INFORMAL EMPLOYMENT IN MALAYSIA FEBRUARY 2024 Trends, Challenges and Opportunities for Reform CONNECT WITH US wbg.org/Malaysia @WorldBankMalaysia @WB_AsiaPacific http://bit.ly/WB_blogsMY INFORMAL EMPLOYMENT IN MALAYSIA © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Cover photo: © gracethang2/Bigstock Credit for non-WB images: Bigstock Cover design and layout: Good News Resources Sdn Bhd/www.gnrsb.com INFORMAL EMPLOYMENT IN MALAYSIA FEBRUARY 2024 Trends, Challenges and Opportunities for Reform Acknowledgements This report was prepared by a team from the World Bank, consisting of Yashodhan Ghorpade, Amanina Abdur Rahman, Alyssa Farha Jasmin, Natalie Fang Ling Cheng and Soonhwa Yi. Overall guidance was provided by Yasser el-Gammal (Practice Manager for Social Protection and Jobs – East Asia and the Pacific) and Yasuhiko Matsuda (Country Manager, Malaysia). The study benefited from review and guidance from Matthew Dornan, Carole Chartouni, Shakira Teh Sharifuddin and Himanshi Jain. We would like to thank the Human Capital Development Division, Ministry of Economy Malaysia, and in particular Encik Luqman Ahmad, Encik Megat Yusman and Puan Norhashimah Haron for their support and guidance for this study, as well as all the members of the Technical and Steering Committees for this study for their valuable inputs and guidance. In particular, we would like to thank Datuk Dr. Zunika Mohamed, the Deputy Director General (Policy) of EPU, Department of Statistics Malaysia (DOSM), Ministry of Human Resources (MOHR), Ministry of Finance (MOF), Ministry of Women, Family and Community Development (MWFCD), Malaysia Productivity Corporation (MPC), Ministry of Higher Education (MOHE), Ministry of Entrepreneur Development and Cooperative of Malaysia, Social Security Organisation (SOCSO), Employees Provident Fund (EPF) and SME Corporation Malaysia (SME Corp). The authors are especially grateful to the Malaysia Digital Economy Corporation (MDEC) for data access and the productive collaboration on the online survey of digital freelancers. Special thanks are due to Ipsos Sdn. Bhd. for conducting the online survey of digital freelancers and for the team led by Professor Dr. Tan Peck Leong at the Universiti Teknologi MARA (UiTM) Shah Alam for the qualitative research conducted for this study. The study also benefited from conversations with the Farmers’ Organisation Authority (Lembaga Pertubuhan Peladang) and the E-Hailing Association Malaysia (Gabungan E-Hailing Malaysia). 6 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Acronyms and Abbreviations ASB Amanah Saham Bumiputera B40 Bottom 40 percent CAGR Compound Annual Growth Rate CCM Companies Commission of Malaysia COL Critical Occupations List CSC Critical Skills Committee DOSM Department of Statistics Malaysia EAP East Asia Pacific EIS Employment Insurance Scheme EPF Employees Provident Fund FDF Family Development Foundation FLFPR Female Labor Force Participation Rate GDP Gross Domestic Product GLOW Global Online Workforce HIS Household Income Survey ICLS International Conference of Labour Statisticians ILO International Labour Organization ILO WG ILO Working Group KWAP Public Service Pension Fund (Kumpulan Wang Persaraan) LA Local Authority LFS Labour Force Survey LMIS Labour Market Information System LPP Farmers’ Organisation Authority (Lembaga Pertubuhan Peladang) LTAT Armed Forces Pension Fund (Lembaga Tabung Angkatan Tentera) MAFI Ministry of Agriculture and Food Industries MASCO Malaysian Standard Classification of Occupations MDEC Malaysia Digital Economy Corporation MOF Ministry of Finance MOHR Ministry of Human Resources MOOCs Massive Open Online Courses NGO Non-Governmental Organisation OECD Organisation for Economic Co-operation and Development Malaysian E-Hailing Industry Workers Welfare Association PKEH (Persatuan Kebajikan Pekerja Industri E-Hailing) PMR Penilaian Menengah Rendah PPK Association of Area Organizations (Pertubuhan Peladang Kawasan) SESSS Self-Employment Social Security Scheme Employment Insurance System Job Search Allowance+ (Sistem SIP EMP+ Insurans Pekerjaan Elaun Mencari Pekerjaan+) SNA Systems of National Accounts SOCSO Social Security Organisation SPM Sijil Pelajaran Malaysia INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 7 Table of Contents Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 CHAPTER 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 CHAPTER 2 Overview of Informality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.1 The informal sector, informal employment, and the intersection between the two. . . . . . . . . . . . . . . . 21 2.2 Current definition of informal sector and informal employment in Malaysia. . . . . . . . . . . . . . . . . . . . . 24 2.3 Global definitions of informal sector and informal employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.4 Gig employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.5 Regulations, policies and programs in Malaysia for informally employed workers . . . . . . . . . . . . . . . . 28 2.5.1 Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.5.2 Retirement savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2.5.3 Employment injury and disability insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.5.4 Job search allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.5.5 Job facilitation, onboarding support, and training incentives for access to digital labor platforms administered by the Malaysia Digital Economy Corporation. . . . . . . . . . . . . . . . . . . 33 2.5 Working definition of informal employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 CHAPTER 3 Findings and Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 3.1 Scale and trend of informal employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 3.1.1 All informally employed workers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 3.1.2 Gig workers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3.2 Correlates of informal employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 3.2.1 All informally employed workers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 3.3 Employment characteristics of informally employed workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.3.1 All informally employed workers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.4 Underemployment among informally employed workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 3.4.1 All informally employed workers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 3.5 Income of informally employed workers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 3.5.1 All informally employed workers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 3.6 Perceptions of informal employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 3.7 Vulnerabilities associated with informal employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 3.8 Protection of freelancers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 3.9 Willingness to pay for social insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 8 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 CHAPTER 4 Policy Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 4.1 Recommendations to enhance the protection and productivity of the informally employed in Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 4.2 Operationalizing recommendations: An action plan for informal employment in Malaysia. . . . . . . . . . 81 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Annex 1: Description of data sources and details of analyses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Analysis of administrative data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Analysis of survey of freelancers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Analysis of focus group discussions and key informant interviews. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Analysis of informally employed workers during the COVID-19 pandemic. . . . . . . . . . . . . . . . . . . . . . . . . . 87 Annex 2: Basic characteristics of different categories of informally employed workers (excluding agriculture workers), 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Annex 3: Rate of informal employment (excluding agriculture workers) by state, 2009 – 2019 . . . . . . . . . 89 Annex 4: Probit regression on the likelihood of being informally employed (2009 - 2019), marginal effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Annex 5: Probit regression on the likelihood of an informally employed worker having a high-skilled occupation (2009 - 2019), marginal effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Annex 6: Tobit regression for the correlates of hourly wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Annex 7: Profiles of informally employed workers in the survey of freelancers and qualitative study . . . . 96 Freelancers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Focus group discussion participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 9 Executive Summary 10 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Executive Summary With technological advances, aging, and other factors, objective of suggesting policy recommendations changes to the nature of work are challenging the to strengthen the protection and productivity of notion that with development more and more workers informally employed workers. Using a working definition will transition into what has until recently been of informal employment based on coverage by a pension, regarded as ‘standard’ employment relationships. In retirement savings, or employment injury insurance, many developed and emerging economies, a greater this study analyzes the scale and trend of informal proportion of the labor force engages in part-time employment, the correlates of informal employment, work, self-employment, the gig economy, and zero- and the employment characteristics and income of hour contracts. In many countries, the coverage of informally employed workers. The study describes the traditional social insurance policies has been either regulations, policies, and programs governing informal stagnating or declining. This raises important questions employment, including recent initiatives by agencies for the protection of workers, as standard employment such as EPF, SOCSO and MDEC targeted towards relationships have typically been the basis for many informally employed workers. The study also analyzes the social protection policies, in particular to social vulnerabilities associated with informal employment, the insurance policies related to pensions, disability and willingness to pay for social insurance, and the valuation unemployment (World Bank 2019a). of attributes of work by informally employed workers. Finally, the study analyzes the evolution of informal labor Workers without access to employment-based social in the period 2020 to 2040, given differing scenarios of insurance coverage are typically considered to constitute employment and GDP growth. the informally employed workforce, are particularly vulnerable to a range of shocks within and outside The study uses a range of data sources and analytical the labor market. There is also a concern that many methodologies to conduct an in-depth assessment of workers in such non-standard employment may be less informal employment in Malaysia and to inform policy productive, and therefore, also less able to withstand recommendations. These include detailed descriptive such shocks. These factors underline the need for a and econometric analyses of multiple rounds of national better understanding of informal employment, and the survey datasets (the Household Income Surveys and role of public policy to support such workers to derive Labour Force Surveys), administrative data received the benefits offered by emerging forms and mediums from EPF, SOCSO and MDEC, the World Bank’s High of employment while ensuring their protection against Frequency Phone Surveys (HiFy) conducted during shocks, and a path to enhanced productivity. the COVID-19 pandemic, an online survey of digital freelancers conducted by the World Bank in partnership This study aims to narrow the knowledge gap on with MDEC, and qualitative assessments with select informal employment in Malaysia, with the ultimate groups of informally employed workers across Malaysia. 11 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 11 Executive Summary Main Findings percent more than similar informally employed workers on average, but by 2022, the premium had declined to 23.2 percent. Further, in 2022, the Scale and Trends of Informal Employment formality premium for women was 40.9 percent • Informal employment in Malaysia has been compared to 16.8 percent for men. decreasing consistently over time; using the proxy • Qualitative assessments suggest workers value definition proposed in this report and data from different attributes of informal and formal the Household Income Survey (HIS), the rate of employment respectively. In informal employment, informal employment decreased consistently workers value flexibility, autonomy, and the ability from 38.4 percent in 2012 to 26.8 percent in 2022. to earn more incomes by working more, while they Declines have been observed even after excluding dislike the risks faced in work and the lack of adequate agricultural workers. social insurance coverage. Formal employment • However, among all informally employed workers, was found to be associated with social insurance the subset of gig workers, and particularly coverage, stability of incomes and access to formal location-based gig workers has been increasing in credit, but also lacking in flexibility and autonomy. number, as indicated by data from MDEC. • The HiFy surveys conducted by the World Bank Characteristics of the Informally Employed during the COVID-19 pandemic suggest that informally employed workers were more likely to • Analyzing data from the HIS surveys between lose their jobs, receive irregular payments, and 2009 and 2019, we find that women, youth, less experience reductions in income. They were also educated persons, and workers from lower income more likely to experience food shortages and to households, rural areas, and less developed states rely of harmful coping strategies. These findings are more likely to be informally employed. underline their vulnerabilities to shocks and • The majority of workers in the agriculture and limited abilities to cope effectively. construction sectors are informally employed; • Flexibility in terms of working arrangements is however, given their relatively smaller share in important to informally employed workers. A total employment, we see that largest numbers of small sample survey of freelancers conducted for informally employed workers in the services sector. this study shows that substantial shares of workers Features of Work: Underemployment, Earnings and Work prefer jobs with flexibility in working hours Characteristics and the ability to work from home, even when • Skill-related underemployment, defined as the there is a trade-off in terms of income. Similarly, share of those with tertiary education working in qualitative analysis of focus group discussions and mid- or low-skilled jobs in the workforce is higher key informant interviews of informally employed among those in informal employment and is workers shows that flexibility of work hours growing, relative to those in formal employment. and work arrangements are the top reasons Using Labour Force Survey (LFS) data, formally why informal (or non-standard) employment is employed workers experienced an increase from preferred over formal, standard employment. 16.2 percent in 2010 to 26.5 percent in 2020, while Among the reasons for this is the ability to informally employed workers experienced a much attend to care duties that could take place during larger increase from 23.7 percent in 2010 to 73.2 “normal” working hours. percent in 2020. Women across groups were more • While informal employment is correlated with likely to experience skill-related unemployment. poverty, there is some evidence that some • While informally employed workers work fewer hours informally employed workers are willing to pay on average than those in formal employment, their for social insurance. This study utilized a vignette- time-related underemployment (availability to work based experiment, incorporated in the online additional hours) is higher. However, time-related survey of digital freelancers to uncover the underemployment has been reducing over time. willingness to pay for social insurance coverage. The experiment reveals that a majority of respondents • The formality premium, or the earnings differential would be willing to trade off a certain share of their between formally and informally employed workers income per month to be able to be covered by (after accounting for demographic, education, and unemployment insurance, retirement savings fund, location characteristics), though positive, especially and insurance for workplace injuries at levels of for women, has been declining over time. In 2009, contribution and benefits that are similar to those formally employed workers earned about 43.4 offered by EIS, EPF, and SOCSO, respectively. 12 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Executive Summary Policy Recommendations The main reform priorities to support the protection and productivity of informally employed workers are outlined below.1 Policy Key Challenges Complementary No. Policy Reform Area and Policy Goals Policy Actions Insufficient Ensure granular and up-to-date measurement of informal information on employment that includes continued refinements and 1 3, 5 the scale and revisions in line with emerging global conventions and best composition practices. of informal employment, Undertake regular assessments of changing employer especially new needs with respect to informally employed workers through 2 5, 8 categories of a Labor Market Information System (LMIS), and employer informal work. skills surveys. Establish and operationalize a Convening Body to bring together stakeholders including government departments Insufficient 3 and agencies, employers, gig platforms, informal workers’ 4, 8, 18, 24 knowledge of associations and leaders, technology platforms, and training the concerns agencies. of informal employment Conduct regular consultations with informal employment 4 3, 8 stakeholders stakeholders, and the public, for periodic reviews of policy. (workers, Developing a comprehensive Labor Market Strategy can platforms, help balance interests and provide a clear direction to employers) and 5 1, 2, 12, 15 coordinate initiatives for supporting informally employed their perceptions workers. of policy measures. Engage periodically with associations and representatives of 6 informal workers across sectors/ clusters to share information 3, 4 on needs for support. Weak evidence Develop an Integrated Social Protection Strategy and base on which 7 System to enhance protection among informally employed 7, 17, 22 informally workers. employed workers need Establish and use profiling approaches to determine the what kinds of 8 suitable package of benefits or referrals to be provided to 8, 17, 22, 27 support. informally employed workers. Use existing quasi social insurance initiatives such as the Insufficient 9 Farmers’ Family Smart Card (Peladang-i) as an entry point 11 provision of for social insurance coverage. retirement savings among informal Enhance the content of Skills Training programs to include workers. 10 16, 26 awareness of social insurance programs. 1 Chapter 4 provides a detailed discussion of a full range of policy recommendations. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 13 Executive Summary Policy Key Challenges Complementary No. Policy Reform Area and Policy Goals Policy Actions Improve outreach and communication for social insurance schemes by: - Relying on formal and informal peer networks and informal 11 workers’ associations, including through social media. 9, 13 - Emphasizing the benefits of SI coverage (e.g., enhanced protection, financial inclusion) in outreach activities to Insufficient incentivize uptake and participation in SI schemes. provision of retirement savings Mandate automatic contributions for retirement savings for 12 5, 15 among informal incomes earned through digital platforms — See Annex. workers. Encourage group-based enrollment and synchronized 13 contribution options to encourage workers to contribute 11, 19, 23 regularly, relying on peer networks. Encourage voluntary savings schemes to (i) complement the EPF’s retirement savings schemes through improved 14 11 outreach, and (ii) serve as an entry point for EPF enrollment for those not currently covered. Insufficient Mandate digital platforms to provide injury insurance for protection 15 tasks that involve a high degree of health and injury risks, 5, 12 of informally and standardize the coverage offered. employed workers against Ensure that the content of Skills Training programs includes health/ injury 16 10, 26 relevant occupational health and safety measures. risks. High vulnerability among the informally employed to Extend Social Assistance and Care Services to targeted 17 7, 8 multiple shocks groups of informally employed workers based on Profiling. which can threaten their wellbeing. Alter the design of Social Insurance Schemes by offering 18 greater flexibility that is suited to the needs of Informally 3, 19, 20, 21 Existing Social employed workers. Insurance Schemes do Explore partnerships with Group-based microinsurance 19 13, 18, 20, 21 not fully meet schemes to expand SI coverage in the medium-term. the needs of the informally Use technology to enhance flexibility in the mode and employed. frequency of making social insurance contributions 20 18, 19, 21 through in-built platform options, automatic reminders for contributions etc. 14 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Executive Summary Policy Key Challenges Complementary No. Policy Reform Area and Policy Goals Policy Actions Explore the feasibility of Default Options for EPF 21 18, 19, 20 contributions and easier social insurance registration. Informally Identify workers who may need subsidized contributions employed 22 for social insurance coverage; pilot, evaluate and scale up 7, 8 workers unable/ subsidized payments to identified groups. unwilling to make SI contributions. Encourage group-based enrollment and synchronized contribution options for SI schemes by leveraging 23 13 associations and peer networks of informal workers to encourage regular contributions. Encourage the role of Employer/ Client-provided Training 24 3 through recognition, publicity and sharing of best practices. Enhance the existing SIP EMP+ program targeted to informal workers by including a training component, and expand it to 25 10, 16 include those who are contributing to the Self Employment Social Security Scheme (SESSS) Ensure relevant, up-to-date curriculum in training programs Need to for informally employed workers by seeking industry upgrade skills 26 input (including informal employers and digital platforms), 10, 16 of the informally providing on-the-job and applied training, and emphasizing employed. digital skills and emerging technologies. Tailor Active Labor Market Programs to the needs of the informally employed by offering modular skills training and 27 8 referrals to (public or private) training providers, in a format that is suitable to intended users. Use post-training Monitoring and Evaluation to Calibrate 28 10, 16, 26, 27 Skills Training Curricula used in training institutes. Measurement Profiling Worker Stakeholder Worker Productivity Engagement Protection Short-Term Medium-Term Long-Term Recommendations Recommendations Recommendations (up to 1 year) (1 - 3 years) (> 3 years) INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 15 Introduction CHAPTER 1 Introduction 16 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Introduction With technological advances, aging and other factors, of-necessity self-employment may leave women in a changes to the nature of work are challenging the relatively unprotected situation. That is particularly the notion that with development, more and more workers case because most of Malaysia’s social insurance (such will transition into what has until recently been as that provided by the Employees Provident Fund (EPF) regarded as ‘standard’ employment relationships. or the Social Security Organization (SOCSO) is either This standard employment relationship, characterized directly tied to an employer-employee relationship, or by long-term, full-time wage employment with a single in practice has much higher coverage for employees employer, provides the basis for many social protection than for own-account workers, with coverage for the policies, in particular to social insurance policies related latter being a nascent effort with low take-up rates. to pensions, disability and unemployment (World Bank 2019a). However, in developing and emerging This report aims to narrow the knowledge gap on economies, a large proportion of the labor force has never informal employment in Malaysia, with the ultimate been involved in these kinds of standard relationships. objective of suggesting policy recommendations This has been exacerbated by the changing nature of to strengthen the protection and productivity of work, with disruptive technologies increasingly eroding informally employed workers. Using a working existing sources of standard employment. As a result, definition of informal employment based on coverage in many developed and emerging countries, a greater by a pension, retirement savings, or employment injury proportion of the labor force engages in part-time insurance (see Section 2.6), this study analyzes the scale work, self-employment, the gig economy, and zero-hour and trend of informal employment, the correlates of contracts. In many countries, the coverage of traditional informal employment, the employment characteristics, social insurance policies has been either stagnating and income of informally employed workers. Moreover, or declining. Early research suggests that these trends the study also analyzes the vulnerabilities associated have accelerated as a result of the COVID-19 crisis. with informal employment, the willingness to pay for For example, during the pandemic, firms in Malaysia social insurance, and the valuation of attributes of work made investments in digital solutions and digital by informally employed workers, based on data that platforms (Kuriakose et al. 2021), which may have lasting was collected throughout the duration of the study. consequences for the world of work. There is also evidence from various countries worldwide — including Contrary to some public perception, informal Malaysia — that the preference for working from home is employment in Malaysia has been decreasing over a lasting phenomenon (Aksoy et al. 2022). time; however, the number of gig workers, and particularly location-based gig workers has been Various indicators demonstrate a high prevalence increasing. Calculations using data from the Household of non-standard forms of work in Malaysia, even Income Survey (HIS) show that the rate of informal before the pandemic. According to the Department employment in Malaysia has been declining between of Statistics Malaysia (DOSM)’s Labour Force Survey 2009 and 2022. At the same time, data from MDEC show (LFS), the share of own-account workers (that is, self- that between 2016 and 2021, the number of digital labor employed persons without paid employees) as a platforms registered with MDEC, as well as the number proportion of all workers has remained relatively high and growing, increasing from 16.4 percent in 2010 to of active gig workers have been increasing. This increase 19 percent in 2019, before dropping to 14.8 percent has been particularly pronounced for location-based in 2021. The increase in own-account work has been work, or work that is enabled through digital means particularly pronounced in the case of women until (typically through an app) but needs to be performed on- 2019, among whom the share of own-account workers site such as ride-hailing, delivery, and domestic services. increased from 11.6 percent in 2010 to 17.7 percent in This may explain the public perception of rising informal 2019, before falling to 10.7 percent in 2021.2 Because employment — there are more and more different types women’s labor force participation rose during the 2010 of informally employed workers, including those that to 2019 period and new forms of work such as those in are more visible to the public eye. It should be noted the gig economy emerged, it is likely that the change in that an increase in the number of informally employed the share of self-employed women was at least partly workers does not necessarily translate into an increase in due to the choices made by women entering or re- the rate of informal employment, as the rate of informal entering the labor market, such as a desire for more employment is also determined by the total number of flexible work arrangements. At the same time, out- employed persons, which has been increasing over time. 2 In 2020, the share of own account workers is 15.9 percent, and the share of women who are own workers is 14.4 percent. However, due to the COVID-19 pandemic, data collected in 2020 are not reflective of “ordinary” times. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 17 Introduction Informally employed workers are more vulnerable leverage private sector instruments, and extend social and are subject to more precarious working assistance coverage. Malaysia can take steps in the conditions than formally employed workers. On short-, medium-, and long-term to comprehensively average, informally employed workers have lower levels enhance the protection and productivity of informally of educational attainment than formally employed employed workers. These include: (i) expanding the workers, and are more likely to be from lower income coverage of existing social insurance schemes through households. They are also more likely to be employed enhanced outreach to informally employed workers in low-skilled jobs compared to formally employed (extending existing initiatives and partnering with workers. Further, informally employed workers earn new partners and networks), enhanced flexibility and less than formally employed workers, even after taking suitability of schemes, targeted subsidies for social into account gender, age, education level, sector of insurance coverage, the use of technology, leverage employment, urban-rural location, and ethnicity. Both of private insurance instruments, and voluntary savings time- and skill-related underemployment is higher schemes, mandating social insurance coverage and among informally employed workers. Concerningly, the registration requirements; and (ii) enhancing social gap in the skill-related underemployment rate between assistance coverage among informally employed formally employed and informally employed workers workers through improved targeting and profiling has been increasing over time. During the COVID-19 of workers and integrated social protection delivery. pandemic, informally employed workers were more Existing programs for skills training can contribute susceptible to job losses and reductions in income and further to increase the productivity of informally were also more vulnerable to food insecurity. employed workers by enhancing the content and Informal employment is projected to decrease to suitability of training curricula, offering relevant modular 21 percent of employment by 2040 if productivity training through active labor market programs, and growth is high. Projections made by the World Bank updating and calibrating training content and practices show that informal employment is likely to persist over based on continued evaluations. time, although the extent of informal employment will This report is organized as follows. The next chapter depend on the growth of total factor productivity, and provides an overview of informality, including both the the relative growth of labor costs. The higher the growth informal sector and informal employment, globally and of total factor productivity relative to the growth of in Malaysia. This section also describes the regulations, labor costs, the smaller the projected share of informal policies, and programs that exist for informally employment, and the higher the GDP growth. employed workers in Malaysia. Chapter 3 presents Moving forward Malaysia can enhance the protection and discusses the findings of the study. The report of informally employed workers by a combination of concludes with a presentation and discussion of policy measures to increase the coverage of social insurance, recommendations in Chapter 4. 18 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 19 CHAPTER 2 Overview of Informality 20 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Overview of Informality 2.1 The informal sector, informal employment, and the intersection between the two Since the term ‘informal sector’ was coined in the and the concept of the informal market economy. The 1970s, the concept of ‘informality’ has evolved new concept of informal productive activities would considerably. Formerly used to refer to employment potentially include all forms of work, and therefore, in the underground economy or in a specific type of all productive activities within the System of National production unit, it has broadened into an economy- Accounts (SNA) general production boundary. The wide phenomenon. The 15th ICLS introduced the next ICLS (in 2023) is expected to approve a resolution notion of informal sector as a statistical concept to on informality; in the meantime, the ILO provides the measure informality in terms of characteristics of the following terminology and operational definitions. production units (enterprises). It also recognized the Informality includes: need for statistics on employment in informal jobs, not • Informal employment in formal sector: all only on employment in the informal sector. However, persons in employment who, by law or in practice, it was not until 2003, that the 17th ICLS guidelines are not subject to national labor legislation and recommended an international statistical definition income tax or entitled to social protection and of informal employment to complement the informal employment benefits. sector definition. The introduction of the concept of work and the narrower definition of employment in 19th • Employment in informal sector activities: ICLS Resolution I applied has required the revision of unpaid work in a family enterprise, casual wage the concept of informal employment as defined in the labor, street vending, or employers in informal 17th ICLS guidelines. manufacturing establishments, or as skilled self- employed workers in small businesses. The 20th ICLS, held in October 2018 decided to initialize a revision of the current statistical These definitions of informality comprise three statistical standards on informality. An ILO Working Group components: (1) informal sector, (2) employment in (WG) widely agreed with the proposal to introduce the the informal sector, and (3) informal employment (see underlying concept of ‘informal productive activities Figure 1 ). FIGURE 1 Statistical components of informality Informal Employment Informal employment in the informal sector sector Source: ILO INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 21 Overview of Informality FIGURE 2 Operational definition of ‘informal sector’3 Institutional sector Government; Corporations; Farm or private business Other: Not asked: Non-profit Organizations; Private household (unincorporated) Don't Know: NA Embassy: Int. Organizations... Destination of production Other: Not asked: Only for own Mainly for the market Don't Know: NA final use Bookkeeping HOUSEHOLDS Keep accounts for reporting Does not keep accounts; Other: Not asked: to the government Keep accounts for personal use only Don't Know: NA Registration Not registered at Not asked; NA Registered at national level national level; Other; DK Status in employment INFORMAL SECTOR Employees All other cases FORMAL SECTOR Yes Social security contribution (Proxy: Pension Funds) No: Other; Not asked; DK; NA Place of work Fixed visible premises (offices, factories) Non-fixed premises; Other 6 or more Size 5 or less INFORMAL SECTOR Source: Adapted from ILO: https://ilostat.ilo.org/resources/concepts-and-definitions/description-informality/ The term informal sector was officially introduced and the type of enterprise. The operationalization of by the 15th ICLS (1993) to provide better clarity on these statistical components requires data collection the different reasons for informality. In particular, on the following characteristics of the employer or it separates the underground economy from actors the entity/enterprise (production unit) in which the that may not have a deliberate intention of avoiding activities took place in a specific reference period (see tax payments and/or social security contributions, or Figure 2): violating the legislation, including labor norms. The informal sector is defined in terms of the characteristics • Work mainly for profit of the production units (enterprises) in which the • Does not keep accounts or only keeps accounts activities take place and persons are classified as being for personal use employed in the informal sector if they work for profit • Is not registered at the national level (sale or barter) in enterprises (farm or private business) • Is unincorporated (business and owner are not with characteristics corresponding to the definition of separate legal entities) that sector. The concept of employment in the informal sector, therefore, relies on the narrowed definition of • Place of work is without fixed premises employment as work for pay or profit (19th ICLS, 2013) • The entity/enterprise has less than 5 employees 3 Note: The box ‘At least partially for the market’ was updated as ‘Mainly for the market’ to be consistent with the revised definition of work and employment (19th ICLS). 22 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Overview of Informality FIGURE 3 Operational definition of ‘informal employment’ Status in employment Employees; Workers not classi ed Employers; Members of Own-account Contributing family by status producer's cooperatives workers workers Social security contribution (Proxy: Pension Funds) Produces for sale Other; Not asked; Other; Not asked; Yes Don't Know; NA No Yes Don't Know; NA No Paid annual leave Unit of production Other; Not asked; Informal sector Yes Don't Know; NA Formal sector + Households Paid sick leave FORMAL EMPLOYMENT Other; Not asked; Yes Don't Know; NA FORMAL EMPLOYMENT INFORMAL EMPLOYMENT Source: ILO (https://ilostat.ilo.org/resources/concepts-and-definitions/description-informality/) The term ‘informal employment’ was officially o Informal owner-operators of corporations introduced by the 17th ICLS (2003) to comprise the without employees are those workers who total number of informal jobs carried out in formal hold a job as owner-operator of an informal sector enterprises, informal sector enterprises, corporation in which they do not employ any or households, during a given reference period. persons (other than themselves, their partners Informal employment, therefore, is not limited to the or contributing family workers) to work in the informal sector. It can be carried out in formal sector enterprise on a regular basis as an employee enterprises, informal sector enterprises, or households. (ILO 2018a). The operationalization of this statistical component requires data collection on the work relationship or the o Own-account workers in household market status in employment (see Figure 3): enterprises without employees are those workers who operate an unincorporated • Employers, own-account workers, and members market enterprise for profit, alone, or with of producers’ cooperatives are informal if they one or more partners, or contributing family operate or own an informal household enterprise workers, and do not employ any persons to o Informal employers are those workers who own work in the enterprise on a regular basis as an and run an informal enterprise on their own employee (ILO 2018a). They are informal due to account, in partnership with others or employing the informal nature of the household enterprise. one or more persons as employees (including Harun et al. (2020) use ‘own-account workers’ temporarily absent employees but excluding or ‘part-time employees’ specified in LFS to themselves, their partners, and family helpers) identify gig workers (such as Grab drivers) in (ILO 2018a). Malaysia. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 23 Overview of Informality • Employees are informal if they are not subject to irrespective of whether they work in formal or national labor legislation, income taxation, social informal sector enterprises (ILO 2013). protection, written contract, or entitlement to cer- tain employment benefits • Members of producers’ cooperatives are informal if they operate in informal cooperatives (under dis- o Informal employees are those workers cussion to be dropped) employed for pay (money or in-kind) who do not own the enterprise in which they are o Members of informal producers’ cooperatives employed and in law or in practice, they are not are those workers engaged in market-oriented subject to national labor legislation, income cooperatives that are not formally established taxation, social protection or entitlement to as legal entities, in which each member shares certain employment benefits (advance notice profits, risks, and production and sales decisions of dismissal, severance pay, paid annual or sick on an equal footing with the other partners. leave, etc.) (ILO 2018a). The reasons may be the • Dependent contractors (still under discussion) following: (i) undeclared jobs or employees; (ii) jobs with hours of work (e.g., casual jobs) o The challenge is to create a clear boundary or wages below a specified threshold (e.g., between informal employees paid by the for social security contributions); (iii) jobs in piece (in-kind) and dependent contractors. For unincorporated enterprises or by persons in instance, a street of vendor of goods who is not households or in a place of work is outside the the owner of the business nor receives social premises of the employer’s enterprise (e.g., insurance contributions, would be considered outworkers without employment contract); (iv) as a dependent contractor if paid only by jobs for which labor regulations are not applied, commission or directly by clients. The same not enforced, or not complied with for any other is true for some types of agricultural workers reason. (e.g., coffee harvesters), who do not have fixed working schedules and get paid by the piece to • Contributing family workers are informal due to the head of the household (ILO 2018b). the informal nature of this work relationship Employment benefits for employees mainly include o Contributing family workers are those workers contribution to social insurance, paid annual leave, who support other household’s members and paid sick leave. Contribution to social insurance engaged in a market-oriented enterprise, who refers to health insurance, pension contributions, cannot be regarded as partners. Own-use unemployment insurance. The WG has been advocating producers of goods, including subsistence for the inclusion of additional benefits, such as the workers, cannot be classified as contributing existence of a pay slip, having access to paid maternity/ family workers, but this group does not restrict paternity leave, payment of income tax, possibility to to unpaid work because the profit made may be fired without notice, and the receipt of a thirteenth or may not be redistributed (in cash or in month salary. kind) within the household. The job is informal 2.2 Current definition of informal sector and informal employment in Malaysia The most recent definitions for the informal sector 1. At least one of the goods or services produced are and informal employment in Malaysia was made meant for sale or barter transaction; or in the Informal Sector Survey Report 2021 by the Department of Statistics Malaysia (DOSM), 2. The enterprise is not registered with the Companies elaborated below (DOSM 2022). Commission Malaysia (CCM), or any other professional bodies, including the Local Authorities An enterprise is considered as part of the informal (LA); or sector if: 3. Employment size is less than 10 persons and is not registered under specific forms of national legislation. 24 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Overview of Informality FIGURE 4 Conceptual framework of the informal sector by the Department of Statistics Malaysia All or at least one of the goods or services produced are meant for sale or barter transaction Agricultural Sector Formal Sector Employed The enterprise is not registered with the Companies Commission Non-agricultural Informal Sector of Malaysia (CCM) or any other LABOUR Sector professional bodies, including FORCE Unemployed the Local Authorities (LA) Household Employment size is less than 10 persons and is not registered under speci c forms of national legislation Source: Informal Sector and Informal Employment Survey Report 2021 (DOSM) A worker in informal employment refers to any worker benefits, survivors’ benefits, paid annual leave, paid who does not have access to at least one social security sick leave, paid maternity leave, and unemployment scheme or employment benefit, for example pension insurance. fund, basic health insurance, injury insurance, disability FIGURE 5 Conceptual framework of informal employment by the Department of Statistics Malaysia Jobs by status in employment (I: Informal; F: Formal) Production Members of Own-account Unpaid family units by type Employers Employees producers’ workers workers cooperative I F I F I I F I F Formal Sector         1 2       Enterprises Informal Sector 3   4   5 6 7 8   Enterprises (a) Households (b) 9         10       Employment does not exist   in the type of production   Formal employment Informal employment unit Informal Employment in Informal employment outside informal sector employment the informal sector (3-8) (1-6, 8-10) (1, 2, 9,10) Source: Informal Sector and Informal Employment Survey Report 2021 (DOSM) Notes: (a) As defined by the 15th International Conference of Labour Statisticians (ICLS 1993) resolution (excluding households employing paid domestic workers) (b) Households producing goods exclusively for their own final use and households employing paid domestic workers INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 25 Overview of Informality The analysis conducted in this report focuses on specified, the analysis presented in this report uses the informal employment and does not distinguish working definition of informal employment proposed between informal employment in formal and informal and described in Section 3.6, and closest possible sectors. This is beyond the scope of report, and is also proxies for this definition using the specific datasets. not possible due to data limitations. Unless otherwise 2.3 Global definitions of informal sector and informal employment The indicators used in Malaysia to define the informal formal sector includes “Government Sector,” used in sector are similar to that used in other countries. 87 percent of all countries reviewed. Less common is The application of the operational definitions of the the adoption of “Contributing to Social Security” for informal sector and informal employment is dependent the informal sector used by Malaysia, whereby no other on data availability on the specific dimensions of country in East Asia and the Pacific (EAP) has used this informality in different countries. In Figure 6 below, we in their definition. However, other indicators such as have summarized the main indicators used by Malaysia “Written Accounting,” “Fixed Workplace,” or “Business and other countries, whereby the indicators used in Paying Taxes” are currently not in the definition used Malaysia’s definition is shown by the patterned bars. by Malaysia but it is adopted for other upper-middle The main definition used by other countries for the income and high-income countries. FIGURE 6 Indicators of formal/informal sector used across countries 100 Share of countries using 80 the de nition (%) 60 40 20 0 s rs y s ce to r es ke ing rit lac e xe ion Sec sin or u nt ecu kp Ta e ns uran nt Bu fW cco lS or ing oP Ins me re d .o nA cia W ay t alt h rn te No te So ed sP ing e is rit to Fix s ibu t He ov eg ine r l/ G R W ing us nt ica ut B Co ed t rib M on to C ing ut t rib Con Total - All Countries Reviewed UMIC/ HIC Reviewed EAP Countries Reviewed Includes Malaysia Source: Authors’ analysis using OECD/ILO (2019) and national statistical offices. Note: The patterned bars reflect indicators that are used in Malaysia. Calculations are based on a total of 46 countries, including countries from Europe & Central Asia, Latin America & Caribbean, East Asia & Pacific. ​ 26 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Overview of Informality FIGURE 7 Indicators of formal/informal employment used by countries Share of countries using 80 60 the de nition (%) 40 20 0 n e n e e t ce t s s y tio ag tio av av rac are av e rac xe ce aw ur av e bu v er bu Le Le nt uran al C Le nt Ta ur an rL Inj Le ri ri l k o Ins c y o g s u r k y nt Co nt ua Sic nC ed i rn i t C yin In bo o rn i t o y Co An n te h ed Pa ts/ La rW yC u rit n Pa id rit alt M ate end by fo Pa te ur it ec sio aid / W He M - e n e d d id ec lS en P al id en tB cte nsur e Pa S cia P rm Pa Op en te cial So Fo y m P r o I So plo n em U Total - All Countries Reviewed UMIC/ HIC Reviewed EAP Countries Reviewed Includes Malaysia Source: Authors’ analysis using OECD/ILO (2019) and national statistical offices. Note: The patterned bars reflect indicators that are used in Malaysia. Calculations are based on a total of 46 countries, including countries from Europe & Central Asia, Latin America & Caribbean, East Asia & Pacific.  When it comes to informal employment, Malaysia also reviewed using the indicator. In about 37 percent of ticks quite a few indicators commonly used by other the countries reviewed, “Pension Contribution” is countries. This includes “Social Security Coverage,” specifically mentioned as one of the criteria and in “Paid Annual Leave,” and “Paid Sick Leave” (see Figure about 17 percent of the countries “Formal/Written 7). While the social security coverage indicator is quite Contract” is also adopted. Very few countries have also common in the definitions used by other countries, the used “Unemployment Benefits” and “Paid Paternity “Paid Maternity Leave” criteria adopted by Malaysia Leave” as part of the criteria. is fairly progressive, with only 4 percent of countries 2.4 Gig employment Informal employment encompasses gig-employment, work, hosted on location-based platforms. Digital which refers to employment that is typically microtasks refer to simple tasks that do not require facilitated through digital labor platforms (ILO 2021). specific skills, such as data entry or the processing Typically, gig employment is flexible and is based of images. Freelance work refers to skilled digital on short-term, temporary arrangements between work, such as website development, graphic design, organizations and individuals. There exist two broad or software testing. Location-based work refers to categories of digital labor platforms, the first being work that is enabled through digital means (typically online web-based platforms, and the second being through an app) but needs to be performed on-site location-based platforms (ILO 2021). Through these such as ride-hailing, delivery, and domestic services. In platforms, three types of tasks can be performed. Malaysia, digital labor platforms are overseen by MDEC Digital microtasks and freelance or digital work, hosted (see Section 3.1.2). on online web-based platforms, and location-based INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 27 Overview of Informality 2.5 Regulations, policies and programs in Malaysia for informally employed workers Malaysia has taken important strides in developing schemes by SOCSO and EPF, job search allowance by policies and programs for informally employed workers the Employment Insurance System (EIS), and support for (see Figure 8). These include a legal framework that access to digital labor platforms by MDEC. All of these can be applied on a case-to-case basis, social insurance policies and programs are elaborated on in this section. FIGURE 8 Overview of main policies and programs for informally employed workers in Malaysia Legal framework • Employment Amendment Act 2022 - Section 101c Social insurance • SOCSO Self-Employment Social Security Scheme (mandated and voluntary) • EPF i-Saraan Job search allowance • Employment Insurance System Job Search Allowance+ (SIP EMP+) Digital labor platforms • Job facilitation, onboarding support, and training for access to digital labor platforms (eRezeki and GLOW) by MDEC Source: Authors’ elaboration 2.5.1 Regulations In recent years, the only national regulation that has were passed by the Malaysian Parliament. In particular, affected informally employed workers in Malaysia Section 101c of the Employment (Amendment) Act is mandatory coverage for SESSS for workers in 2022, which will take effect on September 1, 2022, is the e-hailing sector introduced in 2017 (see Section elaborated below in Box 1. Based on discussions with 2.5.3). Other than that, requirements for workers are the Ministry of Human Resources (MOHR), Section 101c determined by digital labor platforms, within the bounds may be applied on a case-to-case basis in the event of of the laws of Malaysia. In March 2022, amendments to a dispute between a gig worker and the party through the Employment Act 1955, which includes provisions which they are generating an income. that can potentially affect informally employed workers, 28 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Overview of Informality BOX 1 Presumption as to who is an employee and employer 101c. (1) In any proceeding for an offence under this Act, in the absence of a written contract of service relating to any category of employee under the First Schedule, it shall be presumed until the contrary is proved that a person is an employee — (a) where his manner of work is subject to the control or direction of another person; (b) where his hours of work are subject to the control or direction of another person; (c) where he is provided with tools, materials or equipments by another person to execute work; (d) where his work constitutes an integral part of another person’s business; (e) where his work is performed solely for the benefit of another person; or (f) where payment is made to him in return for work done by him at regular intervals and such payment constitutes majority of his income. (2) For the purpose of subsection (1), it shall be presumed until the contrary is proved that a person is an employer — (a) where he controls or directs the manner of work of another person; (b) where he controls or directs the hours of work of another person; (c) where he provides tools, materials or equipments to another person to execute work; (d) where the work of another person constitutes an integral part of his business; (e) where another person preforms work solely for his benefit; or (f) whether or not payment is made by him in return for work done by him by another person. (3) The first mentioned person in subsection (2) includes the agent, manager or factor of such first-mentioned person.” Source: Employment (Amendment) Act 2022 The Ministry of Transport is planning to amend the Road be given a token (for registering), and that it will not cost Transport Act 1987 to regulate the p-hailing industry. more than RM10. On top of that, one of the objectives of The amendments are still in progress. However, the the registration of p-hailing riders is to ensure that riders’ Minister of Transport has mentioned that the riders will be welfare will be taken care of, implying that it will serve as registered and given a special vocational license (Tan and a social registry.4 Gimino 2022). He also mentioned that p-hailing riders will 2.5.2 Retirement savings In 2010, EPF, which is Malaysia’s national retirement a maximum limit of RM60 per year for those aged 55 years savings fund catering to the private sector introduced the old and below. In 2014-2017, this matching contribution Skim Persaraan 1Malaysia (SP1M) program, a retirement increased to 10 percent, subject to a maximum of RM120 savings program for self-employed persons. The SP1M per year. By 2018, the Government provides a 15 percent program has since been rebranded as i-Saraan in 2018. matching contribution for all eligible workers — which i-Saraan is a voluntary matching contribution program includes those who do not received fixed employer through which EPF members who are self-employed and do contributions — up to a maximum of RM250 per year. This not earn a regular income can make voluntary contributions matching contribution is valid between the years 2018 toward retirement of up to RM60,000 per year. The and 2022. In 2022, the eligible age to receive incentives incentives provided by the government has evolved ever was increased from 55 to 60 years old. Registration and since its inception. In 2010 to 2013, the Government contributions to i-Saraan can be made both online and in provided a matching contribution of 5 percent, subject to person. Workers are able to make online transfer directly 4 The Minister of Transport was quoted as saying: “If we want to give aid, where can we obtain data on p-hailing drivers? Even e-hailing operators do not have a full list. With this system, we will know with just one click.” (Tan and Gimino 2022). INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 29 Overview of Informality through their digital banking accounts with nine banks. to make contributions to i-Saraan through bank agent Moreover, recurring contribution options are available counters in four banks, and through EPF counters. for five out of these nine banks. Workers are also able FIGURE 9 Number of i-Saraan members by gender, 2017 - 2022 200,000 179,766 Number of i-Saraan members 150,000 111,977 100,000 50,000 6,796 5,278 0 2017 2018 2019 2020 2021 2022 Men Women Source: EPF (2023) Despite efforts to increase coverage and accessibility registration process to this program, which allows to i-Saraan, take-up remains low. Even though the GoGetters to be opted-in to the program as long as absolute number of i-Saraan members have increased they provide their consent. Finally, information on over time, as shown in Figure 9, coverage as a share the importance of retirement savings is also shared of employment remains low. The share of i-Saraan on the app, alongside other information that may members has increased from 0.1 percent of all employed encourage GoGetters to enrol to the program. EPF’s workers in 2017, to 0.6 percent of all employed workers in collaborations with Grab and GoGet utilize novel 2019, and to about 1.9 percent of all employed workers approaches and behavioral nudges — methods of in 2022. This is equivalent to 0.4 percent (year 2017), positive reinforcement and indirect suggestions — 2.6 percent (year 2019), and 12.6 percent (year 2022) to influence the choices that people make regarding of all self-employed workers, defined as own account their retirement savings. These approaches seem to be workers and unpaid family members. The coverage promising, and opens the door to collaborations with of i-Saraan is higher among women, likely because of other gig platforms. the simultaneous i-Suri matching contribution program targeted to housewives.5 During the COVID-19 pandemic, the government allowed early withdrawals from EPF accounts to To increase the coverage of retirement savings mitigate the impact of the financial shock. Four among informally employed workers, EPF has withdrawals that were allowed between March 2020 pursued collaborations with two gig platforms, Grab and March 2021. The four withdrawals totaled RM145 and GoGet, implementing novel strategies. More billion (Fatimah Zainal and Ragananthini Vethasalam specifically, Grab has introduced matching contributions 2022). Data collected by the World Bank suggests that for its workers, and has also organized campaigns to EPF withdrawals were an important coping strategy promote saving with EPF. The collaboration between during the pandemic (see World Bank 2021). However, EPF and GoGet is even more dynamic. Together, they it has led to concerns of adequacy. As of September have introduced a “contribute as you earn” model, 23, 2022, about 52 percent of EPF members have less through which workers on GoGet (referred to as than RM10,000 in their accounts, and 27 percent have GoGetters) have the option of contributing a share less than RM1,000 (Fatimah Zainal and Ragananthini of their earnings from every job through automatic Vethasalam 2022). Thus, even among those who are deductions. Further, GoGet has introduced an easy covered by EPF, savings adequacy is a major concern. 5 Under i-Suri, housewives or their husbands can make voluntary contributions to EPF, and are eligible to a 100 percent matching contribution of up to RM480 per annum. As of January 2022, 24.4 percent of i-Saraan members are housewives. 30 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Overview of Informality 2.5.3 Employment injury and disability insurance The Self-Employment Social Security Scheme (SESSS), government. The second, SPS Khidmat8 fully subsidizes which encompasses employment injury and disability the contribution for SESSS (Plan 2) for the year 2022. insurance, was introduced by the Social Security Organization (SOCSO) in 2017. In its inception, the Coverage of SESSS remains low when compared scheme was only compulsory for the self-employed to the informal employment rate, even with the in the passenger transportation sector; in January provision of significant subsidies by the government. 2020, it was extended to 19 other sectors.6 Under the It is important to note that subscription to SESSS provisions to the Self-Employment Social Security Act has to be renewed annually — hence, numbers on 2017, SESSS provides self-employed insured persons coverage reflect coverage in a given year, and are not protection against employment injuries, including cumulative over time. In 2017 and 2018, the first two occupational diseases and accidents during work- years of its introduction, the coverage for SESSS was related activities. SESSS also provides temporary below 0.1 percent of employment. In 2019, it was higher disablement benefits and permanent disablement at 0.8 percent of workers. At the same time, at least benefits, among others. Workers can make either 30.5 percent of workers (that is, the rate of informal monthly or yearly contribution payments, with the employment for the year — see Section 3.1.1) remained minimum monthly contribution payment being 13.10 uncovered in 2019.9 The coverage of workers by SESSS MYR (for an insured monthly earning of up to 1,050 was even higher in 2020, when the 70 percent subsidy MYR), and the highest monthly contribution payment by the government was introduced, but only marginally being 49.40 MYR (for an insured monthly earning of so. Specifically, coverage was about one percent of up to 3,950 MYR). Registration to SESSS can be made employment or 5.1 percent of self-employment. In terms either online or in person. Contributions to SESSS can of the number of workers covered, this is equivalent be made through SOCSO’s online portal, with detailed to a 30 percent increase. While this may seem large in instructions having been provided. absolute terms, it is still low when compared to the rate of informal employment. During the COVID-19 pandemic, the government increased support for the protection of informally The low take-up rate for SESSS persists despite employed workers by offering partly and fully being compulsory for the passenger transportation subsidized coverage for SESSS. The first iteration sector (which includes taxi and bus drivers, as well as of the incentive was part of the PenjanaGig COVID e-hailing and p-hailing). This suggests that mandating response program announced in June 2020, through coverage is insufficient to guarantee coverage, and which 70 percent of contribution for SESSS (Plan 2) for that such initiatives would need to be followed up by the year 2020 was subsidized by the government. SPS enforcement to ensure complete implementation. Lindung was announced in Budget 2021, through which Enforcement might indeed the motivation behind the the government fully subsidized SESSS (Plan 2) for the planned amendments to the Road Transport Act 1987 year 2021 for four categories of workers: delivery riders, (see Section 2.5.1). Later in this report (Section 4.1, Box 7) volunteers from the military, police, public defense, and we briefly assess the likely consequences of mandating maritime sectors, mosque workers (guru takmir, noja, automatic contributions for self-employed workers, siak, imam, bilal, and merbut), and public sector workers underlining the advantages for more complete social employed under contracts for service. SPS Lindung insurance coverage, as well as pointing to practical was also extended in the year 2022, with two separate difficulties in enforcing such mandates, as well as likely programs targeting different categories of workers. The unintended effects. We also discuss the advantages of first, SPS Padanan Caruman7 is a matching contribution enhancing the flexibility of contributions and coverage program through which 80 percent of the contribution options in Section 4.1. for SESSS (Plan 2) for the year 2022 is subsidized by the 6 The other sectors are good and food transport, agriculture, livestock, forestry, fisheries, food construction, manufacturing, hawkers, accommodation premises, agents, support services, arts, household services, and beauty and healthcare. 7 SPS Padanan Caruman covers self-employed women, indigenous Malaysians (Orang Asli and Orang Asal), self-employed persons working through digital platforms, hawkers, persons with disabilities, workers in the tourism sector, and workers in the arts sector. 8 SPS Khidmat covers volunteers from the military, police, public defense, and maritime sectors; mosque workers employment by the Department of Islamic Development Malaysia; community recovery coordinators and workers; and public sector workers employed under contracts for service. 9 The informal employment rate calculated takes into account contributions to both EPF and SOCSO (see Section 2.6). Hence, it is possible for the share of workers not covered by SOCSO (but covered by EPF) to be higher than the informal employment rate, although that share cannot be determined using the data made available for this study. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 31 Overview of Informality BOX 2 The social insurance landscape in Malaysia FIGURE 10 Coverage gap in social insurance in Malaysia Standard employment Hardcore poor contracts Contributory Voluntary 167 programs schemes: insurance across 17 government EPF ministries/ SOCSO EPF-i-Saraan agencies KWAP SOCSO - SESSS LTAT Private insurance Coverage gap Source: Authors’ illustration There are gaps in social insurance coverage in Malaysia. include employees’ contributions. Public sector employees While the majority of the labor force is covered by some form such as civil servants and members of the armed forces of social insurance through employer-based contributions also have pension coverage through the Public Service via standard employment contracts, and the hardcore Pension Fund (Kumpulan Wang Persaraan), KWAP, and the poor are meant to receive some form of social assistance Armed Forces Pension Fund (Lembaga Tabung Angkatan (though in reality some may not, due to errors of exclusion Tentera), LTAT, respectively. While voluntary schemes such in social assistance). There is still a considerable coverage as i-Saraan and SESSS have made significant progress gap, particularly for those in non-standard employment or in recent years in terms of coverage of the informally informal employment (see Figure 10 above), often referred employed (especially the self-employed), it is still far from to as the “missing middle.” Specifically, private employees universal (at 12 percent and 16.4 percent of self-employed typically receive EPF and SOCSO coverage through in 2021, respectively). Hence, a large portion of the self- mandated contributions from their employer, which also employed remains unprotected. 2.5.4 Job search allowance In 2021, the government introduced unemployment received, up to a maximum of three installments of assistance10 in the form of job search allowance for RM300. If the beneficiary is hired within four months, non-SOCSO contributors; in 2022, this program they are eligible to receive a one-off work preparation was continued with an increase in duration and also allowance of RM400. Beneficiaries are required to self- the introduction of a work preparation allowance. In report attendance to interviews and job offers, with spot 2022, the program, referred to as SIP EMP+ (Employment checks being conducted by the EIS office. Insurance System Job Search Allowance+, Sistem Insurans Pekerjaan Elaun Mencari Pekerjaan+) is open to all In effect, SIP EMP+ is a program that incentivizes formal employment, or formalization. Other than the individuals aged 18 to 60 years old who have not been financial assistance, beneficiaries are also assigned to registered or are not actively contributing to SOCSO after a career counsellor. As of July 2022, 9,494 applicants June 1, 2021, and are not receiving other forms of financial have applied for the incentive, and 699 applicants (7.4 assistance administered by the Employment Insurance percent) have obtained a job. The average duration for System (EIS) office. Beneficiaries are required to attend which benefits are received is 1.3 months out of the at least one interview for each allowance installment maximum of three months. 10 While the program is implemented by the Employment Insurance System office, it is more accurately described as unemployment assistance given that workers are not required to make contributions. 32 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Overview of Informality 2.5.5 Job facilitation, onboarding support, and training incentives for access to digital labor platforms administered by the Malaysia Digital Economy Corporation In 2015, the government launched eRezeki, a digital MDEC has also introduced the Global Online Workforce labor platform aggregator which provides onboarding (GLOW) program, which is a training program tailored support and access to digital microtasks, location- toward equipping workers with skills to perform based work (used interchangeably with the term digital work, or to become digital freelancers. The ‘digitally-enabled work’), and digital work hosted training modules in the GLOW program relate to by digital labor platforms. These types of work are knowledge on starting a profile as a digital freelancer, typically informal, as they do not provide automatic and understanding of the workflow, on managing and access to social insurance. This is particularly important improving performance, and on financial management. for those who do not have other jobs that provide them Given the high-skilled nature of digital work, the with this protection. Digital microtasks and location- eligibility of GLOW is limited to Malaysians aged 18 based work are typically low- and mid-skilled jobs, and above with computer skills, English language requiring relatively low levels of specialized skills. On proficiency, and the specialized digital skills needed the other hand, digital work comprises typically high- to perform digital work, such as programming skills. skilled jobs that require more advanced digital skills to During the COVID-19 pandemic, the government perform specialized tasks such as web and mobile app channeled emergency funds towards a strengthened development, graphic design, and software testing. version of GLOW targeted to retrenched workers, workers who have faced salary cuts, and unemployed eRezeki is developed and hosted by the Malaysia graduates for digital freelance work. The GLOW Digital Economy Corporation (MDEC), a government PENJANA and GLOW PEMULIH programs are more agency tasked with the development of the digital intensive versions of GLOW, through which participants economy in Malaysia. The objective of eRezeki is to were trained, monitored, and mentored for a period provide opportunities for people to earn additional of three months. Workers trained through the GLOW income through working online, with a focus on those program can bid for digital work through eRezeki, or in the bottom 40 percent of the income distribution directly on digital work platforms. (B40). In the Eleventh Malaysia Plan 2016-2020, eRezeki was listed as one of the strategies through These programs, and the role that they have been given which the income and wealth of B40 households in the Malaysia Plans as well as during the COVID-19 are to be lifted. In the Twelfth Malaysia Plan 2021 - pandemic illustrates the government’s recognition of 2025, the importance of eRezeki to provide economic the potential of digital labor platforms in supporting opportunities was reiterated, with a slight shift in the livelihood of workers and the economy. eRezeki focus. eRezeki was listed as one of the strategies to and all versions of GLOW are fully subsidized by the provide skills and opportunities to Malaysians in Sabah government. Nonetheless, there remains to be gaps in and Sarawak, which are lagging states located in East the protection of these workers, and also in the long- Malaysia,11 and as a means to expand digitalization term sustainability of these programs, both financially with the goal of inclusive development in Malaysia as as well as a means to provide livelihoods. This is a whole. especially true for workers who rely on digital labor platforms as their main source of income. 2.6 Working definition of informal employment Informal employment in Malaysia was formally guidelines for defining informal employment to the defined and calculated for the first time in the local context, the proposed operational definition of Informal Sector Survey Report 2019, largely following informal employment in Malaysia is presented in Table 1 the ICLS framework, and it was later updated in the with the main difference with the 2021 definition Informal Sector and Informal Employment Survey being the condition of having access to a pension, Report 2021 (see Section 2.1).12 Adapting international retirement savings, or employment injury insurance 11 World Bank (2022) describes lagging states in Malaysia as those with relatively low levels of GDP and high levels of poverty. 12 Members of producers’ cooperatives have been excluded from Malaysia’s measure of informal employment. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 33 Overview of Informality as a condition for formal employment. Access to a of channeling economic support, such as targeted pension, as well as retirement savings or employment cash transfers. This is possible regardless of whether injury insurance in the form of both employers’ and the worker receives employer’s contributions or makes voluntary contributions ensures that a worker is voluntary contributions. Nonetheless, relying only on protected at old age and in the event of injury at the voluntary contributions may leave workers in a more workplace. Further, the registration of a worker to these precarious position relative to employer’s or mandated schemes means that in the event of an economic shock, contributions, despite being an improvement over no such as that during the COVID-19 crisis, the worker contribution at all.13 would be identifiable to the government for the purpose TABLE 1 Differences between operational definition of informal employment by DOSM and working definition used in this report Operational definition of informal employment Working operational definition in Informal Sector Survey Report 2019 A worker in informal employment refers to any worker A worker in informal employment refers to any worker who does not have access to at least one social who is not covered by a pension, retirement savings security scheme or employment benefit. Workers or employment injury insurance. If the worker in the agricultural sector are excluded. If the worker has access to a pension, retirement savings, or has access to at least one social security scheme employment injury insurance, the worker is in informal or employment benefit, the worker is in informal employment if he/she is: employment if he/she is: o An employer or own-account worker in an informal o An employer or own-account worker in an informal sector enterprise sector enterprise o An unpaid family worker o An unpaid family worker o An own-account worker engaged in production o An own-account worker engaged in production of goods exclusively for own final use by the of goods exclusively for own final use by the household household o An employee with no paid annual leave, no paid o An employee with no paid annual leave, no paid sick leave, and working in an enterprise that does sick leave, and working in an enterprise that does not provide paid maternity leave, all at the same not provide paid maternity leave, all at the same time. time. Note: The social security benefits and employment Note: Access to a pension, retirement savings or benefits referred to are the following: pension fund, employment injury insurance refers to a pension basic health insurance, injury insurance, disability administered by the Public Service Pension Fund benefits, survivors’ benefits, paid annual leave, paid (Kumpulan Wang Persaraan, KWAP) or the Armed sick leave, paid maternity leave, and unemployment Forces Pension Fund (Lembaga Tabung Angkatan insurance. Tentera, LTAT), or both employers’ and voluntary contributions to retirement savings in the Employees Provident Fund (EPF) or employment injury insurance from the Social Security Organisation (SOCSO). Note: In the Informal Sector and Informal Employment Survey Report 2021, the definition of informal employment was updated as follows: Informal employment refers to any worker who does not have access to at least one social security scheme or employment benefit, for example pension fund, basic health insurance, injury insurance, disability benefits, survivors’ benefits, paid annual leave, paid sick leave, paid maternity leave, and unemployment insurance. 13 While existing data sources do not allow us to distinguish between voluntary and mandated contributions to EPF or SOCSO, using a stricter definition of formal employment which disregards voluntary contributions, if measurable, would result in a higher level of informal employment in the economy. 34 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Overview of Informality There are further considerations to be made with consideration is whether the regularity of contributions regard to the condition of having access to a pension, to retirement savings should be included as part of retirement savings or employment injury insurance. The the operational definition of informal employment, as first consideration is if having access to these schemes more regular contributions indicate a better level of would only refer to access to schemes by KWAP, LTAT, protection. In comparison, current contributions (i.e., in EPF or SOCSO, or whether it would include having the reference week) typically implies active protection access to private retirement and insurance schemes. and thus is not subject to the same concern. This is because having access to private retirement and insurance schemes also indicates a sufficient level The working definition can be applied to all workers, of protection, and may be preferred by some workers. including specific groups of workers such as gig Nonetheless, for registration to retirement savings and economy workers and domestic workers.14 However, employment injury insurance to be an effective conduit the operationalization of this working definition for the for the channeling of government support at times of study is dependent on the data available. Box 3 below crises (as described above), this registration should describes the application of the working definition of arguably be with the national schemes. The second informal employment on different datasets. 14 The working definition for informal employment presented here, as well as the way it has been operationalized using the HIS and LFS datasets was presented in the Inception Report for this study and was approved by the Technical and Steering Committees for this study in July 2021. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 35 Overview of Informality BOX 3 Application of working definition of informal employment on existing datasets Existing national survey microdata does not allow information on the formality status of the sector of for perfect application of the working definition of employment, and thus the analysis is not able to distinguish informal employment, necessitating the use of between informally employed workers in the formal sector proxies. The two national surveys that are used in the and informally employed workers in the informal sector. analysis of informal employment are the Household The HIS also does not capture other employment benefits, Income and Basic Amenities Survey (HIS) for the years namely the different types of annual leave, thus these are 2009, 2012, 2016, 2019 and 2022, and the Labour Force not taken into account in the determination of informality Survey (LFS) for the years 2010 to 2020. The proxies used using the HIS. Further, this measure does not manage to capture informal employment using these different data to capture the frequency and level of social insurance sources, as well as their advantages and limitations, are contributions, or distinguish between voluntary (own) and elaborated below. employers’ contributions, and thus there’s no measure of adequacy of protection. Moreover, informally employed government workers, such as contract employees, will not Household Income Survey be captured as informally employed. Informal employment is determined by coverage by social insurance and status in employment. Coverage by social insurance is determined using two variables. Labour Force Survey The first variable (tp64) captures contribution to EPF/ For analyses using the LFS, informal employment will social security schemes (employee’s and employer’s be proxied by: (1) all own account workers, and (2) all contribution), while the second variable (incs19) captures unpaid family workers. People who are not working, employer’s contribution to EPF, SOCSO, and other in such as homemakers, are not included in the calculation annual nominal RM. The formality status in employment of the informal employment rate. The worker should is then determined by a worker’s status in employment also be within working age, that is, between 15 and 64 and social insurance coverage as follows: (1) employers, years old (which is consistent with the LFS sample). private employees, and self-employed workers are An advantage of using this proxy is that it is comparable considered informally employed if they are not covered with other countries. This group of workers (i.e., own by social insurance, (2) all government employees are account workers and unpaid family workers) are referred considered formally employed, and (3) all unpaid family to as being employed in vulnerable employment by the workers are considered informally employed. People ILO, for which cross-country statistics are available. A who are not working, such as homemakers, are not disadvantage is that it does not capture any information included in the calculation of the informal employment on social insurance coverage (through either own or rate. The worker should also be within working age, employers’ contributions) and adequacy, and any other that is, between 15 and 64 years old. types of employment benefits such as annual leave. An advantage of this application is that it manages to The formality status of the sector of employment also capture coverage by social insurance, which is the main cannot be determined using this dataset. However, it criteria in the determination of informal employment. should be noted that such information is collected and A limitation is that because the HIS does not contain reported by DOSM, as presented in Box 4. 36 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 37 CHAPTER 3 Findings and Discussion 38 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion 3.1 Scale and trend of informal employment 3.1.1 All informally employed workers The rate of informal employment in Malaysia for all of informally employed workers in 2022 is estimated groups of workers has been declining over time and to be 4.1 million. When agricultural workers are stood at 26.8 percent in 2022, which translates into excluded, the number of informally employed workers about 4.1 million workers. As can be seen from Figure in 2022 is estimated to be 3.2 million. There is also 11, the rate of informal employment stood at 38.2 some indication that informal employment is higher percent in 2009 and peaked to 38.4 percent in 2012 in Malaysia than in aspirational high-income countries, but has since been on a downward trend. Excluding but lower than in regional peer countries. Figure 13 agricultural workers, informal employment is lower at shows that the share of own account workers and 23.3 percent in 2022. Furthermore, the rate of informal unpaid family workers in total employment (referred to employment has been higher among men compared as “vulnerable employment” by the ILO) — a measure to women throughout the period, especially when that is internationally comparable — in Malaysia is agriculture workers are included (given that more men higher than in developed countries like Australia, are employed in the agriculture sector) (see Figure 12). Singapore, and the United States, but lower than in Based on the rate of informal employment, the number Thailand, Indonesia, and Vietnam. FIGURE 11 FIGURE 12 Rate of informal employment, 2009 - 2022 Rate of informal employment by gender, 2009 - 2022 50 45 41.9 Rate of informal employment (%) Rate of informal employment (%) 38.2 38.4 40 40 34.9 32.9 35.5 30.5 35 30 26.8 31.3 32.4 32.8 30.6 30 30.6 29.0 20 26.8 23.3 27.2 25.8 25 10 20.3 20 19.1 0 15 2009 2012 2014 2016 2019 2022 2009 2012 2014 2016 2019 2022 Total Total - exc. agri Male Female Male - exc. agri Female - exc. agri Source: World Bank staff calculations based on data from Household Income Source: World Bank staff calculations based on data from Household Income Survey (DOSM) Survey (DOSM) INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 39 Findings and Discussion BOX 4 A summary of findings from the Informal Sector and Informal Employment Survey 2021 In 2021, DOSM conducted the Informal Sector and rounds of the Informal Sector Survey, the agriculture Informal Employment Survey, which introduced a sector was excluded. The report also included statistics for number of changes and improvements to the Informal households as a production unit, on top of formal sector Sector Survey 2019. The main change is an explicit focus and informal sector enterprises. Some of the statistics on on informal employment, as reflected in the title of the informal employment from the report are shown in Table survey. Other than that, the report included statistics both 2 below. including and excluding the agriculture sector. In previous TABLE 2: Informal employment as measured in the Informal Sector and Informal Employment Survey 2021 (DOSM) Informal employment (including agriculture) Number (‘000) Share of employment (%) Formal sector 1,469.2 9.8 Men 849.6   Women 619.6   Informal sector 1,996.9 13.3 Men 1,285.4   Women 711.5   Households 35.2 0.2 Men 0.5   Women 34.7   Total (‘000)/Informal employment rate (%) 3,501.3 23.3 Source: Informal Sector and Informal Employment Survey 2021 (DOSM) Note: Households refer to households producing goods exclusively for their own final use and households employing paid domestic workers. The difference in the informal employment rate of whether they are covered by EPF or SOCSO. In calculated in this report and that in the Informal contrast, these same workers would be treated as Sector and Informal Employment Survey 2021 arises informally employed in this report. Hence, the informal from the design of the questionnaire of the latter. More employment rate presented in this report is higher than specifically, the survey assumes that all workers with a that published in the DOSM report. written contract are formally employed, regardless 40 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion FIGURE 13 Own account workers and unpaid family workers (vulnerable employment) as a share of total employment, 2021 Rate of vulnerable employment (%) 60 51.7 49.4 49.5 40 20 18.1 19.1 10.8 12.3 8.1 8.5 4.3 4.4 0 United Germany Japan Singapore Australia United Malaysia South Indonesia Thailand Vietnam States Kingdom Korea Source: ILOSTAT and DOSM The declining rate of informal employment seen over by HiFy data from May 2021 to May 2022.16 In the years may be partly due to the programs that Malaysia and elsewhere, COVID-19 has put thousands of have been implemented by EPF and SOCSO to protect workers out of jobs and informal forms of employment informally employed workers (see Section 2.5.2 and have acted as a natural shock absorber to manage 2.5.3). To reiterate the definition presented in Section excess labor. Thus, while it can be noted that most 2.6, the rate of informal employment is calculated using respondents were in formal employment, there has the HIS, based on access to employer’s contributions been a modest increase in those employed informally, as well as self-contributions to EPF or SOCSO. As from 24.6 percent in May 2021 to 27.8 percent in May described in the previous section, the number of 2022 according to the HiFy survey.17 This could suggest members of i-Saraan and subscribers to SESSS have a potentially more precarious situation as these workers been increasing over time. Hence, while there has likely are likely to remain with limited or no social protection been an increase in the creation of formal jobs over as they continue to be informally employed in the time, accounting for the downward trend, the declining longer term. Male workers make up a higher share of rate of informal employment between 2016 and 2022 is partly also due to the increase in coverage of EPF and the informally employed workforce, which increased SOCSO through i-Saraan and SESSS respectively. from 57.7 percent of the share from May 2021 to 60.5 percent by May 2022. Note that these statistics are not Since the pandemic, there may have been a small comparable to official estimates from the HIS due to increase in informally employed workers15 as shown differences in definitions and methodology. 3.1.2 Gig workers Using a broader definition of gig workers,18 researchers own account workers and all employees working less from DOSM estimate that there are half a million than 30 hours per week in occupation categories that gig workers in Malaysia in 2018. Employing a broad are identified as “typical” gig-related occupations in definition of gig workers that encompasses contingent their primary jobs. This includes freelancers such as tutors, workers, Harun et al. (2020) find from LFS data that about photographers, and tourist guides, as well as technology- 559,900 workers, or about 3.8 percent of all workers in based occupations such as web designers, software 2018 are gig workers. Gig workers were defined as all developers, ride-hailing drivers, and delivery riders.19 15 Workers in the HiFy dataset are defined as wage workers, i.e., employees and interns/apprentices. 16 The HiFy survey defines households as the set of individuals continually residing with the respondent in a given dwelling at the time of the survey and sharing common living amenities and expenditures. If any such household member work informally, the entire household is treated as relying on informally employed workers, whereas if all working members have formal employment it is treated as relying on formally employed workers. 17 See World Bank (2021) for a more comprehensive analysis of the vulnerabilities faced by informally employed workers during the COVID-19 pandemic using the HiFy survey. 18 Gig employment or gig work is defined as employment that is typically facilitated through digital labor platforms. See Section 2.4. 19 A total of 218 unique 6-digit occupation titles were identified as gig-related occupations in the LFS 2018 dataset based on the Malaysian Standard Classification of Occupations (MASCO) 2013. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 41 Findings and Discussion From 2016 to 2021, the cumulative number of active has seen the largest growth is location-based work. In gig workers20 working on digital labor platforms 2021, there were 106 digital labor platforms facilitating registered with MDEC was more than 1 million. It should location-based work. In comparison, only 14 and 17 be noted that it is likely that many of these workers have digital labor platforms facilitated digital microtasks other jobs; for instance, 68.9 percent of the GLOW and digital work respectively. In the same year, the workers surveyed reported having another job outside share of gig workers performing location-based work of freelancing (see also Figure 68). Nonetheless, there was 68.1 percent of all gig workers. Moreover, there are indications that the number of exclusive gig workers are indications that more Malaysians are prepared to in Malaysia has increased rapidly over time. Data from join the gig economy. A survey conducted by Zurich MDEC show that the number of digital labor platforms Insurance Group and the University of Oxford in 2018 registered with them has increased rapidly, from 11 found that 38 percent of respondents in Malaysia who in 2016 to 123 in 2021, as shown in Figure 14. At the were in full time employment were looking to become same time, Figure 15 shows that the number of active freelancers in the following year — which is higher than gig workers on these platforms have increased from the global average of 20 percent (Zurich Malaysia 2020). 29,200 in 2016 to 330,877 in 2021. The segment that FIGURE 14 FIGURE 15 Number of digital labor platforms registered with Number of active gig workers on MDEC’s platform MDEC by type of task, 2016 - 2021 partners, 2016 - 2021 106 400,000 100 97 339,157 78 Number of platforms 300,000 Number of workers 80 61 225,267 60 200,000 41 123,204 40 84,269 100,000 58,419 20 8 17,894 0 0 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021 Digital microtasks Location-based work Digital work Digital microtasks Location-based work Digital work Source: MDEC (2022) Source: MDEC (2022) 3.2 Correlates of informal employment 3.2.1 All informally employed workers Generally, prevalence of informal employment is age of 60 years (see World Bank 2020b). The rate of higher among older age groups. As seen in Figure 16, informal employment is generally higher among men 24.9 percent of workers in the youngest age group compared to women as shown in Figure 17. The pattern are informally employed, compared to 31 percent of informal employment across age groups is similar for and 49.6 percent for the 45 to 54 and 55 to 64 age both genders. groups, respectively. It is important to note that the overall employment rate is also lower among older Workers with lower levels of education are more persons in Malaysia, and out of those employed, a likely to be informally employed, although there is majority are informally employed, perhaps due to the evidence of educational upgrading over time, for both lack of formal employment opportunities for older formal and informally employed workers. The rate of persons, particularly after the minimum retirement informal employment is clearly higher among workers 20 Active gig workers are defined as new income earners earning on digital labor platforms registered with MDEC. 42 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion with lower levels of education, with three quarter or This may be a reflection of the educational upgrading more workers without any formal education having that has occurred over time. Figure 19 and Figure 20 informally employed jobs throughout the period, as show that all workers are increasingly obtaining more shown in Figure 18. That said, between 2016 and 2019, education, reflected by the increasing share of workers there was a significant increase in the rate of informal with at least a post-secondary education. Nonetheless, employment among those with a post-secondary it is worth noting that in 2022, the majority of informally education. This rate increased by about 8.7 percentage employed workers (80.9 percent) have at most a points from 18 percent in 2016 to 26.7 percent in 2019. secondary education. FIGURE 16 FIGURE 17 Rate of informal employment by age group, 2022 Rate of informal employment by age group and gender, 2022 60 60 Rate of informal employment (%) Rate of informal employment (%) 49.6 45 Rate of informal employment (%) 50 50 51.1 45 40 40 40 31 35 29.5 30 24.9 30 23 19.6 20 20 30 17.8 10 10 25 0 0 20 15-24 25-34 35-44 45-54 55-64 2012 2009 25-34 15-24 35-442014 45-54 2016 55-64 2019 Age group Male Age group Female Male - exc. agri Female - exc. agri Male Female Source: World Bank staff calculations based on data from Household Income Source: World Bank staff calculations based on data from Household Income Survey (DOSM) Survey (DOSM) FIGURE 18 Rate of informal employment by education level, 2009-2022 Rate of informal employment (%) 100 95.7 80 76.9 64.4 65.3 60 40 35.4 32.2 20 23.1 21 12.2 11.1 0 2009 2012 2014 2016 2019 2022 No formal education Primary Secondary Post-secondary Tertiary Source: World Bank staff calculations based on data from Household Income Survey (DOSM) INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 43 Findings and Discussion FIGURE 19 FIGURE 20 Share of informal employment by education level, Share of formal employment by education level, 2009-2022 2009-2022 Share of informal employment (%) 100 100 Share of formal employment (%) 7.0 7.7 11.1 13.0 13.7 2.1 3.0 17.1 2.6 2.8 3.9 31.2 80 2.0 80 34.1 37.2 41.1 43.3 34.9 50.1 39.4 4.3 43.2 46.1 60 4.8 3.9 60 49.4 3.8 4.7 66.7 2.8 40 40 45.4 44.4 43.8 42.6 55.9 42.1 45.3 44.5 20 39.4 34.7 20 30.2 11.7 19.1 16.2 14.6 12.0 9.5 0 0 2.3 2009 2012 2014 2016 2019 2022 2009 2012 2014 2016 2019 2022 No formal education Primary No formal education Primary Secondary Post-secondary Secondary Post-secondary Tertiary Tertiary Source: World Bank staff calculations based on data from Household Income Source: World Bank staff calculations based on data from Household Survey (DOSM) Income Survey (DOSM) TABLE 3 Basic characteristics of different categories of formally and informally employed workers, 2019 21   Formally employed workers Informally employed workers Own Own Unpaid Employers Employees account All Employers Employees account family All   workers workers workers Average age 45.9 37.5 42.3 37.5 47.2 37.9 45.3 36.2 42.3 Gender (share of workers, %) Male 74.5 60.5 79.8 60.5 85.9 69.8 70.8 39.8 69.6 Female 25.5 39.5 20.2 39.5 14.1 30.2 29.2 60.2 30.4 Total 100 100 100 100 100 100 100 100 100 Age group (share of workers, %) 15-24 11.4 2.0 11.4 0.9 18.6 3.4 27.1 9.8 25-34 21.2 32.4 26.5 32.4 11.5 26.6 17.5 24.7 20.6 35-44 6.3 28.1 30.1 28.1 25.2 22.1 23.8 16.9 22.9 45-54 52.9 20.4 28.6 20.4 35.4 19.0 29.8 17.2 25.8 55-64 19.6 7.7 12.8 7.7 26.9 13.8 25.6 14.0 21.0 Total 100 100 100 100 100 100 100 100 100 Education level (share of workers, %) No formal 0.4 1.5 0.4 0.8 2.4 3.0 4.6 2.7 education Primary 19.0 9.5 20.1 9.5 21.1 30.8 31.1 29.5 30.2 Secondary 40.6 42.1 42.7 42.1 42.7 52.7 47.9 52.4 49.4 Post-secondary 2.1 4.7 7.6 4.7 4.3 3.5 4.1 4.2 3.9 Tertiary 38.4 43.4 28.1 43.3 31.2 10.6 14.0 9.3 13.7 Total  100 100 100 100 100 100 100 100 100 % of respective 0.04 99.84 0.12 6.85 33.84 53.18 6.13 sample Source: World Bank staff calculations based on data from Household Income Survey 2019 (DOSM) 21 The same table excluding agriculture workers is available in Annex 2. 44 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion The gender, age, and education composition of percent in rural areas and 27.7 percent in urban different categories of formally and informally areas. It is worth noting that employment in Malaysia employed workers reveals that these groups are is largely urban with urban employment making up quite heterogeneous. Table 3 shows that on average, 80.8 percent of total employment in 2019. Hence, informally employed workers are older than formally despite the relatively high informal employment rate employed workers by about five years on average. among workers in rural areas, the number of informally Employers and own-account workers, on average, tend employed workers in rural areas is not high. to be older than employees and unpaid family workers. Furthermore, while there is a high concentration of The less developed states have higher rates of men among most groups of workers, most unpaid informal employment. In Figure 21 below, it can be family workers are women. This is expected, given seen that states that are more rural and less developed the relatively low female labor force participation rate are associated with higher levels of informality. For in Malaysia, which stood at 55.6 percent in 2019 (see example, in 2019, the highest informal employment World Bank 2019b). In terms of education, as already rates could be observed in Kelantan and Perlis with discussed, a much higher share of formally employed 59.3 percent and 50.4 percent, respectively. On the workers have completed tertiary education (43.3 other hand, WP Labuan and WP Putrajaya had some of percent) compared with informally employed workers the lowest informal employment rates of 12.8 and 7.4 (13.7 percent). The patterns are similar when agricultural percent respectively. The relationship between informal workers are excluded. employment rates and development is illustrated in Figure 21, where a downward trend is observed — Workers in rural areas are more likely to be informally higher levels of informal employment are associated employed compared with their urban counterparts. with lower state GDP per capita. The coefficient of Between 2009 to 2019, the average rate of informal correlation between state GDP per capita and informal employment in rural areas was 54.5 percent whereas employment is -0.78, which is rather high. Even though in urban areas it was 28.9 percent. The rate of informal this is not an indication of a causal relationship, it does employment is much lower in rural areas when suggest that states with higher level of income are also agriculture workers are excluded, but remains to be those that have managed to create more formal jobs, high in comparison to the rate of informal employment and vice versa. in urban areas. Specifically, the rate averaged 41.9 FIGURE 21 Rate of informal employment and GDP per capita by state, 2019 70 Abbr. State KTN Kelantan KTN Rate of informal employment (%) PLS Perlis 60 PLS TRG TRG Terengganu PHG Pahang 50 PHG KDH Kedah KDHSBH SBH Sabah 40 PRK SWK PRK Perak JHR SWK Sarawak 30 NSN MLK JHR Johor PNG NSN N. Sembilan 20 SGR KUL MLK Melaka LBN PNG Pulau Pinang 10 SGR Selangor KUL W.P. KL 0 LBN W.P. Labuan 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 GDP per capita (RM, 2019) All Excluding agriculture workers Source: World Bank staff calculations based on data from Household Income Survey (DOSM) INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 45 Findings and Discussion The rate of informal employment is generally higher deciles. This is a consistent finding in the literature among the poorest households, and almost half of all (Gatti et al 2014). Moreover, between 2009 and 2022, informally employed workers are from B40 households. an average of 45.6 percent of all informally employed Figure 22 shows that in 2022, the informal employment workers were from B40 households. In comparison, rate is highest for workers from households in the an average of 35 percent of informally employed bottom 10 percent of the income distribution at 79.7 workers were from households in the top 40 percent percent. The rate is substantially lower for workers of the income distribution. These figures suggest that from households in the second income decile, at informal employment is an important source of income 57.4 percent, and is generally lower in higher income for workers from poorer households. FIGURE 22 Rate of informal employment be deciles of household income per capita, 2009 and 2022 100 88.6 Rate of informal employment (%) 76.4 80 79.7 61.8 53.9 60 46.9 57.4 37.6 40 32.7 43.5 26.1 21.4 36.6 17.6 20 30.5 25.8 20.8 18.0 15.2 14.2 0 1 2 3 4 5 6 7 8 9 10 Income decile 2009 2022 Source: World Bank staff calculations based on data from Household Income Survey (DOSM) Multivariate econometric analysis using data from between youth and informal employment. This may be 2009 to 2019 confirms the analysis presented that because other factors associated with older age groups, women, youth, less educated persons, and workers such as rural residence, education levels, and sector of from lower income households are overall more employment may be stronger predictors of informal likely to be informally employed. 22 However, unlike employment than older age alone. Once we control for the descriptive statistics in which we found a higher these factors, we in fact find that youth are more likely rate of informal employment among older workers, to have a higher rate of informal employment. econometric analysis indicates a positive association 22 A probit regression was used to analyze the likelihood of being informally employed for workers aged 15 to 64 based on different sociodemographic, geographical, and economic factors (see Annex 4). The regression controls for gender, age, age-squared, ethnicity, sector of employment, education level, urban-rural location, income level, state, and year. 46 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion 3.3 Employment characteristics of informally employed workers 3.3.1 All informally employed workers The majority of low-skilled jobs are informal, while for high-skilled jobs in 2022. The largest decline was most informal jobs in Malaysia are mid-skilled jobs. seen for mid-skilled jobs, from 45.1 percent to 35.6 Figure 23 shows that the rate of informal employment percent. Between 2009 and 2019, we do not see a has decreased over time for across all levels of pronounced change in the skill level composition of occupational skill, with rates of 53.4 percent for low- those in informal employment (Figure 24). skilled, 35.6 percent for mid-skilled and 10.5 percent FIGURE 23 FIGURE 24 Rate of informal employment by skill level, Share of informal employment by skill level, 2009-2022 2009-2022 100 100 Share of informal employment (%) Rate of informal employment (%) 16.0 12.8 15.1 16.9 17.7 17.7 80 80 58.7 60 60 53.4 69.2 74.2 66.4 73.3 70.6 69.8 40 40 45.1 35.6 20 20 19.2 10.5 14.8 15.9 13.0 11.6 12.6 12.5 0 0 2009 2012 2014 2016 2019 2022 2009 2012 2014 2016 2019 2022 Low-skilled Mid-skilled High-skilled Low-skilled Mid-skilled High-skilled Source: World Bank staff calculations based on data from Household Source: World Bank staff calculations based on data from Household Income Income Survey (DOSM) Survey (DOSM) Men and older workers as well as the non-Bumiputera higher income households, are also more likely to be have been found to be more likely to be informally employed in high-skilled occupations. employed in high-skilled occupations. Multivariate economic analysis reveals that informally employed The majority of workers in the agriculture sector Chinese and Indian workers are more likely to have are informally employed; however, given agriculture’s high-skilled occupations compared to informally small share in total employment, larger numbers of employed Bumiputera workers (see Annex 5). In informally employed workers are in the services sector. terms of sector of employment, informally employed Both the occupational profiles and sectoral profiles of workers from the mining sector are more likely to be informally employed workers show that most workers in employed in high-skilled occupations compared to the agriculture sector are informally employed. Figure those in the services sector. In contrast, informally 25 shows that 90.5 percent of skilled agricultural, employed workers in the agriculture, manufacturing, forestry, and fishery workers are informally employed and construction sectors are less likely to be employed — this also represents the highest rate of informal in high-skilled occupations compared to workers in employment among all of the occupations. Further, the services sector, with workers from the agriculture 76.4 percent of workers in elementary occupations sector being the least likely. Unsurprisingly, informally in the agriculture sector are informally employed.23 employed workers from urban areas, with higher Figure 26 reinforces the predominance of informal levels of educational attainment, and those from employment in the agriculture sector, with an average 23 About 18 percent of all workers employed in elementary occupations are employed in the agriculture sector. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 47 Findings and Discussion of 81.4 percent of workers in the sector being informally comes to the share of informally employed workers, the employed in the period between 2009 and 2022. This is services sector employs the majority of all informally followed by the construction, services, manufacturing, employed workers in Malaysia and increasingly so, as and mining sectors respectively. However, when it illustrated in Figure 27. FIGURE 25 Rate of informal employment by occupation, 2022 Skilled Agricultural, Forestry and Fishery Workers 90.4 Craft and Related Trades Workers 53.9 Elementary Occupations 53.4 Service and Sales Workers 43.8 Managers 35.9 Plant and Machine-Operators and Assemblers 19.1 Technicians and Associate Professionals 7.3 Professionals 2.8 Clerical Support Workers 2.7 0 20 40 60 80 100 Rate of informal employment (%) Low-skilled Mid-skilled High-skilled Source: World Bank staff calculations based on data from Household Income Survey (DOSM) FIGURE 26 FIGURE 27 Rate of informal employment by sector, 2009 - Share of informal employment by sector, 2009 - 2022 2022 100 100 Share of informal employment (%) Rate of informal employment (%) 85.4 80 78 80 52.6 53.7 57.1 59.1 61.3 60.5 60 59 60 40 43.5 13.4 32.3 40 12.7 13.0 12.3 11.3 12.9 9.6 9.4 20.5 24 9.6 10.0 9.1 7.6 20 20 12.1 24.2 24.0 20.0 18.3 18.1 18.8 14 5.2 0 0 2009 2012 2014 2016 2019 2022 2009 2012 2014 2016 2019 2022 Agriculture Mining Agriculture Mining Manufacturing Manufacturing Construction Construction Services Services Source: World Bank staff calculations based on data from Household Source: World Bank staff calculations based on data from Household Income Income Survey (DOSM) Survey (DOSM) 48 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion 3.4 Underemployment among informally employed workers 3.4.1 All informally employed workers Skill-related underemployment is prevalent in formally employed workers had increased from 16.2 Malaysia, and the skill-related underemployment percent in 2010 to 18.2 percent in 2015, 21.6 percent in rate of informally employed workers is higher and has 2019, and 26.5 percent in 2020. On the other hand, the increased more rapidly than that of formally employed underemployment rate of informally employed workers workers. Skill-related underemployment is defined as had increased from 23.7 percent in 2010, to 59.3 percent those with tertiary education working in mid-or low- in 2015, 69.2 percent in 2019, and 73.2 percent in 2020. skilled jobs. The Labour Force Survey Report 2021 The relatively rapid increase in the underemployment (DOSM) shows that the skill-related underemployment rate of informally employed workers has led to a rate has exceeded 30 percent since 2015, and has also widening of the gap in the underemployment rate been increasing over time, reaching 38.7 percent in between informally employed workers and formally 2021. When calculated based on type of employment, employed workers, from 18.5 percentage points in Figure 28 shows that the underemployment rate of 2010 to 46.7 percentage points in 2019. FIGURE 28 FIGURE 29 Skill-related underemployment rate by type of Skill-related underemployment rate by type of employment, 2010 - 2020 employment and gender, 2010 - 2020 100 100 77.2 Underemployment rate (%) 80 73.2 80 Underemployment rate (%) 60 60 68.9 34.7 40 26.5 40 27.8 16.2 20 20 25.2 0 0 10 11 12 13 14 15 16 17 18 19 20 10 11 12 13 14 15 16 17 18 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Gap (Informal-Formal) Formal Informal M Formal F Formal M Informal F Informal Source: World Bank staff calculations based on data from Labour Force Source: World Bank staff calculations based on data from Labour Force Survey (DOSM) Survey (DOSM) The skill-related underemployment rate is particularly low- and mid-skilled work — compared to tertiary high for informally employed women and seems to employed men. Further, underemployment appears to largely decline with age. The underemployment rate decline with age. Figure 30 and Figure 31 show that the of informally employed women has been consistently underemployment rate is higher for younger age groups, higher than that for men, as shown in Figure 29. This may although there are instances where it is higher for those be due to the fact that despite having higher levels of aged 55 to 64 compared to those aged 45 to 54. This educational attainment, women may find it challenging may suggest that while younger tertiary educated to balance work and family responsibilities (see World workers are more likely be informally employed out of Bank 2019b). Thus, women are more likely to opt for necessity, and hence settle for mid- or low-skilled jobs, informal employment due to its flexibility. Tertiary some of those who are older are able to obtain high- employed women are also more likely to be employed skilled informal employment and may even choose as unpaid family workers — which largely consists of informal employment, perhaps due to its flexibility. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 49 Findings and Discussion FIGURE 30 FIGURE 31 Skill-related underemployment rate of men by type Skill-related underemployment rate of women by of employment and age group, selected years type of employment and age group, selected years 100 100 Underemployment rate (%) Underemployment rate (%) 80 80 60 60 40 40 20 20 0 0 15-24 25-34 35-44 45-54 55-64 15-24 25-34 35-44 45-54 55-64 M Formal 2015 M Informal 2015 F Formal 2015 F Informal 2015 M Formal 2019 M Informal 2019 F Formal 2019 F Informal 2019 M Formal 2020 M Informal 2020 F Formal 2020 F Informal 2020 Source: World Bank staff calculations based on data from Labour Force Source: World Bank staff calculations based on data from Labour Force Survey (DOSM) Survey (DOSM) Informally employed workers work fewer hours than and household responsibilities. That aside, the gap in formally employed workers on average. This is true average hours worked between formally and informally for both men and women, as seen in Figure 32. The employed workers is larger relative to the gap in gender gap in hours worked may be due to the burden average hours worked between men and women within of housework and care duties shouldered by women each of these categories. Most workers working less (KRI 2019; World Bank 2019b). To illustrate the burden than 30 hours per week are willing and able to work of housework on women, data from LFS 2019 show more hours, illustrated in Figure 33. However, slightly that 60.7 percent of women do not participate in the higher shares of informally employed men and women labor force due to housework or family responsibilities, are not willing and able to work more. This may reflect compared to 3.5 percent of men (in 2021, the relevant the fact that some workers choose to be informally shares are 63.2 percent of women and 5.8 percent employed because they would not need to or are of men). While it is a different indicator altogether, unable to work full time due to other responsibilities, the lower number of hours worked by women may including household responsibilities. be indicative of the effort to reconcile between work FIGURE 32 FIGURE 33 Average weekly working hours by type of Willingness and ability to work more hours by employment and gender, 2017 type of employment and gender, 2017 Average weekly working hours able to work additional hours Share of workers willing and 48.1 45.8 50 40.4 100 37.8 11.7 13.1 17 20.4 40 80 30 60 40 88.3 86.9 83 79.6 (%) 20 20 10 0 0 Male Female Male Female Male Female Male Female Formal Informal Formal Informal Yes No Source: World Bank staff calculations based on data from Labour Force Source: World Bank staff calculations based on data from Labour Force Survey (DOSM) Survey (DOSM) Note: The sample only includes workers who are currently working less than 40 hours a week. 50 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion Informally employed workers also experience higher related underemployment rate is also higher for levels of time-related underemployment. Time- women compared to men. However, the gap in time- related underemployment is defined as the share of related underemployment between informally and workers who are working less than 40 hours a week, formally employed workers has been narrowing over even though they are willing and able to work more time. Figure 34 shows that the rate of time-related hours. Figure 34 and Figure 35 below show that the underemployment has been declining over time for time-related underemployment rate of informally informally employed workers, it has stayed more or less employed workers is higher than that for formally constant for informally employed workers. employed workers, regardless of gender. The time- FIGURE 34 FIGURE 35 Time-related underemployment rate by type of Time-related underemployment rate by type of employment, 2010 - 2017 employment and gender, 2010 - 2017 10 10 Underemployment rate (%) Underemployment rate (%) 8 8 6.8 6.5 6 6 4.8 6.4 5.4 4.3 4 4 2 2 1.2 0.8 0.6 0.6 0.9 0.4 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 2017 Informal Formal M Formal M Informal F Formal F Informal Source: World Bank staff calculations based on data from Labour Force Source: World Bank staff calculations based on data from Labour Force Survey (DOSM) Survey (DOSM) 3.5 Income of informally employed workers 3.5.1 All informally employed workers Formally employed workers earn more than also clearly indicating a concentration of informally informally employed workers. Comparing the average employed workers at lower levels of earnings. An monthly incomes of formally and informally employed important caveat is that the calculation does not workers, Figure 36 and Figure 37 show that throughout account for differences in hours worked between the the period between 2009 to 2022, workers in formal different types of workers, as this data is not available employment consistently earned more than workers in the HIS. As shown in Figure 32, informally employed in informal employment. However, the difference in workers work fewer hours compared to formally average income between the two groups of workers employed workers on average, and so are expected has been falling over time. In 2009, formally employed to earn less on a monthly basis, ceteris paribus. The workers earned about 65.5 percent more than subsequent analyses in this section provide further informally employed workers on average. In 2022, they understanding on the differences in earnings between earned about 37 percent more. Figure 38 also shows formally and informally employed workers by using the distribution of the monthly income earned by estimated hourly earnings.24 those in formal and in informal employment in 2019, 24 Hourly earnings were estimated by calculating the average working hours by formal/informal status, gender, ethnicity, and status in employment (i.e., employer, employee, own account worker, or unpaid family worker). An R-squared decomposition shows that the most important determinants of working hours are status in employment and ethnicity. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 51 Findings and Discussion FIGURE 36 FIGURE 37 Average monthly income by type of employment, Average monthly income by type of employment 2009 - 2022 and gender, 2009 - 2022 4,715 5,000 6,000 4,315 Average monthly income (RM) Average monthly income (RM) 3,758 5,000 5,019 4,000 3,411 3,442 3,252 3,042 4,255 4,000 2,531 2,624 3,820 3,000 2,217 1,823 3,000 2,000 1,529 2,449 2,000 1,000 1,000 0 0 2009 2012 2014 2016 2019 2022 2009 2012 2014 2016 2019 2022 Formal Informal Formal M Formal F Informal M Informal F Source: World Bank staff calculations based on data from Household Income Source: World Bank staff calculations based on data from Household Survey (DOSM) Income Survey (DOSM) FIGURE 38 Monthly income distribution by type of employment (Kernel density distribution), 2019 .0005 .0004 .0003 Density .0002 .0001 0 0 2000 4000 6000 8000 10000 Monthly employment income Informal employment Formal employment Source: World Bank staff calculations based on data from Household Income Survey (DOSM) 2019 Note: 98% winsorization is performed for earnings per job. The top 1 percent and bottom 1 percent of the observations are replaced with their closest value. This allows us to get a more accurate view of the mean of the variable. 52 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion The formality premium, or the earnings differential workers earn more than informally employed workers between formally and informally employed workers, on average because they are formally employed (and has been declining over time and is substantially not because of the characteristics of workers such as higher among women. The formality premium reflects age or education level), and vice versa. In 2009, formally the average level of hourly income earned by formally employed workers earned about 43.4 percent more employed workers relative to informally employed than similar informally employed workers on average, workers, after accounting for the difference in income as shown in Figure 39. By 2022, the premium had that can be captured by gender, age, age-squared, declined to 23.2 percent. Further, Figure 40 shows that sector, ethnicity, education level, and urban-rural the formality premium is substantially higher for women location.25 In short, a positive formality premium than for men. In 2022, the formality premium for women reflects the degree to which formally employed was 40.9 percent compared to 16.8 percent for men. FIGURE 39 FIGURE 40 Formality premium based on hourly wages by Formality premium based on hourly wages by education level, 2009 -2022 gender, 2009 - 2022 80 100 Formality premium (%) 60.5 60 80 Formality premium (%) 67.0 50 40 43.4 60 36.7 40.9 20 40 31.5 16.8 20 0 2009 2012 2014 2016 2019 2022 0 All workers Less than a post-secondary education Male Female Post-secondary education Tertiary education 2009 2012 2014 2016 2019 2022 Source: World Bank staff calculations based on data from Household Income Source: World Bank staff calculations based on data from Household Survey (DOSM) Income Survey (DOSM) Note: Unpaid family workers are excluded. The Mincer regressions control Note: Unpaid family workers are excluded. The Mincer regressions control for gender, age, age-squared, sector of employment, ethnicity, and urban- for education level, age, age-squared, sector of employment, ethnicity, and rural location. Education level is controlled in the regression that includes urban-rural location. Average working hours are estimated using data from all workers. Average working hours are estimated using data from the LFS the LFS (see Footnote 24). (see Footnote 24). The difference in hourly earnings between formally workers were paid less than their formally employed and informally employed workers is largely counterparts in 2019, even when they had the same unexplained by differences in gender, age, education sociodemographic characteristics, suggesting level, sector of employment, ethnicity, and urban- discrimination by formality status. That said, consistent rural location. Figure 41 shows that out of the with the findings on the formality premium, the 49.4 percent gap in earnings between formally and unexplained share has declined by 13 percentage informally employed workers in 2019, 44.5 percent can points between 2009 and 2019, suggesting that the be explained by differences in the sociodemographic difference in earnings between formally and informally characteristics of workers, while 55.5 percent is employed workers can increasingly be attributed to the unexplained. This means that informally employed sociodemographic characteristics of workers. 25 This does not account for differences in employment benefits, but only of hourly income earned. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 53 Findings and Discussion FIGURE 41 Explained and unexplained differences in hourly earnings between formally and informally employed workers by gender, 2009 - 2019 100 Difference in earnings (%) 80 43.3 36.0 53.5 50.1 45.2 67.1 68.0 64.7 64.8 63.3 60 40 56.7 64.0 49.9 54.8 20 46.5 32.9 32.0 35.3 35.2 36.7 0 2009 2012 2014 2016 2019 2009 2012 2014 2016 2019 Male Female Explained Unexplained Source: World Bank staff calculations based on data from Household Income Survey (DOSM) Note: Unpaid family workers are excluded. The Oaxaca decompositions controls for gender, age, age-squared, education level, sector of employment, ethnicity, and urban-rural location. Average working hours are estimated using data from the LFS (see Footnote 24). The share of unexplained difference in earnings is also earnings. 26 Excluding unpaid family workers, informally much higher for informally employed women compared employed men are found to earn about 43.3 percent to men. More than 60 percent of the difference in more than informally employed women. Being older is earnings between formally and informally employed also associated with 6.4 percent higher earnings per women cannot be explained by sociodemographic hour, although this age premium declines after a certain characteristics, compared to 36 percent for men. age. Compared to those without any formal education, Indeed, past analyses have shown that the gender workers with primary education are earn about 10.1 gap in earnings is largely unexplained (see World Bank percent more, and those with tertiary education earn 2019b). The findings presented and to these findings, about 79.8 percent more. Informally employed workers and suggest that informally employed women likely face in urban areas also earn about 9.5 percent more than more earnings discrimination that informally employed informally employed workers in rural areas. Earnings men, or may self-select into less remunerative work are lowest in the agriculture sector, followed by due to unobservable factors such as flexibility of work manufacturing (12.9 percent higher than agriculture), arrangements, mobility restrictions, and the higher construction, services, and mining (49.1 percent higher acceptability or permissibility of certain jobs, or may than agriculture). Non-Bumiputera informally employed also face greater skills mismatches (see Section 3.4). workers are also more likely to earn more than their Bumiputera counterparts, with Indians earning about Econometric analysis confirms the gender gap in 5.2 percent more and the Chinese earning about earnings among informally employed workers, and 35.8 percent more. Other ethnicities earn about 3.2 reveals age, ethnic, and sectoral differences in percent more. 26 A left-censored Tobit regression was adopted to analyze which factors, including sociodemographic, geographic, and economic factors, are associated with higher earnings per hour for 15 to 64-year-old persons who are working. See Annex 6. 54 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion 3.6 Perceptions of informal employment Our small sample analysis of freelancers27 reveals as shown in Figure 43, more than half (57.2 percent) of that a substantial share of freelancers value flexibility freelancers were willing to forego 20 percent of income in terms of work hours and work location. When given in order to work from home daily, and this share is a choice between deciding their own working hours higher with a tradeoff of 10 percent (65.2 percent). and a client deciding their work hours, about half the Further, the preference to work at an office two days a freelancers surveyed would be willing to give up 10 to week versus all days of the week is also highly valued 20 percent of their income if it means being able to by freelancers, even when it came at a cost of 10 to 20 decide their own working hours (Figure 42). Similarly, percent of income. FIGURE 42 FIGURE 43 Likelihood of choosing Job B and tradeoff between Likelihood of choosing Job B and tradeoff between work hours flexibility and income work location flexibility and income 80 80 68.6 61.5 65.2 57.2 57.4 60 51.0 48.3 50.8 60 40 40 20 20 0 0 20% more 10% more 10% less 20% less 10% less 20% less 10% less 20% less income income income income income income income income Client decides work hours You decide work hours Work from home everyday Fixed of ce two days a week Source: Ghorpade, Jasmin and Abdur Rahman (forthcoming) Source: Ghorpade, Jasmin and Abdur Rahman (forthcoming) TABLE 4 Summary of advantages and disadvantages of (in)formal employment, as informed by FGDs and KIIs Advantages of Formal Employment Disadvantages of Formal Employment Source: World Bank qualitative data collection of agricultural laborers, location-based workers, care workers and hawkers. This echoes findings from our qualitative study, 28 formal, standard employment (Table 4). Many which show that flexibility of work hours and work respondents of qualitative surveys conducted for this arrangements are the top reasons why informal report expressed that they prefer flexibility since they employment (non-standard jobs) is preferred over have to attend to care duties that could take place 27 See Annex 7 for a description of profiles of respondents in our survey of digital freelancers. 28 See Annex 7 for a description of profiles of respondents in our qualitative study. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 55 Findings and Discussion during “normal” working hours, especially handling Furthermore, being in informal employment allows young children or elderly, as well as being to attend to individuals to work more than one job simultaneously. any emergencies. For some, flexibility also allowed for The quotation below depicts an informally employed more family time together. Being tied to a fixed office baker relaying the importance of flexibility of work location is also seen as burden to informal workers. (such as choice of work hours and work location). INTERVIEW QUOTE 1 “ …Time is also flexible in case there is an emergency. Right now, my mom is not feeling well and is not working anymore while my father works in Kuala Lumpur. If anything happens, she has a companion and also assists me at work. I do not like to be bound from an 8am to 5pm job. When you have your own business, you have to be disciplined on your own.” (Female baker from Pahang) Due to the flexibility of working hours, informally (i.e., capped at the minimum or a fixed wage). As an employed workers explained that they are able to earn example, hawkers and street vendors are able to higher income by working more hours. This reinforces earn revenue on a daily basis while formal employees the findings from the analysis of the LFS discussed in receive a fixed amount of monthly salary. This approach Section 3.4.1 on the higher incidence of time-related could be very profitable, especially if there are events underemployment (the greater availability to work and carnivals within their localities. In one case, daily additional hours) among informally employed workers. income is preferred over monthly salary, so that they Some of the respondents also expressed that income are able to buy necessities daily. from formal employment is stagnant and insufficient INTERVIEW QUOTE 2 “ Although I am tired from sleepless nights preparing the food and beverages to be sold the next day, it will make me happy when we get the money and profit. We can get daily income, and we can always buy our needs daily. We don’t have to wait until the end of the month for the salary.” (Female street vendor selling kuih from Sabah) However, due to the nature of their work, many as well as location of workplace, unlike standard informally employed workers do not have a stable employees who receive a monthly income. The quote stream of income, which could depend on several below illustrates the volatility in earnings for street factors such as weather conditions, customer orders, vendors. INTERVIEW QUOTE 3 “ …For hawkers, I’m not saying that they cannot operate when it is raining, but when it does, there are barely any customers. Especially if you sell things like beverages. When it is raining, who would want to drink cold beverage? Usually when it was raining, you can see that most of the products are still on the table. But when it’s hot, there products are easily sold out. So, what would usually affect hawker’s economy and income is usually the price and weather.” (Male street vendor from Sabah) 56 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion As for perceptions of formal employment, respondents (and formal income statements), formal employment across all sectors noted that coverage from EPF and was also seen as enhancing access to formal credit. This SOCSO as among its top advantages (see Table 4). is because formally employed workers can show their Furthermore, on top of a basic salary, formally employed pay slips as proof of their ability to repay loans, and workers typically enjoy a remuneration package which may navigate the financial system with greater ease. includes perks such as paid annual and medical leave; This underlines the benefits of formal employment benefits that are not available to informally employed that may extend to other dimensions of development, workers. Furthermore, due to stable monthly income including financial inclusion. INTERVIEW QUOTE 4 “ For me, there are a lot of benefits of formal employment. It is brighter future, entitle for EPF, get promotion, paid leave and they get a lot of privilege. So, simply speaking it is more secured.” (Female care worker from Sabah) INTERVIEW QUOTE 5 “ It is difficult because being self-employed, there is no pay slip compared to when we worked previously. You only have to work three months, compile your pay slip and apply for a loan.” (Male farmer from Sabah) Other advantages of formal or standard employment On the other hand, requesting approval for annual include no operating or capital costs incurred, provision leave as well as following company processes were of job-related training, job stability, and clear career cited as disadvantages of formal employment, paths. Since most informally employed workers are own- whereas for informal jobs, the individual is typically account workers who typically own their business, they not tied to any employer and in many instances, they incur high material costs for their products such as fresh are their own employer. Being confined to a superior produce for hawkers and pesticides and machinery for may limit the job scope of an individual, and being in agricultural laborers. Rising prices reduce their profits, standard employment could also limit an individual to further adding to the unstable income stream noted acquire entrepreneurial skills on the job, unlike own- earlier. Additionally, provision of job-related training, account workers who could learn how to manage their easier access to aid from the government, awareness of own finances and accounts, manage inventory, improve social security, as well as a safer work environment, are soft skills, and enhance their overall business acumen. some of the other advantages of formal employment compared to informal employment. INTERVIEW QUOTE 5 “ For example, if we have important matters to attend, we must ask for permission from our boss. But if we are self-employed, we can leave at any time. Sometimes, asking for permission is so difficult...” (Male farmer from Sabah) INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 57 Findings and Discussion There is a mismatch between what freelancers deem retirement, earning good money, and health insurance. as very important for their work and what they Moreover, when inspecting further by gender, it is currently have in their jobs. found that the expectation gaps for the same work Figure 44 maps out what the freelancers prefer versus characteristics are relatively similar. This indicates that what they have in their jobs, and the difference between freelancers desire to have social insurance but may face the two could be perceived as an “expectation gap.” issues in accessing it. As seen in Interview Quote 7, the It could be seen that the gap between preferred and respondent disclosed that they would like to have EPF/ current work characteristics is most significant for SOCSO coverage but are not disciplined to contribute insurance for workplace injuries, pension income upon monthly. FIGURE 44 Share of freelancers that consider a work characteristic as being “very important” v/s such a characteristic being adequately provided in their current work 80 67.6 Share of respondents (%) 58.6 57.2 56 54.4 60 46.9 43.7 37.8 35.8 40 30.2 27.1 26.5 26.5 20.4 21.4 20.5 20 0 colleagues/clients international Build professional Flexibility skills/competencies international teams Earn good money Make good use of Working in Interaction with Opportunities for settings acquiring new pro le/cv Work in skills Very Important Adequately provided Source: World Bank survey of freelancers While informally employed workers can, at least in also perceived to be low. It was also revealed that some theory, easily make voluntary contributions to obtain workers had alternative plans for EPF and SOCSO. For social insurance coverage through EPF and SOCSO, in instance, P2 from Kelantan (without social security net) reality they face many barriers in doing so. When asked prefers to save in Amanah Saham Bumiputera (ASB) 29 as about making voluntary contribution, participants opposed to EPF. This is due to the ease of withdrawing expressed several concerns, for example they are their cash in cases of emergency, whereas EPF (full) unsure about making contributions due to unstable withdrawals can only be made upon retirement age income and that there is a lack discipline to commit. (although partial withdrawals are permissible, with strict Additionally, awareness amongst informal workers is conditions). INTERVIEW QUOTE 7 “ Since I started my business, it has only been a few times when I paid KWSP (EPF) for myself. Because actually I feel like I can afford it, but I do not have the discipline to keep paying.” (Male night market street vendor and e-hailing driver from Sabah) 29 ASB is an investment fund for Bumiputera aged 18 and above, has similar returns to EPF but is accessible to be withdrawn at any point in time. 58 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion 3.7 Vulnerabilities associated with informal employment Occupational health and safety are the common their health. Similarly, for agricultural laborers, there concern amongst informally employed workers in is a risk of accidents whilst operating machinery. For all sectors studied (see Table 5). For all informally care workers, improper handling of clients could result employed workers interviewed, there are various in fatal accidents. For street vendors, one respondent risks involved in their jobs. For example, for location- mentioned that there is a risk of fire when conducting based workers, there are risk of accidents on the business. Across sectors, informally employed workers road while delivering a parcel, as well as potentially face considerable risks when performing their work, harming effects of long driving and riding hours on making it imperative to protect these workers. INTERVIEW QUOTE 8 “ I am also concerned about my health and safety. In the burger business, the risk is when the gas explodes or is struck by fire. I still do not have any insurance coverage yet.” (Male burger stall vendor from Pahang) The instability of income as well as mistreatment has been mentioned that there is no place for them of clients/employers are also cited as concerns to file grievances. Furthermore, respondents in the for informally employed workers. Particularly for street-vending business have also mentioned that location-based workers, where they face customer they face certain regulatory hurdles — in one case, complaints and for care workers, where the employer the respondent worry that they do not have a stable (head of household) tends to ask to complete tasks business location despite having applied for a license, beyond care duties. For location-based workers, it and fears that the location will be demolished. INTERVIEW QUOTE 9 “ My current concern is the location of my business. Actually, the place of our business has yet to be approved by the Kota Kinabalu City Hall (Dewan Bandaraya Kota Kinabalu, DBKK). In any time, the place of our business can be demolished. That concerns us. After this, it would be harder for us to look elsewhere if our business place is demolished. Even before this, we had our place of business demolished.” (Female night market stall vendor from Sabah) TABLE 5 Concerns with current work conditions of informal workers across various sectors Agricultural Location- Concerns with current work conditions Care workers Hawkers laborers based workers Occupational health and safety     Instability of income     Abuse/mistreatment by clients/employers       High operating costs       Regulatory hurdles        Source: World Bank qualitative data collection of agricultural laborers, location-based workers, care workers and hawkers INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 59 Findings and Discussion In terms of changes that informally employed workers that they have coverage while an e-hailing association would like to see in their work conditions, the provision leader stated that EPF and SOCSO contributions are of EPF/SOCSO as well as job-related training were the “responsibility of the operator.” Additionally, as an cited as the main ones (see Table 6). As discussed example of job-related training, informal care workers earlier, some informal workers would like to have EPF/ shared that they would like to receive training on caring SOCSO coverage but admitted to not being disciplined for young children, such as feeding and bathing them, to contribute monthly. Some have suggested for to ensure customer safety and to enable them to do employers to auto-deduct from their pay to ensure their job well. INTERVIEW QUOTE 10 “ Now we can contribute to EPF, but they can deduct directly from our payslip if possible… Our only excuse is that we are lazy to do it ourselves. If possible, they can just deduct from our pay monthly together with SOCSO, so it’s easier for us.” (Male e-hailing driver from Sabah) TABLE 6 Suggested changes for improvement in work conditions of informal workers across various sectors Agricultural Location- Suggested Changes for improvement Care workers Hawkers laborers based workers EPF and SOCSO contributions/deduction    Job-related training    Funding opportunities (Financial assistance to small businesses should   be made more accessible) Awareness and recognition of the sector   and job Impose minimum and fixed salary  Source: World Bank qualitative data collection of agricultural laborers, location-based workers, care workers and hawkers Associations of informally employed workers could E-Hailing Drivers’ Association costs RM50 yearly. potentially bridge the gap for the missing middle of The association leader mentioned that with this fee, social insurance coverage. By using their networks members get priority to certain services, such as access of informally employed workers, association leaders to hygiene kits and food baskets during the peak of may be able to spread awareness among members, COVID-19. For farmers and hawkers, the association build a bridge between members and policymakers leaders interviewed only have informal groups amongst to convey workers’ needs, provide support in times themselves on WhatsApp, with no membership fees. of crises, and facilitate outreach and registration for Thus, associations’ network of informally employed EPF/SOCSO among those in informal employment. workers could have an important role in convening Membership towards such associations often involves informally employed workers and extending the reach a small fee; for example, membership for the Malaysia of EPF and SOCSO coverage. 60 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion BOX 5 Welfare impacts informally employed workers and their households during COVID-19 using HiFy At the peak of COVID-19, informally employed workers losses due to the implementation of Movement Control were more susceptible to job losses, particularly those Orders (MCOs). However, informally employed workers working in sectors requiring high levels of physical in these sectors were particularly affected — Figure 45 contact. Being employed in sectors such as Sales, Hotels, shows that 74 percent of informally employed workers and Restaurants involved workers working directly with in the Sales, Hotels, and Restaurant sector lost their job customers and Mining, Manufacturing, Construction, any time from March 2020 to June 2021, compared to and Agriculture involved workers conducting their 13 percent for formally employed workers. jobs in-person. These sectors saw higher rates of job FIGURE 45 Share of those who stopped working at any time since March 2020 to June 2021, by sector and employment type 80 80 Difference in the share of informal 74.3 70.5 and formal workers (%) 60 Share of workers (%) 60 51.5 43 40 40 33.4 30.4 20 18.8 18.9 20 13.2 13.5 9.4 10.7 0 6.9 7.4 6.8 4 0 -20 Sales, hotels Mining, Construction Agriculture, Personal services, Transport, Electricity, gas, Professional: nance, & restaurants manufacturing hunting, education, driving, post, water supply legal, analysis, shing health, etc travel agencies computer, real estate Formal Informal Source: World Bank (2022a) At the same time, informally employed workers across recovery, compared to formally employed workers (see all income groups were more susceptible to job losses Figure 46). Furthermore, while all households with either and food insecurity compared to formally employed formal or informally employed workers were affected workers. Figure 46 shows that informally employed by the crisis from a food security aspect, households workers, particularly those in the lowest income group, with informally employed workers were more likely to were more likely to have stopped working during the have faced food shortages in any time period, and in peak of COVID-19 in Malaysia. Furthermore, informally particular had members of their household eating less employed workers were more likely to have stopped than usual in the past month to cope with the crisis working at any time, even during times of economic (Figure 47). FIGURE 46 FIGURE 47 Share of those who stopped working at any time Share of households with food insecurity by since March 2020 to June 2021, by income level employment type and employment type 80 50 40 31.7 Share of households (%) Share of workers (%) 58.3 30 22.6 60 19.4 21.6 17.6 17.4 20 13.6 12.6 12.1 44.8 45.4 8.5 10 5.4 4.5 40 0 May/Jun 2021 Oct/Nov 2021 Apr/May 2022 May/Jun 2021 Oct/Nov 2021 Apr/May 2022 21.8 24.3 20 13.2 13 10.3 12.8 8.7 0 RM1,000 RM1,001 - RM2,001 - RM4,001 - RM6,001 Formal Informal and below RM2,000 RM4,000 RM6,000 and above Household ran out of food in past 30 days Formal Informal Any adult eaten less in past 30 days Source: World Bank (2022a) Source: World Bank (2022a) INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 61 Findings and Discussion During the COVID-19 pandemic, informally employed Informally employed workers were more likely to rely workers were more likely to have experienced on harmful coping strategies that may reduce their reductions in their income compared to pre-pandemic households’ long-term productive potential in the levels, and were also more likely to have received aftermath of the pandemic. As discussed in World irregular payments. Comparing incomes in April 2022 Bank (2021), informally employed workers relied versus pre-pandemic levels, 86.1 percent of formally more heavily on harmful coping strategies, such as employed and 68.6 percent of informally employed reduction in food consumption and sale of assets workers highlighted that their income has either (Figure 48). These strategies are deemed more harmful stayed the same or increased, which highlights a sign because they can affect the ability of households to of recovery. However, a higher share of informally participate in productive activities as the economy employed workers experienced a decrease in their recovers, and can have long term effects on human income compared to formally employed workers, capital development. Even during the recovery period which is a consistent finding throughout all rounds. by May 2022, informally employed workers were still Furthermore, while most workers received full normal more likely to have depended on these harmful coping payment for their work, a slightly higher share of strategies, while formally employed workers were more informally employed workers were more likely to have likely to draw on formal entitlements and cash reserves received only partial or no payment at all. to smooth consumption. This includes through the EPF, government pension funds (KWAP), or other pension savings, and taking loans from a financial institution. FIGURE 48 Share of workers and coping strategies in Apr-May 2022, by employment type Relied on personal savings 58.3 54.3 49.1 Reduced non-food consumption 52.7 Received assistance from government 43.6 50.7 31.6 Reduced food consumption 41.4 Relied on EPF/KWAP/other pension savings 40.7 26.0 Engaged in additional income generating activities 15.4 22.4 12.9 Borrowed from friends & family 20.2 Took loan moratorium/delayed payments 22.1 18.1 9.4 Sale of assets 14.6 Relied on credit card 20.7 11.8 6.5 Received assistance from NGO/other institutions 7.3 Took a loan from a nancial institution 6.8 5.1 0 10 20 30 40 50 60 70 Share of workers (%) Formal Informal Source: World Bank (2022a) 62 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion 3.8 Protection of freelancers While a majority of freelancers do not contribute among women, more were likely to contribute to EPF, to national social insurance schemes, those who subscription to SOCSO was higher among men, possibly do contribute to insurance appear to have a higher due to the employment of men in location-based work preference for private schemes. Based on an online involving higher occupational risk, a finding that is also survey of freelancers conducted in partnership with in line with the findings using SESSS administrative data MDEC (to provide indicative rather than representative in Section 2.5.3. However, subscription towards private estimates), we find that the majority of freelancers in our health insurance and private retirement schemes is sample do not contribute to EPF nor do they subscribe significantly higher in this sample, at 46.9 percent and to SOCSO — with only 26.6 percent and 27.3 percent 44.4 percent of respondents respectively (Figure 50). respectively who do (Figure 49). Women were less likely Subscription towards health insurance is relatively even to have contributed to social security compared to across gender, but a higher share of women subscribed their male counterparts, particularly for SOCSO. While to retirement schemes compared to men. FIGURE 49 FIGURE 50 Share of surveyed freelancers with EPF and Share of surveyed freelancers with private health SOCSO coverage, by gender insurance and private retirement scheme, by gender 50 50 47.4 46.9 46.4 47 44.4 Share of respondents (%) Share of respondents (%) 42.3 40 40 32.2 30 26.6 27.3 27.4 25.9 30 21.3 20 20 10 10 0 0 Total Female Male Total Female Male Contributes to EPF Subcribes to SOCSO Has private insurance Has private retirement scheme Source: Ghorpade, Abdur Rahman and Jasmin (forthcoming) Source: Ghorpade, Abdur Rahman and Jasmin (forthcoming) INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 63 Findings and Discussion BOX 6 Reclassifying gig workers for better protection— lessons from around the world All over the world, countries are grappling with of their riders as employees, but intended to keep appropriately classifying, and subsequently protecting others as contractors based on a new relationship workers in the gig economy, with a particular spotlight model that complies with the law without necessarily on e-hailing drivers. In recent years, there have been a changing riders’ employment status. Recently, Glovo number of trials between workers and digital platforms was fined EUR79 million by the Government of Spain on the gig economy business model, in which for treating their riders as contractors rather than as workers are classified as independent contractors, employees. Glovo in turn disagreed with the basis for and are therefore, exempt from basic employment the fine and plans to appeal against it. benefits. Some country examples are depicted below, In contrast, a court in Belgium ruled against a petition illustrating very different outcomes from this exercise. by Deliveroo food delivery riders seeking employee After five years of legal battle, in February 2021, status. The court ruled, based on criteria such as the the Supreme Court ruled in favor of Uber drivers in ability of riders to accept or refuse jobs, the platforms’ the United Kingdom, to officially classify drivers as insistence on appearance (through uniforms, for “workers,” an alternative employment classification to example) and use of equipment, and the platform’s describe those who are neither employees nor self- ability to set pay levels, that the majority of the riders employed; who are economically dependent on a were in fact part of the “collaborative economy,” using company but still possess some level of job autonomy. platforms to find opportunities to earn through sharing This would mean that Uber has to cover benefits such activities, rather than independent contractors. as paid annual leave, sick leave, minimum wage (for In 2019, legislators passed a gig economy law in 2019 time spent working with the Uber app active, including (Assembly Bill 5 (AB5)) in California, USA, which waiting time) and retirement scheme contributions. required companies like Uber, Lyft, and DoorDash to Similarly, in Spain in August 2021, the Supreme Court employ their drivers as employees. The companies ruled in favor of gig economy riders, which declared have since responded by threatening to leave the riders as employees rather than self-employed. Social state as well as pouring more than USD200 million security provision, paying hourly rates instead of per into a ballot campaign known as ‘Proposition 22’ in task, as well as paying for ‘waiting’ time were now 2020, that would essentially allow app-based drivers part of companies’ responsibilities, which reportedly to remain as independent contractors with additional increased costs, leading companies to raise prices. yet limited benefits, such as occupational accident One food delivery company, Deliveroo, exited the insurance. Although the outcome of the ballot initiative Spanish market all together in November of the same favored the companies and essentially overrode AB5, year, as the change in law would no longer make the Service Employees International Union (SEIU) sued Deliveroo’s operations profitable. Other companies the state government, citing Proposition 22’s removal have also warned that many of their riders would lose of app-based drivers from the benefits of AB5 as their jobs. Moreover, one of Spain’s leading delivery unconstitutional. The eventual outcome of this ruling companies, Glovo, planned to hire only a small portion remains to be studied. 64 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion 3.9 Willingness to pay for social insurance To uncover the willingness to pay for social pensions, unemployment insurance, and insurance insurance coverage, the study utilized a vignette- for workplace injuries. The experiment is illustrated based experiment, incorporated in the online survey in Figure 51, where two vignettes are presented: Job of digital freelancers. The experiment contained A, and a randomly chosen option among Jobs B1, B2, vignettes of two hypothetical jobs, from which the B3, and B4. While the description of Job A remains respondent had to identify the job that they prefer. identical for all respondents, the attributes of Job B Job A included a standard baseline scenario for social are randomized, among the options B1, B2, B3, and insurance coverage, whilst Job B is comparable to Job B4. These four options vary from each other in terms of A in most job attributes apart from two dimensions the type of unemployment insurance coverage offered, that vary at random: the description of social insurance and the associated “cost” on their incomes. The values coverage package, and the associated trade off on for the foregone wages offered in the job descriptions their incomes. For the study, three types of social mirror current levels of contributions payable for insurance instruments were considered: retirement national social insurance coverage. FIGURE 51 Vignettes of hypothetical jobs: Job A and Job B1, B2, B3 and B4   Job A Job B1 Job B2 Job B3 Job B4 Hours worked 40 hours 40 hours 40 hours 40 hours 40 hours per week Monday to Monday to Monday to Friday, Monday to Friday, Monday to Friday, Work Hours Friday, 9 AM to Friday, 9 AM to 5 PM 9 AM to 5 PM 9 AM to 5 PM 5 PM 9 AM to 5 PM Location of Fixed Office Fixed Office Fixed Office Fixed Office Fixed Office Work Regular Regular Regular pension Regular pension Regular pension pension after pension after after retirement after retirement after retirement retirement (age retirement (age EPF (age 60) based on (age 60) based on (age 60) based on 60) based on 60) based on years of service in years of service in years of service in years of service years of service this job this job this job in this job in this job Included in Included in Included in Included in Included in Health compensation compensation compensation compensation compensation Insurance package package package package package If you become unemployed you No If you become unemployed you receive Unemployment receive a monthly income of MYR unemployment a monthly income of MYR 800 until you Insurance 1,200 until you find a job, for up to insurance find a job, for up to 6 months 6 months 0.2% less than Equal to your 0.5% less than 0.2% less than 0.5% less than Monthly Take- your current current take- your current take- your current take- your current take- Home Salary take-home home salary home salary home salary home salary salary INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 65 Findings and Discussion Our experiment revealed that a majority of 0.5 percent of current income). The high willingness respondents would be willing to trade-off 0.2 to 0.5 reflected an unmet need, and therefore, a potential percent of income to have unemployment insurance of market for unemployment insurance among this RM800 or RM1,20030 per month for up to 6 months segment that may be quite susceptible to volatility in of unemployment.31 As seen in Figure 52, as high as the availability of work. Furthermore, freelancers tend 85.5 percent of freelancers were willing to tradeoff to value unemployment insurance higher than standard proportions of their income to have social insurance employees (Figure 53). As discussed in Section 3.7, coverage, and the willingness does not appear to informally employed workers were more likely to differ much either by the level of unemployment lose their jobs during COVID-19, and many informally income offered (RM800 or RM1,200), or by the level employed workers interviewed did not have a stable of income deduction for having such coverage (0.2 or stream of income. FIGURE 52 FIGURE 53 Preference of choosing to pay for unemployment Preference of choosing to pay for unemployment insurance among digital freelancers insurance among digital freelancers and standard employees 100 100 83.3 85.5 83.3 85.5 Share of respondents (%) Share of respondents (%) 80.7 82.3 80.7 82.3 80 80 74 66.2 68.5 65.8 60 60 40 40 20 20 0 0 0.5% less 0.2% less 0.5% less 0.2% less 0.5% less 0.2% less 0.5% less 0.2% less income income income income income income income income If unemployed, receive If unemployed, receive If unemployed, receive If unemployed, receive RM800 monthly until RM1200 monthly until RM800 monthly until RM1200 monthly until you nd a job you nd a job you nd a job you nd a job Freelancers Standard employees Source: Ghorpade, Abdur Rahman and Jasmin (forthcoming) Source: Ghorpade, Abdur Rahman and Jasmin (forthcoming) Most freelancers preferred to have EPF coverage in its respondents were presented with the choice between current form, however this preference reduced slightly EPF in its current form and a monthly retirement when respondents were offered a monthly pension pension which entailed a further reduction in income instead of a lump sum payout. When presented with by 5 to 10 percent, fewer respondents chose the former Job A as regular contributions to retirement savings (compared to the first set of options between EPF in its (EPF) from the employer, to be put into a savings current form and no EPF coverage). This suggests that a account that can be partially withdrawn at age 50 and monthly pension plan could likely attract a considerable fully withdrawn at age 55 (or for specific purposes), share of informally employed workers. Interestingly, Figure 54 shows that the majority opted to go with more freelancers prefer a monthly pension (even when this option with only about a quarter of freelancers there is a reduction in income) to an increase in income preferred not to have any form of retirement savings without any retirement savings. when offered an increase in income. However, when 30 These amounts are set roughly at the prevailing rates of unemployment benefits offered through the Employment Insurance Scheme run by SOCSO 31 These are similar to current deductions for EIS coverage 66 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Findings and Discussion FIGURE 54 FIGURE 55 Preference of choosing to pay for EPF coverage Likelihood of choosing to pay for EPF coverage — among digital freelancers showing tradeoff between retirement savings and income Share of respondents (%) 100 100 90.4 Share of freelancers (%) 82.7 79.1 78.8 80 74.9 74.8 80 74.9 74.8 64 62.8 64 62.8 60 60 40 40 20 20 0 0 5% more 10% more 5% less 10% less 5% more 10% more 5% less 10% less income income income income income income income No savings account Regular contributions No savings account Regular contributions to EPF from employer or fund to EPF from employer or fund with modest pension with modest pension Freelancers Standard employees Source: Ghorpade, Abdur Rahman and Jasmin (forthcoming) Source: Ghorpade, Abdur Rahman and Jasmin (forthcoming) INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 67 CHAPTER 4 Policy Recommendations 68 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Policy Recommendations This report has described the considerable but enhance workers’ protection even if workers may steadily declining incidence of informal employment in not immediately transition to formal employment Malaysia. However, the growth of non-standard forms status. of employment in recent years, through part-time, digital, and gig work, can potentially either decelerate • Third, informal employment may offer valuable or reverse the trend of declining informal employment. flexibility to workers who may otherwise not Informal employment in Malaysia encompasses workers be able to pursue productive employment across multiple sectors, regions, skill-levels and income as stipulated by strict definitions of formal profiles, each of which need to be engaged with and employment, particularly women. Flexibility is understood separately. On the whole, however, we an important consideration for several workers, find considerable evidence showing that workers without which they may not be able to participate in informal employment face greater risks against a (fully or at all) in the labor market. Denying workers range of shocks, and consequently, have more volatile such opportunities for engaging in employment streams of earnings as well as precarious terms of could have the unintended effect of lowering employment, as was abundantly clear during the economic activity. COVID-19 pandemic. Workers in informal employment • Finally, even in highly advanced economies with can benefit from targeted policy measures to address strong regulatory capacity, informal employment, these specific vulnerabilities. We now discuss alternate especially in newly emerging forms such as in the approaches for policy action on informal employment ‘gig’ economy, may continue to persist, indicating in Malaysia. the limits of regulatory efforts to eliminate informal employment. Should policy action seek to eliminate informal employment, or formalize all Should policy action seek to reduce informal workers? employment? Formalization refers to a process by which informally A downward trend in informal employment, while employed workers are brought under the ambit welcome as an indicator accompanying economic of national legislation or policy frameworks that growth and transformation, may not be a sufficient afford them protections that may classify them as end to pursue in itself. This is because simply observing formal workers. Policy efforts should not focus on a decline in informal employment as a whole does not eliminating informal employment, or formalizing indicate whether this is because of greater access all workers per se, but on extending protection to protection among workers, a misclassification of and enhancing productivity of workers in informal informal workers as formal (such as by workers appearing employment. This is based on multiple reasons: to be formal ‘on paper’ but in reality, remaining in • First, an overzealous focus on the complete vulnerable and precarious employment), or the exit formalization of the workforce through regulatory of informally employed workers from the workforce means can have unintended consequences, altogether. Further, as several emerging forms of including informal workers not switching over to informal employment, such as digital freelancing, are formal employment but instead receding into associated with higher level skills and income, clamping the shadow economy, and potentially even more down on such forms of work may deny workers, and the invisible and precarious terms of employment to economy, a valuable source of growth. escape stipulations of the formalization efforts From a macro perspective, informal employment in (Jütting et al, 2009). Malaysia has already been on a downward trend, driven • Second, as the experience of several middle- and partly by reductions in the share of the workforce high-income countries has shown, substantial engaged in agriculture, as well as by sustained gains can be made in terms of extending economic growth, which, has a strong formalization protection to workers even in the absence of effect on the Malaysian labor force. As such we should formalization, as the latter may require more time expect to see a greater share of formal employment and coordinated effort across actors. In the case in total employment in the medium to long-term in of Malaysia, measures such as enhanced access to Malaysia, even though it may not be possible (or even microinsurance, private retirement savings funds, desirable) to pursue a specific target level of informal and voluntary savings schemes could significantly employment in Malaysia. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 69 Policy Recommendations However, even in a situation where informal employment medium- to long-term, to guide policy and regulatory as a share of total employment is falling over time, the actions in the years to come. Specifically, we would challenge of reducing the vulnerabilities associated with like to recommend that the Government of Malaysia, informal employment in particular sectors or groups of and other stakeholders direct their efforts towards workers may persist. Many of those who continue in the achievement of a long-term (5 to 10 years) view of informal employment may not have adequate protection informal employment, characterized by: against risks, nor the necessary skills to transition to formal employment or to earn high incomes while • Gradually declining informal employment, remaining informally employed. Addressing these resulting from a conducive macroeconomic concerns would require dedicated policy responses, environment, non-distortionary policies, and such that workers in informal employment can be improved access to social insurance coverage. extended greater protection against risks (including • Targeted social assistance to the poorest members through means that can encourage them to formalize), of society that helps them meet a basic defined and opportunities for enhanced productivity. standard of living and enables them to participate in the labor force. Twin goals for addressing informal • Subsidized social insurance contributions for a employment in Malaysia: Enhancing targeted group of workers (identified through protection and productivity among the careful profiling) who may not be able to afford informally employed regular contributions to social insurance on their The critical challenges to address with respect to own. informal employment in Malaysia pertain to: (i) the • Adequate32 coverage by social insurance schemes, higher degree of unmitigated vulnerability to shocks, with contributions from workers/employers, and and (ii) the relatively lower economic productivity in the case of own-account workers, through that most informally employed workers experience. automatic voluntary deductions from earnings for Policy action and regulatory efforts should focus on as many workers as possible. addressing these two challenges, rather than targeting the level of informal employment in the economy per • Easy access to private and group-based savings se. Greater protection of informally employed workers and insurance instruments for workers who can can potentially enable them to transition into formal afford such products. employment in the medium- to long-term. As workers come into the fold of social insurance schemes, they may • Access to sufficient opportunities for skills be reclassified as formal workers. More productivity, on development, both before entering the labor the other hand, can also enable informally employed force, as well as on-the-job through a combination workers to seek formal employment which may be more of public, private (including employer/platform- remunerative and less precarious. While enhanced provided), with an emphasis on the quality and protection and productivity can therefore also relevance of skills imparted to enhance workers’ contribute to the formalization of the labor force, they productivity. are important ends to pursue in and of themselves. A • Steadily increasing earnings among informally focus on enhancing the protection and productivity employed workers that reflects their greater of the informally employed puts workers’ wellbeing productivity in the economy. at the center of policy action, and also avoids some of the unintended effects that may result from (over) • A policy environment that balances social and emphasizing formalization as the ultimate goal. private insurance coverage against critical risks related to employment (such as spells of A long-term vision for the state of informal unemployment, income shortfalls, work-related employment in Malaysia injuries, and retirement) with the flexibility and economic opportunities offered by informal Against this backdrop, this report provides a vision for employment, in particular, the gig economy. the state of informal employment in Malaysia in the 32 Adequate coverage of retirement savings refers to contributors receiving a level of retirement income that is considered sufficient to lead a dignified life after retirement, in proportion to their contributions. Adequate health/workplace injury insurance refers to coverage of treatment and rehabilitation costs for most health and injury risks that workers may face. 70 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Policy Recommendations 4.1 Recommendations to enhance the protection and productivity of the informally employed in Malaysia This section discusses policy recommendations for in contrast to private insurance, social insurance by addressing informal employment in Malaysia. We design achieves better risk pooling, and well-designed draw on the analysis conducted and presented in and implemented schemes can particularly protect preceding sections of this report, as well as a review of those who might have short contribution histories global evidence, to propose recommendations under (often women) or low wages, who may not be able to two distinct objectives; (i) to enhance the protection benefit as much from private insurance. of Informal workers, and (ii) to enhance workers’ productivity. In addition to protecting workers, it is also important to enhance their productivity. This report focuses This dual focus on protection and productivity on the productivity of labor, i.e., that of workers in implicitly recognizes the two main, and often informal employment.34 While not all informally complementary, objectives. On the one hand, those employed workers may be able to transition into formal who are currently in informal employment need to employment in the short- to medium-term, enhancing have better protection against shocks and risk factors. their productivity, primarily through effective skills When such protection is provided by social insurance training, can improve their incomes, enhance their instruments, this may result also in the ‘formalization’ resilience against shocks, and expand their contributory of informal workers.33 When protection is provided by capacity for social (or private) insurance coverage. private instruments, workers’ exposure to shocks can Enhanced protection and productivity among informally be significantly reduced, even though this may not employed workers may also be mutually reinforcing. result in them being reclassified as ‘formal.’ Enhanced Figure 56 below depicts the inter-relationship between worker protection is valuable in and of itself, as it can the protection and productivity of workers and outlines make workers more resilient to short- and long-term the roles of social protection instruments and private shocks, and therefore, also more productive. However, services in enhancing the two. 33 As noted in the earlier discussion on benchmarking international definitions of informal employment, coverage by social insurance schemes is the most common, and typically necessary condition for a worker to be considered as being in formal employment; this emphasis is also invoked in the working definition of informal employment proposed in this study. 34 Economic productivity, more broadly defined, also depends on several other factors such as capital deepening, investments in Research and Development, innovation, and firm-level policies. The latter can also help informal production units transition to formal status and employ workers formally. While the assessment of such policies is beyond the scope of this report, we note that these are also important to address. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 71 Policy Recommendations FIGURE 56 Protection, Formalization, and Productivity: Conceptual Linkages with Social Protection Pvt Skills • Employer/Client-provided Training • External • Skills Training Productivity ALMPs • Employment Intermediation • Wage Subsidies • Unconditional Cash Transfers • Social Pensions Social • In-kind Transfers Social Assistance • Fee waivers Protection • Public Works • Contributory old age, survivor, Social disability pensions Formalization Protection Insurance • Injury Insurance • Health Insurance • Unemployment Insurance • Voluntary Savings Schemes Private • Private Health Insurance Services • Private Retirement Savings • Micro nance/credit • Formal Contract Other Work • Paid Annual/Sick leave Characteristics • Paid Parental leave The roles of both social assistance and social insurance support to have access to a basic minimum standard are critical to enhance the protection of workers. of living. As workers’ incomes increase, they are better While social insurance is central to the formalization placed to benefit from employment-linked social of informal workers, the role of social assistance is insurance coverage and may not have to rely solely on also important especially for the poorest informally social assistance. This gradation from the provision of employed workers who may not be able to attain social basic minimums through social assistance, to greater insurance coverage in the short- to medium-term, reliance on social insurance and private provision at and who may need various types of targeted income higher levels of income is depicted in Figure 57 below. FIGURE 57 The Role of Social Assistance and Social Insurance across the Income Spectrum Purely voluntary and privately nanced Incentivized and privately nanced ("Nudge") Mandated and Income individually nanced Guaranteed minimum Purely nanced from general expenditures Resilience Equity Opportunity Source: World Bank (2020c) 72 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Policy Recommendations The policy recommendations in this report are stakeholders and lead to greater transparency in policy structured under two broad headings, based on the consultations and announcements. Recent initiatives level at which they apply, i.e., the Macro (Policy) level, by the Ministry of Human Resources in consulting with and the Micro (Program/ Implementation) level. Among select digital platforms for developing a gig economy micro-level measures, we provide recommendations for policy are a welcome step in this direction. the informally employed with respect to: (i) enhancing their protection through social assistance programs; • Mandate automatic contributions for retirement (ii) enhancing their protection through social insurance savings for incomes earned through digital programs; and (iii) enhancing their productivity through platforms. skills training. We further classify recommendations in terms Many digital platforms enable workers to access of timeframe, comprising Short- (up to one year), Medium- employment opportunities and also make payments (1 to 3 years) and Long-term (over 3 years) measures. to them in lieu of work performed. Specifically, where platforms record and make payments to workers, earnings above a defined threshold can be made subject MACRO (Policy-Level) Recommendations to automatic contributions for EPF coverage. This is particularly simple when, as in the case of EPF, self- Short-Term Recommendations (Up to 1 year) contributions levels are set at defined percentages of • Establish and Operationalize a Convening Body earnings and mandating such contributions may not be to bring together key stakeholders. prone to errors arising out of differentiated contribution rates by income level. While this measure can potentially The Government should establish a convening body of be undertaken through changes in relevant laws fairly key stakeholders involved in the landscape of informal swiftly, it may not be straightforward to apply this to employment. This could include relevant government platforms based and operating outside of Malaysia. departments and agencies, employers, gig platforms, However, for the large numbers of workers engaged in informal workers’ associations and leaders, technology known and listed platforms operating in Malaysia (and platforms, and training agencies. Such a convening of which MDEC has an extensive list), such a measure body can be a valuable space to discuss general and can provide social insurance coverage. For workers who sector-specific policy reform proposals, build trust and earn below the defined level of earnings for mandated confidence between stakeholders, and receive feedback contributions, platforms can also be encouraged to and inputs on the need for any calibration of policy provide easy options for voluntary contributions for measures. The presence of such an institutionalized social insurance coverage. An example of this already forum may enable fuller exchange between key exists in EPF’s collaboration with GoGet. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 73 Policy Recommendations BOX 7 Advantages and disadvantages of mandating contributions for social insurance coverage among self-employed workers Regulating informal employment among the self- government ministries and agencies, the private sector, employed, especially those not working on well- workers’ representatives, civil society, and academia/ defined digital platforms is especially challenging. think tanks can be critical for ensuring the balancing of This is because it seeks to simultaneously balance interests and adequate preparation for any regulatory the wellbeing and protection of informally employed reforms undertaken. Treating informally employed workers, while enabling them to take advantage of workers as standard employees, and therefore, the opportunities it offers. While balancing multiple mandating social insurance contributions (to EPF and/or interests, it is important to guard any likelihood of SOCSO) can be particularly contentious. Below, we list overreach that may dissuade employers, platforms, the advantages and disadvantages of mandating (self-) or the workers themselves. Policy stability and open contributions for EPF and SOCSO coverage among the discussions with a wide range of stakeholders including self-employed to proposed policy reforms in this space. TABLE 7 Advantages and disadvantages of mandating contributions for social insurance coverage among self- employed workers Advantages of mandating self-contribution for social insurance coverage among all self-employed workers • If followed as intended, can bring self-employed workers into the fold of EPF/ SOCSO coverage • Can contribute towards universalizing social insurance coverage • Can enhance the financial sustainability of EPF and SOCSO by widening their contribution base • If implemented properly, such steps can bring some self-employed people into the tax net and widen the tax base (if declaration of incomes increases, linked to EPF registration) Disadvantages of mandating self-contribution for social insurance coverage among all self-employed workers • In reality, this may be very hard to enforce, as the earnings of many informal self-employed persons may not be easy to track using administrative databases (unlike formal employees, who receive pay slips) • If contributions are proportionate to income, there may be a tendency to under-report income as some self- employed earnings may be hard to verify; if contributions are flat/fixed in nominal terms, they may particularly seem to penalize low-income and part-time self-employed workers • Enforcing social insurance contributions may displace or reduce contributions that self-employed workers may wish to make towards private insurance, which may provide better suited coverage for such workers’ needs • Aggressive enforcement of contributions through detailed verifications of income or sanctions could discourage small enterprises and low-income self-employed workers. Aggressive enforcement can also make workers fearful of tax implications and any burdensome labor regulations of making social insurance contributions. • Mandate injury insurance provision (public or types of activities, developed in partnership with private) by apps for high-risk tasks such as platforms and workers, can enable better and more drivers, and p-hailing riders. uniform protection of critical risks involved in defined types of work. This initiative was announced in Budget The Government of Malaysia may like to consider 2023, and it would be important to follow through. A mandating insurance provision by digital platforms (through SOCSO or private insurance) for defined and similar approach has been adopted in Indonesia where easily identifiable tasks that involve a high degree a small amount of the tariff for each ride taken through of health and injury risks. While many e-hailing and e-hailing platforms is deducted as a contribution for p-hailing apps already provide insurance to riders, accident insurance for the duration of that specific ride standardizing the level of coverage required for specific (ILO 2018c). 74 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Policy Recommendations Medium (1 to 3 years) • Undertake Regular Assessments of changing employer needs with respect to Informally • Conduct Regular Consultations with Informal employed workers through a Labor Market Employment Stakeholders and the public, for Information System (LMIS), and Employer Skills periodic reviews of Policy. Surveys. While in the short-term we recommend establishing An integrated LMIS combined with employer skills a consultative body of informal employment surveys that also covers key sectors in which informally stakeholders, in the medium- to long-term this employed workers are engaged can be very useful to platform could be used for consultations on policy identify the skills groups that may need better support reform initiatives, and to understand platforms,’ and reinforcement through skills training programs that employers,’ and workers’ concerns and demands. In target informally employed workers. While LMIS and addition, important topics consultations can also be employer surveys typically help devise strategies for opened to the general public to provide a wide range formal jobs, they can also be used to inform policies for of opinions and inputs on important policy decisions. enhancing productivity among the informally employed. For instance, in 2018 and 2019, the UK Government conducted a series of consultations on topics such as the employment status of gig workers, labor market Long-Term (Over 3 years) transparency, agency, and atypical workers, and • In the long term, developing a comprehensive the enforcement of employment rights, following Labor Market Strategy can help balance interests the launch of the independent report, ‘Good Work: and provide a clear direction to coordinate The Taylor Review of Modern Working Practices’ initiatives for supporting informally employed commissioned by the Government.35 workers. • Ensure Granular and Up-to-date Measurement of While the Twelfth Malaysia Plan clearly lays out a vision Informal Employment in Malaysia. for planning and development for the economy as a Existing statistical definitions of informal employment whole, a dedicated and comprehensive labor market are often not sufficient to understand the wide range of strategy — such as the one being developed by the informal employment, comprising, among others, two Ministry of Human Resources — can help harmonize sub-groups among the self-employed (dependent and various objectives and interests for different stakeholder independent contractors), as well as necessary details groups including workers, employers, and platforms. of the production units in which workers work. Such It can provide a more granular assessment of labor- details are necessary to assess the profiles and needs related priorities and provide specific strategic direction of different types of informal workers to design better on an agreed set of objectives to coordinate programs targeted policies. While ongoing efforts by DOSM and initiatives. This can specifically also help outline to deploy and analyze the informal sector survey is the priorities for informally employed workers and the a welcome step in this direction, the measurement informal sector, and coordinate a wide range of policies of informal employment can benefit from continued (for instance, concerning labor demand, minimum refinements and revisions in line with emerging global wages, skills development) to address these priorities. conventions and best practices. For example, the UK National labor and employment strategies have been has a third category for employment status, “worker,” implemented in several jurisdictions and countries, beyond the commonly used classification comprising such as in the European Union (European Employment “employee” and “self-employed;” and the US state of Strategy),37 the United States (US Department of Labor California has developed and applied the ‘ABC Test’36 Strategic Plans),38 and the United Kingdom (UK Labour to determine status in employment. Applications of Market Enforcement Strategy).39 alternate classifications of employment status can be tested in specific jurisdictions or industries before they may be rolled out nationally. 35 A summary of the consultation responses is available here: https://www.gov.uk/government/publications/government-response-to-the-taylor-review-of-modern- working-practices/summary-of-consultation-responses 36 See https://www.labor.ca.gov/employmentstatus/abctest/ for more details 37 https://ec.europa.eu/social/main.jsp?catId=101&intPageId=3427 38 https://www.dol.gov/sites/dolgov/files/legacy-files/budget/2019/FY2018-2022StrategicPlan.pdf 39 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1040317/E02666976_BEIS_UK_Labour_Market_ Enforcement_Strategy_2021-22_Accessible.pdf INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 75 Policy Recommendations • Develop an Integrated Social Protection Strategy Many informal workers are poor as well as out of and System to Enhance Protection among the social protection systems (including both social informally employed workers. assistance and social insurance programs), which Ongoing efforts to finalize the National Social Protection leaves them particularly exposed to risks and without Master Plan can provide the necessary direction for such sufficient access to effective means to cope. Many efforts over a longer time horizon if it can provide the of these workers may not be able to transition into institutional framework to coordinate various social formal work, or cannot be immediately linked to social assistance, social insurance, and active labor market insurance programs. In such cases, it is critical to extend programs, to reduce the exclusion of the informally protection to such workers through social assistance to employed and provide them with the necessary support. ensure the basic minimum standards of living for them An integrated social protection system, underpinned and their dependents. This in turn requires careful by a comprehensive social registry can fill several profiling of informally employed workers, including administrative gaps that result in under-coverage resulting their skills endowments, income profile, income and in the higher vulnerability of informally employed workers. earnings potential, and the ease/difficulty with which The establishment of a well-functioning, comprehensive they may be able to transition to formal employment. social registry that links the Management Information In addition to profiling, the use of effective targeting System (MIS) and databases of social assistance, social systems will be critical for identifying the poorest and insurance, and active labor market programs can help most vulnerable who should be eligible for receiving verify individual and household incomes from all sources social assistance. to determine eligibility for subsidized social insurance The profiling of workers can be done in two stages: contributions, or social assistance (or both), based on a commonly agreed system of targeting to prioritize the • In the first stage, basic profiling can be conducted, poor and vulnerable. An integrated social registry can through collecting information on workers’ also help identify and subsequently reach out to the employment and income characteristics. This can informally employed and encourage them to register be used to target social assistance in the medium- with social insurance programs, and target subsidies for term (between 1 to 3 years). contributions, if required.40 • In the long-term, the profiling of workers should An integrated social protection system can also direct be a core component of Malaysia’s public informally employed workers to ALMPs to enhance employment services. Ideally, social assistance their job search efforts, enable them to apply to a would be linked to labor market outcomes for all wider range of jobs (including more remunerative and workers. also formal jobs) that they may not have access to on their own, and acquire opportunities for better training. In addition to cash-based social assistance, the Finally, integrated social protection delivery can be provision of complementary services including child bolstered by the establishment of One-Stop Shop care and elderly care services, as well as offering care centers (with accessible in-person and digital interface), credits, and enhanced maternity benefits can also which can optimize administrative resources while encourage women from poorer households to seek reducing the burden on applicants and beneficiaries, employment with protection. and the likelihood of their exclusion. B. Enhance Protection by Extending Social Insurance Coverage among the Informally MICRO (Program/ Implementation-Level) Employed A. Enhance Protection by Extending I. Outreach and Intake of Informal Workers into Social Assistance Coverage among the social insurance programs Informally Employed • Piggybacking on Existing Initiatives • Extend Social Assistance and Care Services (Short-term — Up to 1 year) to Targeted Groups of Informally Employed Workers based on Profiling Malaysia is well positioned to benefit from existing (Micro, Medium-term 1 to 3 years) initiatives that provide close access to several target 40 The launch of the e-shram portal in India is a notable example in this regard. The digital portal registers informally employed workers along with their national ID number, after which they are provided with initially subsidized social insurance coverage (Niti Aayog, 2022). 76 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Policy Recommendations groups among informal workers. Initiatives such the outreach to encourage and enable informally employed Farmers’ Family Smart Card (Peladang-i) that has been workers to subscribe to social insurance programs rolled out among farmers is a planned entry point to would require the use of appropriate channels of media provide cardholders with social insurance coverage (including social media), compelling messaging that (Takaful ). It also has the potential to be a conduit for provides information about the features and benefits providing social assistance and other forms of social of social insurance instruments, and details of how insurance. Similar initiatives across departments can to subscribe. The content of messaging should focus be mapped and used to categorically extend social on incentivizing social insurance coverage, through assistance and social insurance coverage. an explanation of direct benefits of the schemes themselves, as well as secondary benefits that may • Use Peer Networks for Outreach accrue, such as easier access to formal credit and (Short-term — Up to 1 year) loans. Messages seeking to incentivize subscription Malaysia is well placed to benefit from several formal and coverage, rather than to penalize non-subscription and informal associations of informal workers, which may often be more attractive. The method through can networks serve as a means for conducting which information is communicated is also critically group-based outreach, enrollment, and continued important. Instead of lengthy technical details on participation in social insurance programs. Target existing initiatives, messages on how workers can groups could include formal associations of informal gain from making social insurance contributions can workers, typically organized by industry (e.g., the be made the central aspect of outreach programs. Malaysian E-Hailing Industry Workers Welfare Undertaking a media habits study (which analyzes Association (PKEH), Gabungan E-Hailing Malaysia, the sources, frequency of access to, and the purpose Terengganu Family Development Foundation (FDF)), for accessing information among a target group) with and informal leaders and associations, typically by informal workers can help identify the right channels for industry and region (e.g., Night Traders’ association outreach for different types of such workers. in Temerloh, informal leaders of hawkers in several cities), Social media (e.g., Facebook pages, WhatsApp • Explore partnerships with Group-based groups), civil society groups, and NGOs. Such networks microinsurance schemes to expand SI coverage can provide a ready platform for outreach and intake. In in the Medium-Term many cases, informal associations charge membership (Medium-term — 1 to 3 years) fees for a variety of purposes, and social insurance Many informally employed workers are already enrolled agencies can explore the possibility of partnering with in group-based microinsurance schemes that offer them to add social insurance contribution fees to the attractive packages of privately provided insurance and membership fees and facilitate workers’ enrollment. In keep costs relatively low by benefitting from group- Rwanda, the government has partnered with worker based enrollment. Among these, several may in turn cooperatives, benefitting from their ability to observe not be covered by social insurance schemes. Partnering and track incomes of informally employed workers, to with private providers of group-based insurance can auto-deduct contributions for social security. help bring informal workers into the fold of protection through private provision initially, and eventually link • Proactive Outreach and Appropriate Content of them with EPF/SOCSO, for instance, by facilitating Messaging, focusing on Incentives access to registration with the social insurance agencies. (Short-term — Up to 1 year) In recent years, Rwanda has successfully leveraged Bringing informally employed workers into the fold group-based enrollment through cooperatives to enroll of social insurance coverage may require proactive workers and auto-deduct contributions from their outreach as these workers are not often easy to reach earnings for social security. using existing databases and programs. Targeted INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 77 Policy Recommendations FIGURE 58 Examples of microinsurance policies Source: https://www.senangpks.com.my/ II. Flexibility and Ease of SI coverage options features can provide options for periodic contributions such that contributions can be made at more regular • Expand access to On-demand and Group-based intervals, or depending upon the frequency of Insurance Schemes (Short-term — Up to 1 year) payments received, rather than monthly, which is standard practice for the formally employed. Some of There is an active market of on-demand and group- these options have been exercised in, for instance by based insurance schemes in Malaysia that can provide the GoGet platform in Malaysia,41 as well as regular greater flexibility of contribution and also coverage mobile money platforms in Kenya. Technology can that is well suited to the specific needs of informally also be creatively deployed to send reminders (in apps employed workers. The government can encourage or using text messages) for continued contributions platforms to publicize such initiatives among workers for social insurance, and to remind recipients of the and offer easy access for subscription to such insurance benefits of coverage. schemes, whether on an individual or group basis (the • Encourage Group-based enrollment and latter can also significantly reduce per capita costs, synchronized contribution options which in turn can enhance uptake). Informal and formal (Short-term — Up to 1 year) associations of workers can also be used to share information on such schemes and ensure take-up. In addition to group-based enrollment using existing networks or associations of informally employed workers, such networks can also be leveraged to • Use of technology to enhance ease of encourage workers to contribute regularly, when they contributions (Short-term — Up to 1 year) are encouraged to do so along with their peer network. Technology can enhance flexibility in the mode and frequency of making social insurance contributions, • Alter the Design of Social Insurance Schemes by which is often a limiting factor for several informally offering greater flexibility that is suited to the employed workers. For instance, for those who work needs of Informally employed workers through digital platforms that use apps, inbuilt app (Long-term — Over 3 years) 41 Together with EPF, GoGet have introduced a “contribute as you earn” model, through which workers on GoGet have the option of contributing a share of their earnings from every job through automatic deductions. Workers have the option to opt-in to the EPF program, through which they will start contributing a self- determined percentage of up to 30 percent of their earnings from jobs conducted through the app, into their EPF account. 78 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Policy Recommendations Allowing greater flexibility in the options to contribute contributions on their own. There is a clear rationale for SI coverage, with respect to frequency, duration for targeted, time-bound subsidy for contributions for of coverage, and types of benefits can potentially some groups of informally employed workers, while enhance take-up. SI schemes can benefit from some balancing such support with financial sustainability of the innovations in the private sector by studying considerations for EPF and SOCSO. This underlines alternate models (such as on-demand insurance) and the need for subsidized payments for clearly defined attempting to offer a more diverse and differentiated categories of workers, potentially by industry, but based range of products. Enhancing the flexibility of on their assessed contributory capacity, which should contribution and enrollment options can specifically be subject to periodic verification. Given the relatively tap into segments of the informal workforce that have low female labor force participation rate in Malaysia, the ability to contribute for social insurance coverage the Government may wish to consider a higher level of but does not find the existing structures and rules of subsidy for women from poorer households in informal SI instruments suitable to their needs, as has been employment to encourage the take-up of employment experienced in Mexico.42 Altered design will require with protection. fresh outreach and communication so that existing and target beneficiaries are aware of the new features of The use of integrated social registries that can verify social insurance programs. earnings of individuals, as well as their receipts of social assistance, can help automate the determination of eligibility for subsidized contributions. For platform III. Nudges for Social Insurance registration and workers, the earnings generated through the platforms Contribution can itself be used to determine eligibility for subsidized SI contributions (for those earning below a defined • Explore the feasibility of Default Options for threshold to qualify for subsidized contribution, verified EPF contributions and easier social insurance by EPF/SOCSO registration). Efforts to target subsidized registration (Short-term — Up to 1 year) payments and matching contributions should be piloted EPF may consider partnering with some of the larger first and scaled-up accordingly to balance the need for digital platforms that provide earning opportunities support with financial responsibility. On the latter, the to workers to pilot default options for social insurance World Bank’s Scheme Viability Assessment Tool (SVAT)43 contributions such that contributions are automatically can help assess the financial viability of particular social deducted from workers’ earnings, but workers have the insurances schemes for the informally employed. possibility to opt-out if they so choose. This is similar to EPF’s current collaboration with GoGet. Default options This may be particularly challenging in Malaysia, as have been known to increase the uptake of social social protection spending trails aspirational peers insurance across countries, globally. Another option (World Bank 2020a). On the one hand, this may require could be to facilitate easy access to registration (even greater revenue collection, while on the other, it can if not contribution) with EPF/SOCSO at the time when be supported through savings from more streamlined workers sign up for private insurance instruments, by spending across sectors that reduce duplication and partnering with private insurance providers. administrative costs. IV. Subsidized Contributions for Targeted Groups V. Expand the role of Voluntary Savings Schemes of Informal Workers • Expand the Role of Voluntary Savings Schemes • Identify workers who may need subsidized (Medium-term — 1 to 3 years) contributions for social insurance coverage; pilot, Private voluntary savings schemes account for around evaluate and scale up subsidized payments to 20 percent of retirement income in OECD countries identified groups (Medium-term — 1 to 3 years) (OECD 2019). These can serve as a useful complement As informal employment is strongly correlated with to formal retirement income schemes run by the EPF, poverty status, many informally employed workers and can be encouraged through greater awareness- may not be able to afford regular social insurance raising, among the general public, as well as among 42 See Rother et al. (2022) for more details on flexible contribution options in partnership with the private sector in Mexico. 43 The Scheme Viability Assessment Tool (SVAT) was developed by the World Bank Social Protection and Jobs Team in collaboration with World Bank Treasury Pension Department to assess the viability of long-term voluntary schemes for the informal sector. The tool can be used to assess viability of an existing scheme as well as provide guidance for policy makers where such a scheme is considered. The SVAT has so far been applied in the case of the Ejo Heza program in Rwanda, and in Benin. INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 79 Policy Recommendations associations of informal workers, and digital platforms instruments, their offerings, and how to access them. as well. Voluntary savings schemes, whether private or This can also be complemented by basic modules on public, can provide retirement income, offer buffers financial literacy, savings behavior and industry-specific to draw on in case of unemployment or other shocks, occupational safety and health. This can be an effective provide an entry point to reach out to informally way of both, widening social insurance outreach to employed workers, and encourage them to register informal workers, and ensuring they have basic training with social insurance agencies, to eventually extend the which can provide them protection against risks and coverage of social insurance among them as well. improve their productivity on the job. • Ensure Relevant, Up-to-Date Curriculum for the C. Enhance Productivity of the Informally needs for Informally employed workers Employed through Skills Training (Medium-term — 1 to 3 years) • Encourage the Role of Employer/Client-provided While Malaysia has a strong presence and network Training, while noting its limitations of training institutes and centers across the country, (Short-term — Up to 1 year) their functioning can be further enhanced to meet the requirements of those in informal employment. Recent experience suggests that digital platforms can Specifically, this entails focusing on sectors and provide workers with access to training opportunities industries dominated by informal employment, and (e.g., Grab Malaysia providing financial management reviewing (for subsequent enhancement) their curricula and digital literacy training to drivers) to platform to ensure relevance to the needs of industry. In addition workers. As such provision gains popularity, other to traditional industry partners, which represent future platforms may be encouraged to provide similar employers of trainees, the curriculum should be designed opportunities for on-the-job training and skills based also on the inputs received from informal sector development. The Government can publicly recognize employers and platforms, as these may be different such initiatives to encourage their adoption by other from the competencies sought by formal employers. platforms. However, in many cases training provided Moreover, all skills training should ensure a sufficient by employers or platforms themselves may be firm/ quality of instruction for key 21st century skills including platform-specific, which underlines the need for digital skills. Skills programs may also need to pivot providing broader access to skills training through towards: (i) more applied components (rather than purely public or private training programs that are open to classroom-based instruction, through apprenticeships, informally employed workers, and which enhances their industry placements etc.), and (ii) on-the-job and lifelong skills as well as job mobility to pursue higher skilled, learning models as those in informal employment are more remunerative, or even formal employment. likely to seek training while they continue to work, and at • Enhance the existing SIP EMP+ program targeted different stages of their work lives. to informal workers by including a training • Tailor Active Labor Market Programs to Enhance component, and expand it to include those who Skills (Medium-term — 1 to 3 years) are contributing to the Self Employment Social Security Scheme (SESSS) Existing Active Labor Market Programs in Malaysia can (Short-term — Up to 1 year) also contribute immensely to enhancing the skills of the informally employed workers. This can be done by While the SIP EMP+ currently provides a job search offering modular skills training, referrals, and information allowance, a work preparation allowance as well as a on training providers through public (e.g., HRDCorp’s career counsellor for beneficiaries, the program could e-Latih platform for MOOCs, UpskillMalaysia) or private be enhanced by including a skills training component to training providers. Globally, evidence suggests that equip individuals for the workplace; for example, digital small, and well-targeted training programs may often skills and communication skills. This training component be as impactful as larger classroom-based training could also include those who are contributing to the for informally employed workers, especially when it is SESSS (i.e., the wider group of informally employed delivered in a format that is tailored to the requirements workers) as they are currently exempt from the SIP EMP+. of the target audience (with respect to their digital • Enhance the content of Skills Training programs literacy and connectivity, and ability to participate in to include social insurance awareness and related classroom-based instruction). content (Medium-term — 1 to 3 years) • Use post-training Monitoring and Evaluation to Ongoing skills training programs, whether offered by Calibrate Skills Training Curriculum (Medium-term public or private providers can be enhanced to include —1 to 3 years) modules to improve the awareness of social insurance 80 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Policy Recommendations Enshrining a culture of conducting post-training studies should be conducted with the trainees as well as monitoring and evaluation through tracer studies, or their employers to enable a well-rounded assessment more rigorous impact evaluation studies can provide of the training programs and inform the need for any useful feedback on the relevance and usefulness of adjustments. different components of training programs. Such 4.2 Operationalizing recommendations: An action plan for informal employment in Malaysia In this section we propose how the policy the policy recommendations, against the key actor(s) recommendations proposed can be realized and responsible for such actions. We list steps to extend outline a proposed role for different agencies to lead or social insurance coverage, extend social assistance, support these actions. Table 8 below lists some of the and enhance the skills of informally employed workers. key steps that may need to be taken to operationalize TABLE 8 Proposed Action Plan for Strengthening Protection and Productivity of Informally Employed Workers: Actions and Proposed Agencies Pvt Platforms/ Workers Other GoM EPF SOCSO MDEC HRDCorp Insurance Pvt. Sector Associations Agencies Agencies Cross-Cutting / Foundational Actions Identify existing programs/schemes that can be leveraged to work  with informal workers Identify clusters/groups of Informal Workers by Sector for targeted  outreach Identify existing associations (and leaders) NGOs, of Informal Workers, incl.    CSOs on social media Create consultative bodies MPC, with key stakeholders of informal workers by       NGOs, CSOs sector/type/region Establish norms for regular convening of consultative bodies by sector/scale/       region Map existing skills training and financial literacy programs administered by different agencies for  informal workers Identify high-risk occupations/tasks and list which platforms workers in      such tasks work for INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 81 Policy Recommendations Pvt Platforms/ Workers Other GoM EPF SOCSO MDEC HRDCorp Insurance Pvt. Sector Associations Agencies Agencies Extending Social Insurance Coverage to Informally Employed Workers Undertake study of media habits, identify effective contact points and media      to reach target workers Develop effective Information and Comms. Content for increasing awareness, subscription     options Work with peer networks and informal associations NGOs, of informal workers to disseminate information    CSOs and facilitate uptake of SI Identify and partner with local stakeholders for continued outreach    Ensure Information on SI schemes, OHS, and savings behavior in TVET/     skills training curricula Redesign SI schemes to offer a diversified product range and different    contribution options Mandate EPF/ SOCSO registration as requirement for private   insurance subscription Set earnings threshold for mandatory contribution to EPF/ SOCSO for platforms with in-built payment  features Develop and implement features for direct contributions from earnings above established threshold,  provide option for voluntary contributions Direct platforms to contribute towards injury insurance for high-risk   occupations/tasks Map and share information on private insurance schemes (individual or group) that informal workers can subscribe to    with platforms, workers’ associations Identify and offer group- based microinsurance schemes for informal    workers Assess contributory capacity of informal workers by sector/activity  Develop subsidy scheme for specific sectors based on assessments of    contributory capacity 82 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Policy Recommendations Pvt Platforms/ Workers Other GoM EPF SOCSO MDEC HRDCorp Insurance Pvt. Sector Associations Agencies Agencies Add SI contributions to membership fees of associations and facilitate registration of workers    with SI schemes Leverage platforms to send reminders on NGOs, benefits of SI contribution,   CSOs means to contribute Direct platforms/apps to ensure default SI contribution options in    payment features Extending Social Assistance to Informally Employed Workers Undertake analysis of informal worker profiles to identify the poor (eligible for subsidized SI coverage  and/or SA) Develop an integrated national social registry using ind./ HH level IDs  and information Facilitate workers’ registration with national social registry for assessment of eligibility   and payment of SA Integrate SA and ALMPs to provide cross-referrals  Establish One-Stop Shop for common access to SA/ SI/ ALMP programs    Enhancing Skills of Informal Workers Undertake regular assessments of employer needs, skills demand   Review curriculum of TVET/ Public and Pvt TVET/ Skills Skills Training programs for informal worker  Training centers occupations Seek industry input on relevance and quality of curriculum    MPC Establish process to TVET/ enhance and update Skills training curriculum in response to emerging   Training centers priorities/needs TVET/ Identify need for and Skills set up in-job training programs, including TVET    Training centers Undertake tracer studies, TVET/ impact evaluation Skills to calibrate training   Training programs centers (Re)design ALMPs to provide modular skills training, referrals to  private training programs Ensure Information on TVET/ SI schemes, OHS, and Skills savings behavior in skills  Training training, TVET curricula centers  Lead role  Supporting role INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 83 Policy Recommendations References Abdur Rahman, Amanina and Achim Schmillen (2020). From Farms to Factories and Firms: Structural Transformation and Labor Productivity Growth in Malaysia. World Bank Policy Research Working Paper No. 9463. Abdur Rahman, Amanina, Alyssa Farha Jasmin and Achim Schmillen (forthcoming). The Vulnerability of Jobs to Mobility Restrictions: Malaysia’s Experience during the COVID-19 Pandemic. Journal of Southeast Asian Economies, 39(3). Aksoy, Cevat Giray, Jose Maria Barrero, Nicholas Bloom, Steven J. Davis, Mathias Dolls and Pablo Zarate (2022). Working from Home Around the World. NBER Working Paper No. 30446. Fatimah Zainal and Ragananthini Vethasalam (2022). RM1mil needed for retirement. Accessed from: https://www. thestar.com.my/news/nation/2022/09/23/rm1mil-needed-for-retirement Frost & Sullivan (2020). A Study on the Impact of the eRezeki Programme to Targeted Communities in Malaysia. Malaysia: Frost & Sullivan. 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India’s Booming Gig and Platform Economy: Perspectives and Recommendations on the Future of Work. June 2022. Retrieved online at: https://www.niti.gov.in/sites/default/files/2022-06/25th_June_Final_ Report_27062022.pdf OECD/International Labour Organization (2019), “Definitions of informal economy, informal sector and informal employment”, in Tackling Vulnerability in the Informal Economy. OECD Publishing, Paris. https://doi. org/10.1787/103bf23e-en Rother, Friederike, Carole Chartouni, Javier Sanchez-Reaza, Ernesto Brodersohn, and Montserrat Pallares-Miralles (2022). Voluntary Savings Schemes to Protect Informal Workers in Jordan. Washington, DC: World Bank. Silva, Joana, Michael Weber and Kevwe Pela (2022). What we’re reading about employment in times of multiple crises. Accessed from: https://blogs.worldbank.org/jobs/what-were-reading-about-employment-times-multiple- crises Tan, Tarrence and Gerard Gimino (2022). P-hailing riders will not need GDL, PSV licence, says Dr Wee. 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High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households World Bank (2022b). Catching Up: Inclusive Recovery & Growth for Lagging States. Washington, DC: World Bank. Zurich Insurance Group (2020). Zurich-University of Oxford Agile Workforce Study: Gig Economy Rises in Malaysia, Income Protection Lags. Accessed from: https://www.zurich.com.my/en/about-zurich/zurich-in-the- news/2020/2020-01-16 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 85 Annex Annex 1: Description of data sources and details of analyses Analysis of administrative data Administrative data was obtained from various Hence, this data provides insight on the progress government agencies to better understand the of EPF and the government’s efforts to ensure informal employment landscape. The various data coverage of informally employed workers. It also received and analyzed are as follows: provides the context for policy recommendations on increasing coverage. This data has been 1. Data on eRezeki and GLOW PENJANA presented in Section 2.5.2. workers from MDEC. This contains data on the sociodemographic profiles of the workers 3. Data on SOCSO SESSS and SPS Lindung (including gender, age group, and education subscribers. Following the definition of informal level), as well as their work preferences. For the employment presented in Section 2.6, subscribers GLOW PENJANA workers, it also includes data on of SOCSO are formally employed workers. Hence, earnings from gig work. The data on eRezeki is this data provides insight on the progress of for the years 2016 to 2021, while data on GLOW SOCSO and the government’s efforts to ensure PENJANA workers is for the year 2021. coverage of informally employed workers. It also provides the context for policy recommendations 2. Data on EPF members. Following the definition on increasing coverage. This data has been of informal employment presented in Section 2.6, presented in Section 2.5.3. EPF members are formally employed workers. Analysis of survey of freelancers As part of understanding different types of informal workers as well as their preferences on work workers in Malaysia, an internet survey on digital characteristics and willingness to pay for social freelancers and gig workers was conducted. The insurance: (i) respondents’ demographic background, World Bank team partnered with MDEC to tap into which asks details on age, gender, schooling and their network of digital freelancers via their GLOW marital status; (ii) employment characteristics, which participants (see Section 2.5.5). Additionally, the asks details on respondents’ current employment such World Bank team partnered with Ipsos, a survey firm, as their status in employment, occupation, duration of to gather respondents from their online panel of employment, weekly pay, social security coverage, and freelancers as well as standard employees. The data other occupations if they are working more than one collection period is February 2022 to May 2022. In job; (iii) an experimental section on choosing between total, the sample consisted of 1,038 freelancers and gig two hypothetical jobs; and lastly (iv) preferred work economy workers (subsequently referred to collectively characteristics, which asks respondents’ preferences on as ‘freelancers’) as well as 300 workers in standard different aspects of work characteristics using a 5-point employment for comparison. The data was collected Likert scale from “Very Important” to “Not important.” through an online survey administered by Ipsos. Some examples of work characteristics include earning good money, the ability to work in international The online survey questionnaire is divided into four settings/teams, insurance coverage for workplace parts to understand the profile of non-standard injuries, and pension income upon retirement. Analysis of focus group discussions and key informant interviews To complement quantitative findings, qualitative agricultural laborers, location-based workers, care methods in the form of focus group discussions workers and hawkers/street vendors. In partnership with (FGDs) and key informant interviews (KIIs) were researchers from Universiti Teknologi MARA (UiTM), also conducted to further understand a broader the study interviewed 109 respondents from different set of informal workers across four sectors, namely parts of Malaysia — Klang Valley (Kuala Lumpur and 86 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Annex Selangor), Kelantan, Terengganu, Pahang and Sabah — FGDs and KIIs were conducted physically. The FGDs to ensure diversity in the pool of respondents. FGDs and KIIs included discussions on participants’ work were conducted with workers with EPF/SOCSO (n=72) life history, issues pertaining to informal employment, and workers without (n=35). KIIs were carried out with perception of formal employment, and changes in their association or group leaders (n=7) of each sector as current employment that they would like to see. The they represent the wider community of informal or data collection period is February 2022 to April 2022. non-standard workers. To the extent possible, the Analysis of informally employed workers during the COVID-19 pandemic The study also utilized data from the World Bank’s conducted, in May to June 2021 (Round 1); October to High Frequency Phone Survey (HiFy), which is a November 2021 (Round 2); and April to May 2022 (Round periodic, household monitoring survey to provide 3). The sample has also been appropriately weighted, timely and granular information on how the COVID-19 consistent with the official statistics projection from pandemic is affecting the well-being of Malaysian the Department of Statistics Malaysia (DOSM) to be households and individuals. Particularly, the interviews nationally representative. For this analysis, comparisons asked about employment and income, household between formal and informally employed workers concerns and food security, household coping were made, where informally employed workers were strategies, access to internet, education and health defined as those with no contribution towards EPF or services, as well as satisfaction with government’s SOCSO from their employer. COVID-19 response. Three rounds of interviews were INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 87 Annex Annex 2: Basic characteristics of different categories of informally employed workers (excluding agriculture workers), 2019   Formally employed workers Informally employed workers Own Own Unpaid Employers Employees account Total Employers Employees account family Total   workers workers workers Average age 45.9 37.4 42.2 37.5 47.0 37.6 44.2 36.0 41.5 Gender (share of workers, %) Male 74.5 60.1 79.1 60.2 85.6 68.1 65.9 34.6 66.7 Female 25.5 39.9 20.9 39.8 14.4 31.9 34.1 65.4 33.3 Total 100 100 100 100 100 100 100 100 100 Age group (share of workers, %) 15-24 11.4 1.5 11.4 0.9 19.1 3.5 26.9 10.4 25-34 21.2 32.5 27.5 32.5 11.8 27.0 19.4 24.2 21.9 35-44 6.3 28.2 31.6 28.2 25.6 22.1 25.6 18.1 23.9 45-54 52.9 20.3 26.1 20.4 35.2 18.5 30.3 18.1 25.6 55-64 19.6 7.6 13.4 7.6 26.5 13.3 21.2 12.6 18.2 Total 100 100 100 100 100 100 100 100 100 Education level (share of workers, %) No formal 0.3 0.6 0.3 0.4 2.1 1.5 1.2 1.6 education Primary 19.0 9.2 18.2 9.2 20.1 29.3 24.5 22.7 25.9 Secondary 40.6 41.9 42.7 41.9 42.4 53.5 51.9 58.8 52.1 Post-secondary 2.1 4.7 7.6 4.7 4.4 3.7 4.7 4.9 4.3 Tertiary 38.4 43.9 30.8 43.9 32.8 11.4 17.4 12.3 16.1 Total  100 100 100 100 100 100 100 100 100 % of respective sample 0.05 99.85 0.1 7.05 38.96 48.07 5.92 Source: World Bank staff calculations based on data from Household Income Survey 2019 (DOSM) 88 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Annex Annex 3: Rate of informal employment (excluding agriculture workers) by state, 2009 – 2019 State 2009 2012 2014 2016 2019 Kelantan 59.8 62.1 57.9 57.2 56.1 Terengganu 48.3 48.3 50.0 47.1 46.5 Perlis 44.9 43.9 49.1 47.5 45.6 Pahang 34.2 34.4 36.1 36.1 36.4 Kedah 42.7 42.3 39.2 37.4 33.1 Perak 38.8 42.6 34.1 35.8 33.0 Johor 34.0 36.9 34.1 34.5 31.2 Sabah 37.5 32.8 31.6 30.7 29.1 Negeri Sembilan 35.0 34.7 30.8 29.4 25.8 Sarawak 36.3 33.9 26.0 24.3 25.3 Melaka 30.9 25.1 29.3 24.4 24.7 P. Pinang 33.0 28.9 27.2 22.6 20.3 Selangor 21.4 22.5 22.9 20.5 17.1 WP. KL 15.8 21.1 19.1 19.1 15.6 WP. Labuan 23.1 16.9 17.9 14.3 11.5 WP. Putrajaya 8.2 4.4 5.0 4.2 7.2 Source: World Bank staff calculations based on data from Household Income Survey (DOSM), ILOSTAT and ILO (2018). INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 89 Annex Annex 4: Probit regression on the likelihood of being informally employed (2009 - 2019), marginal effects Dependent variable: Informal employment dummy Exc. unpaid Whole sample Exc. agriculture Employees only (1 if person is informally employed, family workers 0 if person is formally employed) Male -0.005*** -0.007*** 0.004** 0.009*** (0.001) (0.001) (0.002) (0.001) Age -0.012*** -0.012*** -0.015*** -0.009*** (0.000) (0.000) (0.000) (0.000) Age squared 0.000*** 0.000*** 0.000*** 0.000*** (0.000) (0.000) (0.000) (0.000) Married -0.025*** -0.018*** -0.043*** -0.026*** (0.002) (0.002) (0.002) (0.002) Chinese (ref: Bumiputera) 0.091*** 0.101*** 0.039*** 0.083*** (0.002) (0.002) (0.002) (0.002) Indian (ref: Bumiputera) -0.029*** -0.007* -0.007* -0.030*** (0.003) (0.003) (0.003) (0.003) Others (ref: Bumiputera) 0.068*** 0.109*** 0.080*** 0.068*** (0.007) (0.008) (0.009) (0.007) Agriculture (ref: Services) 0.282*** 0.041*** 0.264*** (0.003) (0.003) (0.003) Mining (ref: Services) -0.177*** -0.170*** -0.094*** -0.166*** (0.006) (0.006) (0.006) (0.006) Manufacturing (ref: Services) -0.111*** -0.107*** -0.111*** -0.105*** (0.002) (0.002) (0.002) (0.002) Construction (ref: Services) 0.174*** 0.174*** 0.158*** 0.180*** (0.003) (0.003) (0.003) (0.003) High skilled (ref: Low skilled) -0.050*** -0.067*** -0.133*** -0.050*** (0.003) (0.003) (0.003) (0.003) Mid skilled (ref: Low skilled) 0.060*** 0.040*** -0.064*** 0.052*** (0.002) (0.002) (0.003) (0.002) No education (ref: primary educ) 0.103*** 0.111*** 0.078*** 0.103*** (0.006) (0.007) (0.007) (0.006) Completed secondary (ref: primary educ) -0.101*** -0.105*** -0.086*** -0.102*** (0.002) (0.002) (0.002) (0.002) Completed post-secondary -0.161*** -0.164*** -0.128*** -0.162*** (ref: primary educ) (0.003) (0.004) (0.004) (0.003) Completed tertiary (ref: primary educ) -0.213*** -0.220*** -0.155*** -0.212*** (0.003) (0.003) (0.003) (0.003) Urban -0.033*** -0.036*** -0.026*** -0.031*** (0.002) (0.002) (0.002) (0.002) 90 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Annex 1st income quintile (ref: 3rd IQ) 0.197*** 0.186*** 0.152*** 0.196*** (0.003) (0.003) (0.003) (0.003) 2nd income quintile (ref: 3rd IQ) 0.060*** 0.058*** 0.048*** 0.059*** (0.002) (0.002) (0.002) (0.002) 4th income quintile (ref: 3rd IQ) -0.035*** -0.034*** -0.023*** -0.035*** (0.002) (0.002) (0.002) (0.002) 5th income quintile (ref: 3rd IQ) -0.031*** -0.026*** -0.019*** -0.030*** (0.002) (0.002) (0.003) (0.002) GDP growth -0.005*** -0.005*** -0.016*** -0.006*** (0.000) (0.000) (0.000) (0.000) Kedah (ref: Johor) 0.024*** 0.014*** -0.030*** 0.022*** (0.003) (0.004) (0.004) (0.003) Kelantan (ref: Johor) 0.121*** 0.138*** 0.139*** 0.110*** (0.004) (0.004) (0.005) (0.004) Melaka (ref: Johor) -0.055*** -0.060*** -0.113*** -0.062*** (0.004) (0.005) (0.005) (0.004) Negeri Sembilan (ref: Johor) -0.037*** -0.041*** -0.115*** -0.041*** (0.004) (0.005) (0.005) (0.004) Pahang (ref: Johor) -0.002 -0.005 -0.035*** -0.008* (0.004) (0.004) (0.005) (0.004) Pulau Pinang (ref: Johor) -0.068*** -0.078*** -0.093*** -0.069*** (0.003) (0.004) (0.004) (0.003) Perak (ref: Johor) -0.026*** -0.026*** -0.054*** -0.029*** (0.003) (0.004) (0.004) (0.003) Perlis (ref: Johor) 0.079*** 0.075*** 0.103*** 0.079*** (0.005) (0.006) (0.008) (0.005) Selangor (ref: Johor) -0.055*** -0.063*** -0.139*** -0.056*** (0.003) (0.003) (0.004) (0.003) Terengganu (ref: Johor) 0.084*** 0.097*** 0.058*** 0.082*** (0.004) (0.004) (0.005) (0.004) Sabah (ref: Johor) -0.072*** -0.073*** -0.132*** -0.084*** (0.003) (0.003) (0.004) (0.003) Sarawak (ref: Johor) -0.115*** -0.124*** -0.143*** -0.131*** (0.003) (0.003) (0.003) (0.003) Kuala Lumpur (ref: Johor) -0.085*** -0.095*** -0.211*** -0.087*** (0.004) (0.004) (0.004) (0.004) WP Labuan (ref: Johor) -0.160*** -0.168*** -0.230*** -0.169*** (0.006) (0.006) (0.006) (0.006) WP Putrajaya (ref: Johor) -0.170*** -0.177*** -0.091*** -0.169*** (0.009) (0.008) (0.020) (0.009) Observations 510,132 448,419 304,097 495,200 Year dummies Yes Yes Yes Yes State dummies Yes Yes Yes Yes Pseudo R-squared 0.2595 0.1866 0.2353 0.2524 Notes: Standard errors are clustered at the household level. *** p<0.001, ** p<0.01, * p<0.05 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 91 Annex Annex 5: Probit regression on the likelihood of an informally employed worker having a high-skilled occupation (2009 - 2019), marginal effects Dependent variable: High-skilled occupation dummy (1 if person is employed in high-skilled occupation, 0 if in mid/low-skilled) Male 0.025*** (0.001) Age 0.004*** (0.000) Age squared -0.000*** (0.000) Married 0.021*** (0.002) Chinese (ref: Bumiputera) 0.027*** (0.002) Indian (ref: Bumiputera) 0.025*** (0.003) Others (ref: Bumiputera) -0.009 (0.006) Agriculture (ref: Services) -0.115*** (0.002) Mining (ref: Services) 0.070*** (0.015) Manufacturing (ref: Services) -0.032*** (0.002) Construction (ref: Services) -0.010*** (0.002) No education (ref: primary educ) -0.015*** (0.004) Completed secondary (ref: primary educ) 0.047*** (0.001) Completed post-secondary (ref: primary educ) 0.104*** (0.004) Completed tertiary (ref: primary educ) 0.222*** (0.004) Urban 0.011*** (0.002) 1st income quintile (ref: 3rd IQ) -0.042*** (0.002) 2 income quintile (ref: 3 IQ) nd rd -0.023*** (0.002) 4 income quintile (ref: 3 IQ) th rd 0.024*** (0.002) 92 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Annex 5th income quintile (ref: 3rd IQ) 0.094*** (0.003) Employers (ref: Unpaid family workers) 0.315*** (0.005) Employees (ref: Unpaid family workers) 0.035*** (0.003) Own-account workers (ref: Unpaid family workers) 0.054*** (0.003) Kedah (ref: Johor) -0.021*** (0.003) Kelantan (ref: Johor) -0.037*** (0.003) Melaka (ref: Johor) -0.005 (0.004) Negeri Sembilan (ref: Johor) 0.002 (0.004) Pahang (ref: Johor) -0.048*** (0.003) Pulau Pinang (ref: Johor) 0.015*** (0.003) Perak (ref: Johor) 0.002 (0.003) Perlis (ref: Johor) 0.020*** (0.005) Selangor (ref: Johor) 0.036*** (0.003) Terengganu (ref: Johor) -0.022*** (0.003) Sabah (ref: Johor) 0.038*** (0.003) Sarawak (ref: Johor) -0.009*** (0.003) Kuala Lumpur (ref: Johor) -0.026*** (0.003) WP Labuan (ref: Johor) 0.038*** (0.009) WP Putrajaya (ref: Johor) 0.010 (0.014) Observations 193,685 Year dummies Yes State dummies Yes Pseudo R-squared 0.3510 Notes: Standard errors are clustered at the household level. *** p<0.001, ** p<0.01, * p<0.05 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 93 Annex Annex 6: Tobit regression for the correlates of hourly wages TABLE 9 Correlates of Hourly Wages: Tobit regression, log hourly wages1, ll ln_minwage_h1 (ln_minwage_h1=ln (minwage_h +1) for hourly wages)    (1)  (2)  (3)  (4)  (5)  VARIABLES  All informal  Private Private Own-account All informal w/o employers  employees  workers  UFW  Male  0.559***  0.207***  0.293***  0.486***  0.433***    (0.004)  (0.021)  (0.004)  (0.005)  (0.004)  Age  0.076***  0.034***  0.047***  0.053***  0.064***    (0.001)  (0.006)  (0.001)  (0.001)  (0.001)  Age squared  -0.001***  -0.000***  -0.001***  -0.001***  -0.001***    (0.000)  (0.000)  (0.000)  (0.000)  (0.000)  Married  0.191***  0.116***  0.174***  0.122***  0.202***    (0.004)  (0.022)  (0.004)  (0.006)  (0.004)  Primary education 0.124***  0.241***  0.063***  0.100***  0.101***  (ref: no education)    (0.009)  (0.066)  (0.012)  (0.011)  (0.009)  Secondary education 0.309***  0.396***  0.209***  0.265***  0.305***  (ref: no education)    (0.009)  (0.066)  (0.012)  (0.011)  (0.009)  Post-secondary education 0.416***  0.446***  0.288***  0.365***  0.419***  (ref: no education)    (0.013)  (0.074)  (0.016)  (0.017)  (0.012)  Tertiary education 0.803***  0.740***  0.643***  0.659***  0.798***  (ref: no education)    (0.011)  (0.067)  (0.013)  (0.013)  (0.010)  Urban  0.101***  0.129***  0.108***  0.062***  0.095***    (0.004)  (0.019)  (0.004)  (0.005)  (0.004)  Mining (ref: Agriculture)  0.606***  0.559***  0.672***  0.483***  0.491***    (0.032)  (0.161)  (0.024)  (0.094)  (0.029)  Manufacturing (ref: Agriculture)  0.235***  0.233***  0.219***  0.117***  0.129***    (0.007)  (0.035)  (0.008)  (0.009)  (0.006)  Construction (ref: Agriculture)  0.232***  0.300***  0.202***  0.324***  0.136***    (0.006)  (0.031)  (0.007)  (0.010)  (0.005)  94 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Annex Services (ref: Agriculture)  0.270***  0.249***  0.132***  0.309***  0.195***    (0.005)  (0.027)  (0.007)  (0.006)  (0.004)  Chinese (Ref: Bumiputera)  0.299***  0.222***  0.291***  0.329***  0.358***    (0.005)  (0.016)  (0.005)  (0.006)  (0.004)  Indian (Ref: Bumiputera)  0.031***  0.135***  0.099***  -0.015  0.052***    (0.008)  (0.031)  (0.008)  (0.012)  (0.008)  Others (Ref: Bumiputera)  0.038**  0.049  -0.009  0.077***  0.032*    (0.014)  (0.066)  (0.015)  (0.019)  (0.013)    (0.045)  (0.182)  (0.056)  (0.054)  (0.042)  Observations  192,170  9,636  71,694  97,433  178,763  Year dummies  Yes  Yes  Yes  Yes  Yes  State dummies  Yes  Yes  Yes  Yes  Yes  Standard errors in parentheses  *** p<0.001, ** p<0.01, * p<0.05  INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 95 Annex Annex 7: Profiles of informally employed workers in the survey of freelancers and qualitative study Freelancers The sample of freelancers consists of mainly GLOW the 25 to 34 age group, followed by 29.8 percent in members from MDEC, with 57 percent of total the 35 to 44 age group (Figure 61). In terms of age- freelancers, and 43 percent gig workers (Figure 60). group breakdown by gender, it can be seen in Figure The sample is almost gender-balanced, with slightly 62 that there are more female respondents than male more men than women (Figure 59). Freelancers are respondents at younger ages. also mostly young individuals, with 40.6 percent in FIGURE 59 FIGURE 60 Share of respondents by gender Share of respondents by respondent type Gig Female workers 45.3% 43.0% GLOW Male Penjana 54.7% 54.8% Other GLOW 2.2% Source: World Bank survey of freelancers Source: World Bank survey of freelancers FIGURE 61 FIGURE 62 Share of respondents by age group Share of respondents by age group and gender 55-64 >64 15-24 60 Share of respondents (%) 4.5% 1.1% 10.8% 45-54 13.2% 40 20 25-34 35-44 40.6% 0 29.8% 15-24 25-34 35-44 45-54 55-64 >64 Female Male Source: World Bank survey of freelancers Source: World Bank survey of freelancers Most respondents reside in Klang Valley and have females (49.6 percent) and lower for males (36.1 percent). tertiary education. 47.1 percent of freelancers comprise Compared with the national labor force, the sample of of respondents from Selangor and Kuala Lumpur (see freelancers is relatively more educated as only 10.6 percent Figure 63). In terms of education levels, Figure 64 illustrates of the total labor force holds a degree or equivalent in that a high percentage of respondents have a Bachelor’s 2020, whereby most individuals in the national labor force degree or equivalent at 42.2 percent, where it is higher for have secondary education, at 44.8 percent. 96 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Annex FIGURE 63 Share of respondents by state 40 Share of respondents (%) 20 0 Sabah Kedah Penang Kelantan Terengganu Perak Melaka Sarawak Negeri Sembilan Pahang Perlis Putrajaya Labuan Selangor Kuala Lumpur Johor Source: World Bank survey of freelancers FIGURE 64 Share of respondents by education level and gender Share of respondents (%) 60 42.2 40 20.1 20 15.1 9.2 4.7 3.9 2.9 1 0.9 0 equivalent Diploma or equivalent Secondary education equivalent Professional equivalent Post-secondary education Primary education equivalent vocational certi cation Bachelor's degree or Master's degree or certi cation or Doctorate or TVET/ other Total Female Male Source: World Bank survey of freelancers Freelancers are a diverse group that have occupations distributed across gender for certain occupations, ranging from high-skilled digital work to lower-skilled particularly Drivers and Riders, where this is a male- digitally enabled tasks. Specifically, 17 percent of the dominated occupation, and females tend to have freelancers in the sample are Graphics and Multimedia higher shares in Copywriting occupations, as well as Designers, followed by Copywriters, Translators and Data Entry and Adverting and Marketing Professionals Editors at 13 percent, and Drivers and Riders at 12 (Figure 66). percent (Figure 65). However, the shares are not evenly INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 97 Annex FIGURE 65 FIGURE 66 Share of freelancers by occupation titles Share of freelancers by selected occupation titles, by gender Graphics and Graphics and Multimedia Multimedia Designers Designers Copywriters, Translators and Editors 17% Drivers and Riders Others 33% Copywriters, Data Entry Clerks 13% Translators and Editors ICT Professionals Advertising and Marketing Elementary 3% Professionals 12% Workers 6% Drivers Elementary Workers 8% and Riders Advertising 8% and Marketing 0 10 20 30 Professionals ICT Data Entry Share of freelancers (%) Professionals Clerks Total Female Male Source: World Bank survey of freelancers Source: World Bank survey of freelancers Freelancers are more likely to work other jobs is common across younger freelancers — a higher simultaneously to their current job compared share of younger individuals has other jobs with at least to standard employees, with more than half of 50 percent within the 15 to 24, 25 to 34, 35 to 44 age the freelancers have secondary jobs (outside of groups (Figure 68). A large share of standard employees freelancing) compared to 24.7 percent of standard who work other jobs are in self-employment in the employees (Figure 67). Furthermore, around 15.9 other job (Figure 69). Of the 24.7 percent of standard percent of freelancers work at least three jobs at once, employees working a second job, 55.4 percent of them compared to 6.3 percent of freelancers. In terms of reported to be in self-employment. However, it is not gender breakdown, slightly more females have other possible to distinguish whether their secondary jobs jobs compared to males (56.2 percent and 54.2 percent are formal or informal. respectively). Additionally, working more than one job FIGURE 67 FIGURE 68 Share of respondents with other jobs by Share of freelancers with other jobs by age group employment type 100 100 Share of respondents (%) Share of respondents (%) 80 80 60 55.1 56.2 54.2 60 40 40 24.7 25.3 24 20 20 0 0 Freelancers Standard employees 15-24 25-34 35-44 45-54 55-64 Total Female Male Total Female Male Source: World Bank survey of freelancers Source: World Bank survey of freelancers 98 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 Annex FIGURE 69 Share of standard employees who have other jobs by employment status 75.3% Does not have second job 100% 55.4% Standard Self-employed employees 24.7% Has a second job 44.6% Others Source: World Bank survey of freelancers Focus group discussion participants Informally employed workers participating in the distribution of respondents do not follow a particular focus group discussions from different sectors have pattern (see Figure 71). Thirdly, while most of the different socioeconomic backgrounds. Firstly, while in respondents in agriculture, location-based work, and agriculture there are equal shares of men and women care sector have secondary education, most hawkers in respondents, most location-based workers interviewed the sample have post-secondary education (see Figure are men, and most care-workers and hawkers are 72). Lastly, there is a huge variation in terms of average women, with significantly more women from the care monthly earnings stated by respondents. While sector being interviewed (Figure 70). Secondly, most agricultural laborers can earn as low as RM100 monthly location-based workers interviewed are quite young to RM4,000 monthly, hawkers on the other hand can (20 to 30 years old), while for other sectors the age earn RM400 monthly to RM18,200 monthly (Figure 73). FIGURE 70 FIGURE 71 Share of respondents by gender and sector Share of respondents by age group and sector 100 100 Share of respondents (%) Share of respondents (%) 15.4 7.7 80 80 25 23.1 28.6 50.0 34.4 67.9 60 60 96.9 32.1 40 84.6 40 25.0 42.9 65.4 20 50.0 20 32.1 32.1 25.0 21.4 0 3.1 0 Location-based workers Care workers Hawkers Agricultural laborers Agricultural laborers Location-based workers Care workers Hawkers Male Female <19 20 - 30 31 - 40 41-50 > 51 Source: World Bank survey of freelancers Source: World Bank survey of freelancers INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 99 Annex FIGURE 72 FIGURE 73 Share of respondents by education and sector Average monthly income range of respondents by sector 100 Share of respondents (%) 80 Hawkers 60 43.8 40 Location-based 39.3 42.3 workers 20 21.4 0 Care workers Agricultural laborers Location-based workers Care workers Hawkers Agricultural laborers 0 5,000 10,000 15,000 20,000 Not applicable Primary education Average monthly income (RM) Secondary education Post-secondary education Tertiary education Source: World Bank survey of freelancers Source: World Bank survey of freelancers 100 INFORMAL EMPLOYMENT IN MALAYSIA | FEBRUARY 2024 CONNECT WITH US wbg.org/Malaysia @WorldBankMalaysia @WB_AsiaPacific http://bit.ly/WB_blogsMY