Like many other countries, Malaysia is confronted with a rapidly aging population. As it ages, Malaysia faces a number of policy challenges, including the financial protection of older people. This blog looks at the economic effects of Malaysians working for longer to ensure that they have enough savings for retirement.
In the coming decades, aging is expected to adversely affect economic growth as labor forces shrink. Globally, average life expectancy has increased by 7.7 years in only two decades, and is projected to continue rising. According to the UN, the proportion of elderly people aged 65 and above in Asia is projected to more than triple between 2000 and 2050. The old-age dependency ratio, or the number of people aged 65 or above relative to those aged 15 to 64, is projected to double in East and Southeast Asia.
Policy reformshave not kept pace with these demographic changes. With increased longevity, the adequacy and sustainability of retirement income systems are being challenged. The financial burden often falls on family members and governments in the form of healthcare costs and elderly pensions. A disproportionate share of caregiving is typically shouldered by women. As they are more often employed in informal jobs with limited social protection coverage, women and low-income earners are likely to be more vulnerable in old age.
Malaysia is an aging society
In 2020, Malaysia became an aging society, defined as having 7 percent or more of the population age 65 and above. This percentage is projected to double to 14 percent by 2043 and reach 20 percent by 2055.
Data from the Employees Provident Fund, the country’s mandatory private sector retirement savings scheme, shows that 48 percent of its members under the age of 55 had savings below 10,000 ringgit (about $2,400) as of September 2023. At this level, their projected future monthly pensions from the fund, if converted to annuities, would be below Malaysia’s poverty line. During COVID-19, households were allowed to make early withdrawals from their provident fund accounts. Although these withdrawals helped households weather the shock of the pandemic, they have also exacerbated concerns over income security in old-age. With insufficient savings, many Malaysians will have to work longer to afford their retirement.
More job opportunities for all
Many OECD countries have introduced policies that extend working lives to improve the sustainability of pension systems. Increasing retirement age often meets resistance from the public and policymakers. It is a commonly held fallacy that there is a fixed number of jobs in an economy. This implies that older people who continue working limit employment opportunities for the young. Global empirical evidence suggests otherwise.
Nationally representative data from Malaysia for 2019 shows that higher employment rates among older workers are associated with higher employment rates among younger workers. This suggests that a growing economy with employment opportunities for older workers provides more opportunities for all workers, including younger workers. The positive relationship between elderly and youth employment is illustrated below.
A study of 22 OECD countries found that younger and older workers have different skillsets, experience and job-specific knowledge, and can therefore complement each other rather than act as substitutes. Leveraging the strengths of both age groups can contribute to a dynamic and more integrated workforce that enhances productivity, fosters innovation, and boosts economic growth.
Elderly and youth employment in Malaysia
The World Bank’s Social Protection and Jobs team has used a regression model to analyze the relationship between elderly and youth employment in Malaysia.
The analysis looks at how the employment rate of older workers (55-64 year olds) influences the employment rate and income for young workers (20-24) and prime-aged workers (25-54), using the 2019 survey data.
Findings show that employment of older people is associated with significantly higher rates of employment among both young and prime-aged workers in Malaysia. This finding holds for the whole sample, as well as for men and women separately. The analysis also finds some negative relationship between the employment rate of older people and the income of young workers. However, the magnitudes of these effects are small. Additionally, the relationship is not statistically significant for young women or prime-aged workers.
These findings suggest that in Malaysia, employing older workers is likely to have positive effects on the employment of younger people. In other words, concern about jobs for younger people should not be seen as a reason not to extend working lives. If anything, the opposite is true. At the same time, there are good reasons for wanting to extend working lives in the context of an ageing society, given the impacts of aging on economic growth, and concerns about retirement savings and poverty among the elderly.
Gradual adjustments can be made to policies that support a productive and inclusive environment for older workers, thereby improving overall employment, stimulating economic growth and the state budget balance, and enhancing financial protection and well-being for older people.
source: worldbank blogs
