Vulnerable: Many informal workers are also involved in agriculture. — Agencies
JUNAID Awang will turn 68 this month.
The retired engineer from Subang Jaya, Selangor, nowadays spends time pottering about his heliconia garden at home and repairing simple electronics three days a week to supplement the family’s income. While he doesn’t earn much from the repair work, which is a joint venture with three of his friends, Junaid likes the flexibility it provides.
“It is a simple setup. We get work orders from online platforms and pick up items like keyboards or televisions to be repaired. We can take a rest on other days.”
But what Junaid feels is lacking in his current parttime work is the dearth of a social security net, unlike the ones provided with formal jobs.
“It will be nice if we have a subsidised contribution to our social security schemes, as we are still paying taxes and contributing to the economy.”
Junaid is among millions of Malaysians involved in the informal employment sector which has been broadly defined by the World Bank as “those in employment not covered by a pension, retirement savings with Employees Provident Fund (EPF), or employment injury insurance (from the Social Security Organi-sation, or Socso)”.
Last month, the World Bank, in its “Informal Employment in Malaysia” report stated the sector is showcasing a consistent decline from 30.5% in 2019 to 26.8% in 2022; or about 4.1 million workers. It says men, older workers and non-bumiputra workers tend to be informally employed in high-skilled occupations.
The World Bank also says the decline in numbers is likely due to an increase in formal jobs and also partly stemming from the increase in EPF and Socso coverage through the i-Saraan and Self-Employment Social Security Scheme (SESSS) respectively.
Nevertheless, many who still want to continue working in the sector are calling on the government to come up with better social security policies.
The needs of the many
National Council of Senior Citizens Organisations Malaysia president Datuk Dr Soon Ting Kueh says it is only right for a more substantial policy to protect informal job workers, especially senior citizens, in their line of work.
According to a report by the Statistics Department, 656,000 people aged between 55 and 64 were involved in the informal sector in 2022. Soon says these workers need an improved arrangement to commensurate the current high cost of living, chiefly in terms of savings.
He also points out that although EPF’s recent announcement of a dividend payout of RM57.8bil for 2023 is commendable, Malaysians in general are still earning lower salaries.
He says there should be a way to increase the salary rate or implement a contribution subsidy for Malaysians to boost their savings.
“The same goes for those who are in the informal job sector. They don’t earn much to create substantial savings. And when it comes to workers who are senior citizens, they certainly need more savings [other than EPF] to cope with the high cost of living.
“Understandably, their EPF savings are not enough. That is why they are still working. It will be great, for example, if the government also contributes [to the self-employed voluntary contribution]. For every RM10 put in, RM5 will be borne by the government, for example,” Soon says.
Institute for Democracy and Economic Affairs senior fellow Carmelo Ferlito explains there are various socioeconomic factors pushing more senior citizens to work in the informal sector.
“On one side, older people, once retrenched, struggle more to get a new job and therefore may find in informal employment an answer to their need.
“Secondly, for retired people, informal jobs may become an opportunity to integrate a low pension.”
The proposal and cons
The World Bank in its report makes several recommendations to enhance the protection and productivity of informal employees, including the need to improve the provision of retirement savings, mandating automatic contributions for retirement savings for incomes earned through digital platforms, and expanding insurance coverage.
The report also emphasises the critical roles of social assistance and social insurance to protect the workers.
“While social insurance is central to the formalisation of informal workers, the role of social assistance is also important, especially for the poorest informally employed workers who may not be able to attain social insurance coverage in the short- to medium- term, and who may need various types of targeted income support to have access to a basic minimum standard of living.
“As workers’ incomes increase, they are better placed to benefit from employment-linked social insurance coverage and may not have to rely solely on social assistance.”
Nevertheless, not all on the wishlist, especially on mandating contributions for social insurance coverage, will be a boon for self-employed workers or informal workers.
The World Bank says among the disadvantages is a difficulty in enforcement due to a lack of administrative databases.
“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. This is unlike formal employees, who receive pay slips.”
It also says there may be a tendency to underreport the income if it is proportionate to the contributions.
“(This is because) some self-employed earnings may be hard to verify; if contributions are flat or fixed in nominal terms, they may seem to penalise low-income and part-time self-employed workers in particular.
“(At the same time), enforcing social insurance contributions may displace or reduce contributions that self-employed workers may wish to make towards private insurance, which may provide coverage better-suited for such workers’ needs.”
It also says 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 labour regulations requiring social insurance contributions.”
Meanwhile, the advantages listed are universalising social insurance coverage and enhancing the financial sustainability of EPF and Socso by widening their contribution base.
Trade-offs
Ferlito says if informal jobs are becoming more like standard jobs – due to the implementation of policies akin to formal jobs – they would lose part of their attractiveness, both for employers and employees.
“When making choices, we are confronted by trade-offs. Informal jobs offer a high degree of flexibility and freedom, but also higher risks and fewer guarantees. Introducing compulsory social protection schemes into informal jobs reduces – de facto – their attractiveness, which is precisely their flexibility.”
To a question on the sustainability of the informal sector, Ferlito says it is “a matter of individual preferences”.
“A recent report showed how low salaries (in formal employment) can be for the youths. (But) then the youth may choose to embrace an ‘informal career’ so that, for the same salary, they can acquire a higher degree of independence.
“The big difference, I believe, is made by social mobility opportunities. If a low salary and higher rigidity are the door to social mobility, then embracing a traditional career can still be attractive. But if traditional jobs are not seen as conducive to social mobility, then informal jobs remain more attractive.”
