Thailand
Malaysia: Raising retirement age will not hurt youth employment
IN 2018, Malaysia had its first change of government since independence from the British over six decades ago.
Hopes were high on the newly elected government, expecting radical changes and improvements in governance.
An area of concern is youth unemployment which was at 10.9% in 2018 from 9.9% in 2011 when compared to the total population. However unemployment only accounts for less than 5% among the youth population itself rising from 4.1% in 2011 to 4.8% in 2018.
This situation begs two questions.
First, why are our young Malaysians jobless? If this rising trend continues, it will damage a whole generation of youngsters.
Second, by raising our retirement age to 65 from 60, will it further raise youth unemployment since changing the retirement age is often seen as a form of labour market intervention.
To address the first question, generally, youth unemployment is being influenced by demand and supply issues like: > The “last-in, first-out” explanation where the youths are more vulnerable in difficult economic times due to lack of work experience; > Lack of job search knowledge beyond the word-of-mouth approach through family and friends; > Mobility issue; and > Cultural reasons.
However, our current issues faced by businesses are risk of high absenteeism; weak problem solving skills; poor communication skills; weak English proficiency; those forced into bad matches or no matches end up on a productivity trajectory well below what they might otherwise have been expected; though they may be digitally capable, still they lack key knowledge and skills to help business migrate into the digital ecosystem – digital literacy will influence the labour market; dislike low skill and productivity work and tough working conditions with limited career opportunities; low level of work-readiness; and seeking higher pay.
Driven by these issues, it is tough to deduce that any decision to extend the retirement age to 65 years will reduce youth employment opportunities.
Studies found that by increasing the labour-force participation of older persons, it will not reduce the job opportunities of younger persons. Indeed, higher labour-force participation of older persons will provide greater opportunity for youth employment.
If firms experience higher labour costs following an increase in the retirement age, they could substitute younger workers for older workers. Such substitution will need to be governed by the similarity of the skills they possess to avoid any disruption to productivity.
The challenge is that workers of similar skills who differ around five years are more likely to be imperfect substitutes.
That means firms would have, at most, a limited ability to substitute young workers for older ones. Hence, the hiring behaviour of the firms in response to the cost of older workers indicates that substitution between young and old workers is limited. Even when the cost of employing older workers is significantly increased, the substitution of older with younger workers is moderate in scope.
Meanwhile, skills-based technical change might decrease the substitutability between workers of different age cohorts. Technical change constantly changes the demand for skills. Although many jobs can now be more cheaply undertaken by computers, the demand for higher levels of skills (e.g. software engineers) increased.
Learning new skills is costly and older workers may not invest in acquiring new skills if their remaining working life is too short to recoup the costs. In contrast, younger workers will more readily learn new skills because the period over which they can recover their costs is longer.
With older workers more likely to exit the labour market under these circumstances, it is important to take note that rapid technological change is more likely to make the possibility of substituting younger workers for older ones even less likely due to their high skills.
It is inaccurate to cite that raising retirement age will curtail youth employment. In fact, it will be more appropriate to conclude that the work force will adjust in such a manner to create jobs for those who are willing to work. Over a period, as prices and wages adjust to the changes coming from technology, tastes as well as supplies and demands, what will happen is that the jobs will come to workers or workers will move to the jobs.
Over the long run, technological improvements create new products and services, raise national income, and increase demand for labour throughout the economy. Besides, job opportunities will rise with a growing population as more enter the market as consumers and workers.
Hence, the issue of youth employment being affected by raising the retirement age is debatable. More so with the youth seeking employment opportunities where they fail to meet the prerequisite skills that prospective employers are looking for. It means the supply and demand gap is expected to continue widening.
What is needed here is to design basic public policies to guide the current youth and those potentially coming into the labour market. Focus should be on (1) encouraging entrepreneurship; (2) preparing young people for the job market; (3) reassessing the value of internships; (4) re-evaluating the distribution of welfare; (5) secondary schools should have active partnerships with employers; (6) earlier career guidance; (7) modernising apprenticeships; (8) providing fair opportunities for disadvantaged youth; (9) schools should focus on the 3Rs (reading, writing and arithmetic) besides soft skills; and (10) illuminating pathways to productive work.
Failing to focus on these issues will dampen productivity.
Source: https://www.thestar.com.my/business/business-news/2019/09/10/raising-retirement-age-will-not-hurt-youth-employment#5DRHtW3TqgQFeB5t.99