the workers have grown dependent on the extra income from overtime,” he said. “The average is usually about 60-70 hours of overtime a month, which is about 30% of their take-home income. That’s now gone completely.”

Contract workers have also been forced to bear the brunt of the impact as they are the first to go when there is insufficient work for everyone.

Rajasekaran warned that because the dismissal of contract workers was not technically considered “retrenchment”, the number of workers who were out of work could not be accurately estimated from the official numbers.

He said he suspected that the number of workers laid off were higher than the officially reported numbers. Nonetheless, he agreed with Mustafa that the global economic situation would have to improve before manufacturing, and by extension jobs in manufacturing, recovered.

The silver lining was that the current crisis also provided Malaysian manufacturers with the opportunity to restructure and become less dependent on exports for their fortunes, Mustafa said.

“I am a strong believer in import substitution whereby local manufacturers produce homegrown products for the domestic market,” he said. “I hope that with this setback in the economy, enterprises will become more innovative and look to diversifying products in the local economy.”

The government also needed to emphasise the diversity of Malaysia’s export markets so that a similar crisis in future would not affect Malaysia as severely. Malaysia, he said, needed to be more competitive in that respect.

This means reducing the tariffs of utilities, better product promotion and placements, and further stimulus spending.

Protection of local workers a priority
With about 2.1 million foreign workers in Malaysia — about 760,000 of them (36%) employed in the manufacturing sector — local employees are understandably concerned that employers would prefer to retain foreign workers as they tend to work for lower wages.

However, Shamsuddin Bardan, the executive director of the Malaysian Employers Federation, asserted that foreign workers would be the first to go should retrenchment become necessary.

“Our Malaysian workers need not worry very much because, by law, we as employers are required to end the employment of foreign workers first before local employees,” he said.

“We still have to treat them (foreign workers) humanely. We cannot just terminate them without remitting some compensation. We know when they come to Malaysia, they have to spend money to travel and to obtain visas.”

Rather than send them back, he added, they should be allowed to be re-deployed in other sectors where Malaysians were not keen to work in, such as plantations, agriculture and construction. Presently, Malaysian laws governing foreign workers do not allow their re-deployment into other work sectors.

Ultimately, the cost of hiring a foreign worker — by providing housing and other facilities — meant that the cost was equivalent to hiring local Malaysians.

As for the MTUC, Rajasekaran said the union was lobbying for a freeze on the import of foreign workers although many employers had sought and received permits to bring foreign workers in prior to the crisis.

The freeze, he added, would help protect both local and foreign workers. “Many employers, during the good times, sought permits for foreign workers and got approval. So what some of these guys are doing is going ahead to bring them in, but they don’t see the trend.

“They bring the foreign workers in without considering what would happen to them six months down the road when the production demand is no longer there. They’re not thinking about that”.

Rajasekaran said as a labour union, the MTUC had a mandate to protect the rights and welfare of workers everywhere, although local workers had a priority over foreign labour.

by TheEdgeDaily