The Gig Economy Comes to the Rescue of the Retrenched, but at a Cost

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THE YEAR 2020 saw seismic shifts in the job market structure. Soon after the MCO was announced last March, unemployment rates in Malaysia jumped significantly from 3.3% in 2019 to 5.1% in Q2 of 2020 (Figure 1).

Penang did not escape unscathed either. Almost 5,500 workers lost their jobs between January and June; as of Q2 of 2020, the state’s unemployment rate is at 4.4% which more than doubles the 2.0% of 2019.

Young workers between 15-30 years old, who were already facing tough labour conditions pre-pandemic, saw windows for job opportunities shuttering even further – the unemployment rate for their age group rose from 4.8% to 7.5%1.

The last time Malaysia experienced such high unemployment rates was in 1984. Then-chairman of the US’ Federal Reserve Paul Volcker hiked interest rates up to 20%. This was believed to be a drastic attempt to rein in the decade-long inflation that had plagued the US economy. The resulting contraction in global commodities crippled many exporting and developing nations. By 1986, Malaysia’s unemployment rate had hit an all-time high of 7.5%.

Read also: Rebound is Slower than Expected despite Fiscal Measures

In Penang alone, 1,664 retrenchments were recorded between January and May 2020. Of these, 959 were from the manufacturing industry, with the majority based in Seberang Perai. Another 705 occurred in the services industry, and were primarily from the Island (Figure 2). Meanwhile, the construction sector reported three cases in total (not shown).

Had the pandemic not occurred and with no baseline for retrenchment figures available, it is difficult to determine to what extent the pandemic was pivotal in the high retrenchment numbers. Still, there was a noticeable rise in unemployment linked to Covid-19 last March, with “partial closures” cited as the reason behind 49.4% of retrenchments. This increase became more obvious as the percentage steadily grew to 42.8% and 56.8% in April and May respectively, with “poor demand” making up the majority of retrenchments at 40.7% during the latter month.

A New Form of Economy Emerges

With its inclusion in the upcoming 12th Malaysia Plan,2 the rise of the gig economy has been praised as a “new source of economic growth”. Last June, a public survey by Rakuten Insight found that 58% of Malaysians increased their usage of food delivery apps after the MCO.3

The online food ordering and delivery service DeliverEat attests to this. One week into the MCO, it witnessed an astounding overall growth of 300% in restaurants requesting to join the platform, compared to the week before. Similar trends were experienced in its operating regions of Penang and KL.4 Correspondingly, between March and June 2020, more than 20,000 individuals nationwide signed up with Foodpanda as new riders; and as of September 2020, over 10,000 people had joined Grab as drivers and delivery partners.5

Still, opinions of the model are divided. Those who are for it commend the entrepreneurial spirit it engenders in its workers, as well as the flexibility it introduces into the labour market. Others remain wary, fearing that unregulated working conditions would leave workers vulnerable to exploitation or with poorer financial resilience. Independent think tanks6 and the Employee Provident Fund (EPF)7 have called for a greater support system for non-standard and informal workers. The Malaysian government has also recently launched i-Saraan, a retirement scheme to engage informal workers; this includes gig workers as well.8

What is the Gig Economy?

The gig economy “involves the exchange of labour for money between individuals or companies via digital platforms that actively facilitate matching between providers and customers, on a short-term and payment by task basis”9. Examples of familiar platforms are eRezeki (led by the Malaysia Digital Economy Corporation), Fiverr, Upwork, Grab and DeliverEat.

While the pandemic may have been a catalyst for the explosion of interest in the gig economy, its development in Malaysia took root long before 2020. To illustrate, the total number of active users generating sales and income on eRezeki recorded an annual growth of 77.3% in 2016, and 171.4% the following year10.

Using data from the Labour Force Survey, the Department of Statistics Malaysia (DOSM) estimated the size of the country’s gig economy in 2018, and broadly summarised the characteristics of those who participated in it.11 Almost 560,000 persons were involved, or 3.8% of the total working population. Those between 25-34 years of age made up the largest proportion of gig workers (37.6%). This was followed by 35-44-year-olds (24.2%), and 45-54-year-olds (17.2%). Half were secondary-school educated, and 41% had tertiary education. DOSM suggests that gig work is taken as a means to supplement income, especially for secondary-educated workers. Recent graduates likely see the gig economy as a stop-gap measure while looking for formal employment. Faced with fewer employment opportunities this year, the proportion of graduates and younger adults (24 years old and below) doing gig work may have increased.

Assessing the overall working population, women – especially those with family responsibilities – had comparably higher participation rates in the gig economy. A study by the World Bank found that many single mothers opt for informal work because it allows them to “reconcile work and family life”.12

The media and research agree that gig work – and informal work in general – creates flexibility in the labour market. The Covid-19 pandemic has shown how it shields workers somewhat from economic downturns, by allowing them to maintain a form of income. This is a precious reprieve from the uncertainty and stress that comes with the loss of a job. The fact that most gig work is done independently makes it ideal for social distancing as well.

Yet, these workers, the very ones who are part of Malaysia’s new source of economic growth, are not protected by the Employment Act. They are instead classified as “self-employed”, and the platforms these workers use are not regulated as employers. Being financially vulnerable (AKPK, 2018), they lack access to benefits that their formally employed counterparts receive by default, such as a retirement fund and medical insurance. Unregulated work also means that gig workers risk being underpaid, and experience unstable incomes. This immediately makes them risky borrowers from a bank’s perspective, making it harder for them to secure loans from formal channels.

Job precarity is not limited to financial consequences. It is tied up with poorer career and skill development prospects, insecurity, an erosion of dignity, and feelings of being socially excluded13 – these are triggers of populism14. A worsened job market only intensifies all the above issues, as more begin to rely on gig work for their primary income, increasing their exposure to an unprotected working environment.

The year 2020 marked the concurrent and interconnected development of two phenomena in the labour market: high unemployment and the rise of the gig economy. To some extent, the latter helped Malaysians avert a detrimental economic outcome, but this too led to greater job precarity and debilitating effects of never knowing whether there will be enough, cannot be downplayed either. 

1Department of Statistics Malaysia, Quarterly Labour Force Survey, 2020.
2Yiswaree Palansamy, ‘PM: Gig Economy to Be Included in 12th Malaysia Plan’, Malay Mail, 2019.
3Statista Research Department, 2020.
4Nurul Jannah Kamaruddin, ‘Positivity in Negativity: COVID-19 Sees 30 Pct Jump in Delivery Orders’, Bernama, 2020.
5Lydia Nathan, ‘Food Delivery’s Trajectory Continues Post-MCO’, The Malaysian Reserve, 2020.
6Cheng Kidd Sun, Conceptualizing the Gig Economy in Malaysia (REFSA, June 2020).
7EPF, ‘EPF Welcomes Government’s Efforts to Protect Self-Employed Workers’ Future Retirement’, 2020.
8See https://www.kwsp.gov.my/member/contribution/i-saraan for details.
9Katriina Lepanjuuri, Robert Wishart, and Peter Cornick, The Characteristics of Those in the Gig Economy (Department for Business, Energy and Industrial Strategy, February 2018).
10Author’s own calculations, based on data from data.gov.my.
11The definition of a gig worker used by DOSM is broader than academic definitions used in this article. However, given that its estimates are similar to those from studies that use the working definition employed here, DOSM’s estimates are likely to be a valid proxy. Lepanjuuri et al (2018) for example found that gig workers are 4.4% of the total population in the United Kingdom.
12Achim Daniel Schmillen and others, Breaking Barriers : Toward Better Economic Opportunities for Women in Malaysia (World Bank, 1 September 2019).
13A. S. Bhalla and Frédéric Lapeyre, ‘Unemployment, Precarious Jobs and Social Exclusion’, in Poverty and Exclusion in a Global World, ed. by A. S. Bhalla and Frédéric Lapeyre (London: Palgrave Macmillan UK, 2004), pp. 59–92.
14Yotam Margalit, ‘Economic Causes of Populism: Important, Marginally Important, or Important on the Margin’, VoxEU.Org, 2019.  

Jo-yee is a research analyst at Penang Institute whose interests range from development issues to behavioural economics. Her latest goal is to bake the perfect sourdough loaf.



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