Question 1

As the nation slowly transitions into recovery mode post the movement control order (MCO), another forecast storm is brewing - unemployment.

There is a mounting pressure on the number of job losses as businesses struggle to see through the turbulent period even as the local economy gradually restarts.

The government anticipated this, which saw it rolling out the Employee Retention Programme (ERP) and Wage Subsidy Programme (WSP) in March and April, respectively, for companies to retain their workforce.

But at the rate that businesses are having their cash burnt more than they can generate, perhaps the most viable exit plan would be to exit the business for good and that would mean letting go of their workers as well.

The most recent case would be the upcoming closure of the Holiday Inn Resort in Penang by the end of the month. The hotel, which has been in business for over 40 years, has around 200 employees.

Based on the situation Malaysia is experiencing in the form of a low inflation now, premised on weaker demand and expectations of a contraction in the gross domestic product (GDP), the only direction that unemployment can go is up.

Malaysia faced an unprecedented drop in its working population as the number of unemployed individuals rose 48.8% year-on-year to 778,800, as compared to a 17.1% jump in March.

This brings the unemployment rate to 5%, up from 3.9% in March, breaching the full employment condition of below 4%.

The Socio-Economic Research Centre executive director Lee Heng Guie said as the country emerged from the pandemic, it is expected that consumer demand and businesses would take some time to recover as revenue may not be restored back to pre-Covid levels just yet.

MIDF Research in its economic review said the country's unemployment rate is likely to stay high in the upcoming months as some companies are likely to retrench employees in order to reduce operating costs, particularly with new standard operating procedures in place and on expectations of lower revenue, moving forward, as consumer activities will take longer to fully resume.

It added that as the economy gradually opens and via various government measures through its stimulus packages, employment will be more stable in the second half this year.

References: The Star 2020: Brewing storm of unemployment

Questions:

1.Using the article as above, describe how an increase in unemployment rate will affect the economic performance as a whole. Your explanation should include examples from economic perspective.(25 marks)

2.Critically review and suggest on how government can impose fiscal stimulus to overcome the problem as mentioned in the article above.(25 marks)

(Total: 50 marks)