Title page

Contents

Acknowledgements 6

Acronyms and Abbreviations 7

Executive Summary 10

CHAPTER 1. Introduction 16

CHAPTER 2. Overview of Informality 20

2.1. The informal sector, informal employment, and the intersection between the two 21

2.2. Current definition of informal sector and informal employment in Malaysia 24

2.3. Global definitions of informal sector and informal employment 26

2.4. Gig employment 27

2.5. Regulations, policies and programs in Malaysia for informally employed workers 28

2.5.1. Regulations 28

2.5.2. Retirement savings 29

2.5.3. Employment injury and disability insurance 31

2.5.4. Job search allowance 32

2.5.5. Job facilitation, onboarding support, and training incentives for access to digital labor platforms administered by the Malaysia Digital Economy Corporation 33

2.6. Working definition of informal employment 33

CHAPTER 3. Findings and Discussion 38

3.1. Scale and trend of informal employment 39

3.1.1. All informally employed workers 39

3.1.2. Gig workers 41

3.2. Correlates of informal employment 42

3.2.1. All informally employed workers 42

3.3. Employment characteristics of informally employed workers 47

3.3.1. All informally employed workers 47

3.4. Underemployment among informally employed workers 49

3.4.1. All informally employed workers 49

3.5. Income of informally employed workers 51

3.5.1. All informally employed workers 51

3.6. Perceptions of informal employment 55

3.7. Vulnerabilities associated with informal employment 59

3.8. Protection of freelancers 63

3.9. Willingness to pay for social insurance 65

CHAPTER 4. Policy Recommendations 68

4.1. Recommendations to enhance the protection and productivity of the informally employed in Malaysia 71

4.2. Operationalizing recommendations: An action plan for informal employment in Malaysia 81

References 84

Annex 1: Description of data sources and details of analyses 86

Analysis of administrative data 86

Analysis of survey of freelancers 86

Analysis of focus group discussions and key informant interviews 86

Analysis of informally employed workers during the COVID-19 pandemic 87

Annex 2: Basic characteristics of different categories of informally employed workers (excluding agriculture workers), 2019 88

Annex 3: Rate of informal employment (excluding agriculture workers) by state, 2009-2019 89

Annex 4: Probit regression on the likelihood of being informally employed (2009-2019), marginal effects 90

Annex 5: Probit regression on the likelihood of an informally employed worker having a high-skilled occupation (2009-2019), marginal effects 92

Annex 6: Tobit regression for the correlates of hourly wages 94

Annex 7: Profiles of informally employed workers in the survey of freelancers and qualitative study 96

Freelancers 96

Focus group discussion participants 99

TABLE 1. Differences between operational definition of informal employment by DOSM and working definition used in this report 34

TABLE 2. Informal employment as measured in the Informal Sector and Informal Employment Survey 2021 (DOSM) 40

TABLE 3. Basic characteristics of different categories of formally and informally employed workers, 2019 44

TABLE 4. Summary of advantages and disadvantages of (in)formal employment, as informed by FGDs and KIIs 55

TABLE 5. Concerns with current work conditions of informal workers across various sectors 59

TABLE 6. Suggested changes for improvement in work conditions of informal workers across various sectors 60

TABLE 7. Advantages and disadvantages of mandating contributions for social insurance coverage among self-employed workers 74

TABLE 8. Proposed Action Plan for Strengthening Protection and Productivity of Informally Employed Workers: Actions and Proposed Agencies 81

TABLE 9. Correlates of Hourly Wages: Tobit regression, log hourly wages1, ll ln_minwage_h1 (ln_minwage_h1=ln (minwage_h +1) for hourly wages) 94

FIGURE 1. Statistical components of informality 21

FIGURE 2. Operational definition of 'informal sector' 22

FIGURE 3. Operational definition of 'informal employment' 23

FIGURE 4. Conceptual framework of the informal sector by the Department of Statistics Malaysia 25

FIGURE 5. Conceptual framework of informal employment by the Department of Statistics Malaysia 25

FIGURE 6. Indicators of formal/informal sector used across countries 26

FIGURE 7. Indicators of formal/informal employment used by countries 27

FIGURE 8. Overview of main policies and programs for informally employed workers in Malaysia 28

FIGURE 9. Number of i-Saraan members by gender, 2017-2022 30

FIGURE 10. Coverage gap in social insurance in Malaysia 32

FIGURE 11. Rate of informal employment, 2009-2022 39

FIGURE 12. Rate of informal employment by gender, 2009-2022 39

FIGURE 13. Own account workers and unpaid family workers (vulnerable employment) as a share of total employment, 2021 41

FIGURE 14. Number of digital labor platforms registered with MDEC by type of task, 2016-2021 42

FIGURE 15. Number of active gig workers on MDEC's platform partners, 2016-2021 42

FIGURE 16. Rate of informal employment by age group, 2022 43

FIGURE 17. Rate of informal employment by age group and gender, 2022 43

FIGURE 18. Rate of informal employment by education level, 2009-2022 43

FIGURE 19. Share of informal employment by education level, 2009-2022 44

FIGURE 20. Share of formal employment by education level, 2009-2022 44

FIGURE 21. Rate of informal employment and GDP per capita by state, 2019 45

FIGURE 22. Rate of informal employment be deciles of household income per capita, 2009 and 2022 46

FIGURE 23. Rate of informal employment by skill level, 2009-2022 47

FIGURE 24. Share of informal employment by skill level, 2009-2022 47

FIGURE 25. Rate of informal employment by occupation, 2022 48

FIGURE 26. Rate of informal employment by sector, 2009-2022 48

FIGURE 27. Share of informal employment by sector, 2009-2022 48

FIGURE 28. Skill-related underemployment rate by type of employment, 2010-2020 49

FIGURE 29. Skill-related underemployment rate by type of employment and gender, 2010-2020 49

FIGURE 30. Skill-related underemployment rate of men by type of employment and age group, selected years 50

FIGURE 31. Skill-related underemployment rate of women by type of employment and age group, selected years 50

FIGURE 32. Average weekly working hours by type of employment and gender, 2017 50

FIGURE 33. Willingness and ability to work more hours by type of employment and gender, 2017 50

FIGURE 34. Time-related underemployment rate by type of employment, 2010-2017 51

FIGURE 35. Time-related underemployment rate by type of employment and gender, 2010-2017 51

FIGURE 36. Average monthly income by type of employment, 2009-2022 52

FIGURE 37. Average monthly income by type of employment and gender, 2009-2022 52

FIGURE 38. Monthly income distribution by type of employment (Kernel density distribution), 2019 52

FIGURE 39. Formality premium based on hourly wages by education level, 2009 -2022 53

FIGURE 40. Formality premium based on hourly wages by gender, 2009-2022 53

FIGURE 41. Explained and unexplained differences in hourly earnings between formally and informally employed workers by gender, 2009-2019 54

FIGURE 42. Likelihood of choosing Job B and tradeoff between work hours flexibility and income 55

FIGURE 43. Likelihood of choosing Job B and tradeoff between work location flexibility and income 55

FIGURE 44. Share of freelancers that consider a work characteristic as being "very important" v/s such a characteristic being adequately provided in their current work 58

FIGURE 45. Share of those who stopped working at any time since March 2020 to June 2021, by sector and employment type 61

FIGURE 46. Share of those who stopped working at any time since March 2020 to June 2021, by income level and employment type 61

FIGURE 47. Share of households with food insecurity by employment type 61

FIGURE 48. Share of workers and coping strategies in Apr-May 2022, by employment type 62

FIGURE 49. Share of surveyed freelancers with EPF and SOCSO coverage, by gender 63

FIGURE 50. Share of surveyed freelancers with private health insurance and private retirement scheme, by gender 63

FIGURE 51. Vignettes of hypothetical jobs: Job A and Job B1, B2, B3 and B4 65

FIGURE 52. Preference of choosing to pay for unemployment insurance among digital freelancers 66

FIGURE 53. Preference of choosing to pay for unemployment insurance among digital freelancers and standard employees 66

FIGURE 54. Preference of choosing to pay for EPF coverage among digital freelancers 67

FIGURE 55. Likelihood of choosing to pay for EPF coverage - showing tradeoff between retirement savings and income 67

FIGURE 56. Protection, Formalization, and Productivity: Conceptual Linkages with Social Protection 72

FIGURE 57. The Role of Social Assistance and Social Insurance across the Income Spectrum 72

FIGURE 58. Examples of microinsurance policies 78

FIGURE 59. Share of respondents by gender 96

FIGURE 60. Share of respondents by respondent type 96

FIGURE 61. Share of respondents by age group 96

FIGURE 62. Share of respondents by age group and gender 96

FIGURE 63. Share of respondents by state 97

FIGURE 64. Share of respondents by education level and gender 97

FIGURE 65. Share of freelancers by occupation titles 98

FIGURE 66. Share of freelancers by selected occupation titles, by gender 98

FIGURE 67. Share of respondents with other jobs by employment type 98

FIGURE 68. Share of freelancers with other jobs by age group 98

FIGURE 69. Share of standard employees who have other jobs by employment status 99

FIGURE 70. Share of respondents by gender and sector 99

FIGURE 71. Share of respondents by age group and sector 99

FIGURE 72. Share of respondents by education and sector 100

FIGURE 73. Average monthly income range of respondents by sector 100

Boxes

BOX 1. Presumption as to who is an employee and employer 29

BOX 2. The social insurance landscape in Malaysia 32

BOX 3. Application of working definition of informal employment on existing datasets 36

BOX 4. A summary of findings from the Informal Sector and Informal Employment Survey 2021 40

BOX 5. Welfare impacts informally employed workers and their households during COVID-19 using HiFy 61

BOX 6. Reclassifying gig workers for better protection-lessons from around the world 64

BOX 7. Advantages and disadvantages of mandating contributions for social insurance coverage among self-employed workers 74