Raising Unemployment..

Saturday June 27, 2009
Rising unemployment despite green shoots
Economic Matters
By Cecilia Kok of StarBizWeek

DURING her recent trip back to Malaysia, Aileen (not her real name), an executive at an oil and gas company in London, told her friends who had been applying for some professional jobs in Britain, to put their plans on hold because current opportunities were scarce.

She pointed to the lack of activity in the once lively and busy streets of Canary Wharf, the trendy financial district of London, as a sign of how badly the British economy has been hit by the global financial crisis.

Many people have lost their jobs since the acceleration of the financial crisis in the third quarter of last year, and many more are expected to suffer the same fate in the coming months as companies across industries experience severe slowdown in their businesses.

While most of us are not there to experience first-hand the depth of the crisis in Britain, the official data tells the story. The British government recently reported that a broader measure of unemployment in the country rose 232,000 to 2.26 million for the three months to April, taking the unemployment rate to 7.2%.

Despite the talk that the worst is over, the Confederation of British Industry expects unemployment in the country to peak at 3.03 million, or a rate of 9.6%, in the second quarter of next year.

Worsening unemployment is not a problem faced only by Britain, but also by many other nations. For instance, the unemployment rate in the United States is expected to exceed 10% this year. It stood at 9.4% last month, up from 8.9% in April.

Over the week, the Paris-based Organisation for Economic Cooperation and Development said it projected the average unemployment in its 30 member countries, comprising some of the most developed markets in the world, to reach 10% by the end of next year, up from 7.8% in April.

Unemployment is usually the public’s best gauge of the intensity of the current economic storm. Although recent indicators have shown signs of diminishing economic damage, and have pointed to possible recovery for some countries by the second half of this year, labour markets worldwide are expected to languish over a longer period of time.

The International Labour Office (ILO) director-general Juan Somavia recently explained that past experience had suggested a considerable lag of four to five years in the recovery of labour markets after economic recovery. He said there was a risk of the global jobs crisis persisting for the next few years.

In the Global Employment Trends Update released last month, the ILO projected the total number of people unemployed worldwide this year to range between 210 million and 239 million, or between 6.5% and 7.4% of the global labour force.

For the South-East Asia and the Pacific regions, the United Nations agency projected the total number of unemployed people this year to range between 16 million and 18 million, or 5.4% to 6.2% of the regional labour force.

A country with a persistently weak labour market poses a high risk of experiencing slow growth for a number of years, even if its economy does turn around by the end of the year. Rising unemployment also means that more people will fall into poverty, and this could weigh on consumer spending, a key component in most economies. For instance, consumer spending represents about half of Malaysia’s gross domestic product and 70% of that of the United States.

The Department of Statistics is expected to announce Malaysia’s unemployment rate for the first quarter of 2009 by the end of this month. The country’s unemployment rate last year stood at 3.3%, and is expected to reach 4.5% this year.

On Tuesday, the Manpower Department director-general Datuk Ismail Abdul Rahim said there had not been a massive retrenchment in the country so far. He estimated that the total number of employees who lost their jobs since last August to be 37,000.

Economists polled by StarBizWeek recently also agreed that retrenchment in Malaysia had not been that widespread but affected mainly employees in the electrical and electronics manufacturing and export-oriented companies.

Further improvements in the labour market, nevertheless, will depend on the effectiveness of the fiscal expenditures by the Government in creating new jobs.