Categories: EconomyNews

Lessons learned from Covid-19 crisis recovery

by SMITA KURIAKOSE, RIRIN SALWA PURNAMASARI, TRANG THU TRAN, SARAH WALTRAUT HEBOUS & ZAINAB ALI AHMAD

TO SOME extent, the labour market was quick to adjust to shocks during the crisis, which was also supported by timely and effective government labour market interventions. In the first year of the pandemic, both workers and firms took advantage of and adapted to new opportunities, which included the gig economy digital technologies, and remote work arrangements. At the same time, timely and effective government labour market inter ventions cushioned the impact of Covid-19 and promoted job creation during the crisis. These interventions included incentives for firms to hire new workers and matching contributions to social insurance for self-employed and gig workers that brought them into the formal workforce.

Government assistance to households and individuals has been impressive, given the speed with which programmes were deployed and their coverage. Multiple cash transfer programs were provided to target groups throughout the pandemic, with rapid delivery to reach intended beneficiaries. The first emergency cash transfer, the BPN (Bantuan Prihatin Nasional), was disbursed in April 2020, just 10 days after its announcement (World Bank 2021c). This rapid roll-out was made possible by an efficient enrolment system, including automatic enrolment of existing BSH (Bantuan Sara Hidup) recipients and colleagues, eligible based on their personal income tax records, as well as manual enrolment of new eligible beneficiaries through a simple application process on the Inland Revenue Board’s website.

Given tightening fiscal space and continued financial distress among Malaysians, better targeting and consolidation of support instruments are needed. The impact of Covid-19 on the poor and vulnerable would likely have been worse had there been no government intervention. In the short term, retaining current social assistance programmes, including the newly introduced relief measures, is important to mitigate an increase in poverty and vulnerability.

Challenges in programme implementation include the targeting of intended beneficiaries and adaptability to cover households experiencing shocks. Eligibility for social assistance programmes could be broadened to prioritise vulnerable groups, particularly young, less educated, self-employed or informally employed workers, and temporarily adjusted to cover households that experienced economic shocks during the crisis, at least until economic growth resumes. Over the medium to longer term, Malaysia would benefit from consolidating the range of social assistance programmes, including beneficiary registries, resources and delivery systems, to provide better coverage and protection to low-income and vulnerable households, thereby helping to promote equitable recovery and outcomes.

Malaysia reached a large number of firms that needed assistance but may have spent resources on firms that may not have needed it as much. Many large firms received government support, suggesting that some government spending could have been curtailed and better targeted toward smaller firms or firms in the most vulnerable sectors. As Malaysia transitions into the endemic phase of the virus, government support could be reviewed and redirected toward programs that improve growth potential over the longer term. Discussion of the optimal mix of policy instruments is beyond the scope of this chapter. However, data on firm-level access to select support instruments-tax deferrals, wage subsidies, hiring incentives, and grants for digitalisation — indicates some direction for reallocation of resources across policy instruments and beneficiaries. Short-term relief measures, such as access to tax deferrals and wage subsidies, are easy to implement and useful in preventing widespread employment losses, but they are prone to mistargeting and misallocation of resources. Income tax deferrals, for example, affect only firms with profits, and wage subsidies encourage employment retention at the expense of the movement of workers toward more productive firms.

In contrast, hiring incentives support medium- and long-term recovery in the labour market. Reorienting support away from employment retention and toward measures that support employment activation would therefore make sense. Given the potential of the pandemic to exacerbate skills mismatches, hiring incentives also need to be balanced with well-designed and well-targeted training programs.

Direct targeting is difficult, but the choice of policy instruments can lead to the self-selection of firms or behaviours with desirable characteristics. When choosing an instrument, policymakers should prioritise instruments that can help more productive firms self-select behaviours, such as taking out loans, or incentivise investments that will contribute to increased productivity in the future, such as technology adoption and innovation. Investment incentives for firms need to be complemented by advisory support/technical assistance to ensure that firms have adequate capacity to implement the investment. Data on access to digital support shows that most of the vulnerable sectors during this pandemic, such as tourism and transportation, have the lowest level of support for digitalization-an unsurprising finding given the lower skill levels in these sectors. There is also a need to realign policy support toward the current needs of firms, by providing advisory services for small firms to adopt more advanced technologies for production processes and supply chain management, for example.

More comprehensive labour market policies are essential to address labour demand and supply constraints. These policies should not only provide short-term relief measures to reduce the adverse impacts of Covid-19, they should also foster employment creation and the matching of workers and jobs over time. Given the changing nature of work during the pandemic, active labour market policies play a crucial role in facilitating job transitions (World Bank 2020). Such policies can be strengthened by integrating the implementation of programs across ministries and agencies and increasing shock responsiveness during crises. These policies should offer a wide range of skill-building initiatives, including upskilling and reskilling training programmes, to leverage and facilitate the reallocation of workers across sectors and occupations as needed. – pic BLOOMBERG

  • Extracted from the ‘Crisis Recovery and Learning from Covid-19’s Economic Impacts and Policy Responses in East Asia’ report released by the World Bank in August 2023.

  • This article first appeared in The Malaysian Reserve weekly print edition
Zukri

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