Everything Malaysian Workers Need to Know About Inflation and Unemployment

Inflation – it’s the big scary word we keep hearing in the news recently. It is often a cause of worldwide concern. But, how many of us truly understand what the word actually means? And if you are an employee, maybe you are also wondering how to manage your finances when inflation is high.

First, let us look at how high inflation is right now. In Malaysia, inflation has increased by 3.4% as of June 2022. In some parts of the world, inflation rates have doubled, with Turkey having the highest inflation increase in 2022 at 54.8%. Clearly, rising inflation is a worldwide phenomenon right now. Malaysia’s inflation may be rising at a relatively lower rate than in some countries, but it is certainly not exempt from this phenomenon.

To comprehend what is happening in Malaysia and other countries right now, we must understand what inflation is. What does it mean when inflation is high? What are its causes? How does it affect our lives? Most importantly for workers in Malaysia, how can employees manage finances when inflation is high?

What is inflation?

Inflation is the economic phenomenon wherein the prices of most goods and services go up simultaneously, causing the purchasing power of the average person to weaken. For instance, if RM9 used to be enough to buy two kilograms of chicken in 2000, now it is only enough to buy one kilogram of chicken.

How, then, can the average person afford to buy chicken in this particular scenario? Ideally, inflation should match the increase in minimum wages so that people have enough spending power to keep the economy moving.

In recent years, however, the increase in wages has not always been exactly in lock-step with the increase in prices. To fully grasp why this is the case, we must then know what causes inflation in the first place.

What are the forces behind these rising prices?

Inflation is typically caused by either of two things. First is the lack of supply of goods in the market. When supply cannot catch up with demand, the outsized pull of demand will then cause prices to rise. Think of how rare commodities such as gold or even limited-edition products from luxury brands command high prices. The fact that the demand for them is far greater than their available supply explains why their price is commensurately higher than that of the average mass-produced product. The same dynamic is at work with inflation.

The second possible cause of inflation is when the cost of production increases while the level of demand remains the same. Higher costs of production may be caused by higher costs of raw materials, machinery, or wages. This forces companies to increase the prices of their goods. In this case, wages increase before prices do.

This latest increase in inflation in Malaysia and in the rest of the world is caused by a lack of supply. Because of global constraints – from a world economy still grappling with the effects of the COVID-19 pandemic and geopolitical turmoil in some parts of the world – there are simply not enough goods, raw materials, and services being distributed.

So, how does this affect the Malaysian economy? One instructive way to view this is through the lens of the job market.

How inflation affects employment

Traditionally, inflation rates have had an inverse relationship with unemployment rates. The higher the inflation, the fewer unemployed people there are in a given population. This is because companies would need to increase production in order to catch up to demand, which usually translates to increased hiring.

To keep up with demand, companies would need to add more workers across all levels of the organisation. If they need more people in manufacturing, this means they need more people in distribution, packaging, administration, marketing, and even human resources. This is where jobseekers can take advantage of inflation, as it historically leads to more job opportunities.

However, there are always exceptions to this rule. In our current situation, when supply is very low, such as the case with imported raw materials, production problems cannot necessarily be addressed by increased hiring. So what other recourse is there for companies in times of rising inflation?

What can companies do?

Many companies in Malaysia are still implementing cost-cutting measures as the economy continues to recover from the effects of the pandemic. This seems to have impacted the country’s unemployment rate, which has remained at 3.9% as of May 2022. Still, companies have to increase wages in order for their employees to cope with a higher cost of living.

What some companies do in order to soften the blow of higher labour costs is convert some full-time positions into freelance or consultant jobs. This way, they can cut costs beyond hourly or monthly salaries, such as medical and other benefits. Many companies have also been more open to hybrid work, which minimises operational costs. So, what does this mean to employees and jobseekers?

What can employees do?

The rise of freelance and consultant jobs has paved the way for a bigger gig economy. This is another way for workers to take advantage of rising inflation. With companies finding ways to cut costs and workers finding ways to keep up with the rising prices of goods and services, a healthy gig economy could be equally beneficial to jobseekers and employers alike.

Freelance jobs give workers more flexibility with their working hours, which means they also get more flexibility with the number of jobs they can tackle in any given period. This is made even more possible by the growing popularity and acceptance of hybrid work, where workers are not tied to the confines of the office and can work remotely on a scheduled basis or even full time. In fact, remote work or working from home can help employees manage their finances when inflation is high because they do not have to spend as much on transportation and have cheaper meal options available at home.

The importance of versatility in a changing job market

To thrive in the gig economy, you need a wide skill set. The more expertise you have, the wider your options are for available freelance work. In fact, versatility is not only a survival tactic in the gig economy; it is also fast becoming an advantage in full-time positions.

Companies are looking for more cost-efficient measures to withstand crises and times of uncertainty. Therefore, having an updated skill set that allows you to multitask becomes even more valuable. Employees that can give relevant contributions to several aspects of the business are never the ones retrenched when times are tough. Updating and adding to your skills will ensure that your job will never be obsolete as the work landscape continues to change.

In times of high inflation, jobs will always be available, regardless of what type of positions they may be. This is because more jobs help companies and workers alike keep up with rising prices. To make the most out of these job opportunities, you need a versatile skill set to take on a variety of jobs and to increase your value within the organisations you are a part of.

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