Covid-19: Are All Workers Equally Protected? A Case of the Self-Employed - Covid-19 Self-employed workers
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Covid-19: Are All Workers Equally
Protected? A Case of the Self-Employed
VIEWS 21/20 | 30 March 2020 | Adam Firouz
Views are short opinion pieces by the
author(s) to encourage the exchange of
ideas on current issues. They may not
necessarily represent the official views of
KRI. All errors remain the authors’ own.
This view was prepared by Adam Firouz, a
researcher from the Khazanah Research
Institute (KRI). The author is grateful for the
valuable assistance and comments from
Christopher Choong, Siti Aiysyah Tumin,
Liew Yit Wey and Anne Sharmila Selvam.
Author’s email address:
adam.firouz@krinstitute.org
Attribution – Please cite the work as follows:
Adam Firouz. 2020. Covid-19: Are All
Workers Equally Protected? A Case of the In these pressing times, what sort of support can self-
Self-Employed. Kuala Lumpur: Khazanah
employed workers hope to receive in managing through
Research Institute. License: Creative
Commons Attribution CC BY 3.0. the Covid-19 crisis, as their incomes and livelihoods are
severely impacted?
Translations – If you create a translation of
this work, please add the following
disclaimer along with the attribution: This
With regards to cash-assistance, the government has thus
translation was not created by Khazanah far announced a one-off cash assistance of RM500 to full-
Research Institute and should not be
time e-hailing drivers, while a payment of RM600 for taxi
considered an official Khazanah Research
Institute translation. Khazanah Research drivers has also been announced.
Institute shall not be liable for any content or
error in this translation. Meanwhile, other self-employed workers can expect to
Information on Khazanah Research Institute
benefit from Bantuan Prihatin Nasional (BPN). With this,
publications and digital products can be households earning less than RM4,000 a month will
found at www.KRInstitute.org.
receive a one-off payment of RM1,600, while those
earning between RM4,000 and RM8,000 are entitled to
RM1,000. Assistance is also available for unmarried
individuals aged 21 years and above with income below
RM4,000.
KRI Views | Covid-19: Are All Workers Equally Protected? A Case of the Self-Employed 1However, how do these schemes compare to what is available to formal workers/employees? Secondly, are the schemes available to self-employed workers sufficient in protecting them, and is the BPN an ideal solution? Thirdly, what if they instead receive an alternative form of assistance via an extended employment retention programme, one that formal workers are already eligible for? Lastly, what are the financial implications of such a potential program? How do the measures for employees compare to what’s available for the self- employed? Before discussing how effective the existing measures may be in protecting the self-employed, it is worth noting the host of measures that formal workers can expect to benefit from. Primarily is the Employment Retention Scheme (ERP) by SOCSO, where workers who have been told to take unpaid leave are entitled to a monthly RM600 for up to six months, limited to those whose salaries are under RM4,000. Meanwhile, those retrenched can receive payment out of the existing Employment Insurance System (EIS), which has extended its coverage after recently waiving its qualifying conditions1. Other initiatives to support formal workers involve incentives for employers to retain their employees without forcing unpaid leave or reducing salaries. This includes the more-recent Wage Subsidy Program (WSP) that is an extension of the ERP, which similarly entails a monthly RM600 per worker for up to 3 months, where it is instead given to affected employers in return for not retrenching their workers, reducing their salaries or imposing unpaid leave. Employers are also incentivised via other costs cutting measures, namely the restructuring of employer- contributions to EPF2 and exemptions to HRDF. Given that these measures rely on having a standard employer-employee relationship, which applies only to formal workers, it is therefore clear that they are more protected and catered to than self-employed workers, especially with two of the initiatives involving direct fiscal injections i.e. the ERP and WSP. Additionally, the employment retention incentives to employers also reduce the likelihood that employees would lose their employment in the first place. Arguably, self-employed workers should receive the same amount of help too, if not more. The only measures available specifically to them are a one-off payment for full-time e-hailing drivers and taxi drivers, and micro-credit for own-operators of businesses. However, these measures are very specific and only cover a scope of self-employed workers, while the micro-credit initiative is more tailored to smooth business costs rather than as a direct financial assistance. Thus, realistically, BPN will be the main form of assistance that the self-employed worker will rely on in this crisis, even though it does not cater only to them specifically, as formal workers in eligible households are also expected to benefit. 1 This is termed the Sistem Insurans Pekerjaan SIP 600 or translated as EIS 600. 2 Subject to decision of Khidmat Rundingan Majikan on 15 April 2020 KRI Views | Covid-19: Are All Workers Equally Protected? A Case of the Self-Employed 2
Are the measures introduced, especially BPN, the best way for protecting the
self-employed? An example scenario
Given that BPN will likely be the sole source of assistance for self-employed workers and their
households, how would they fare in the event that they lose their source of income? Consider an
example of two households prior to the Covid-19 crisis, illustrated below in Figure 1.
Figure 1: Scenario of two households pre-Covid-19 crisis
A B
Employee 1 Self- employed 1
earned RM3,500 earned RM2,500
+ +
Self-employed 1 Self- employed 2
earned RM1,500 earned RM2,500
Total monthly income Total monthly income
= RM5,000 = RM5,000
Household A consists of an employee/formal worker who earned RM3,500 per month and a self-
employed worker who earned RM1,500. In total, the household has an income of RM5,000.
Meanwhile, Household B has two self-employed workers, each earning RM2,500 for a total
household income of RM5,000. As such, these two households have the same monthly household
income and thus perhaps a similar standard of living. It also worth noting that neither household
would have been eligible for government assistance such as Bantuan Sara Hidup (BSH) where the
maximum household income threshold is RM4,000.
What would happen to these households during the crisis with the existing assistance? Figure 2
illustrates the scenario if all members in each household were to lose their employment (or told
be on unpaid leave in the case of the employee), assuming this loss of employment started at the
same time.
Figure 2: Scenario of two households during Covid-19 crisis
A B
Employee 1 Self-employed 1
! gets RM600 (x6)
! gets zero
+ +
Self-employed 1 Self-employed 2
! gets zero
+
! gets zero
+
RM1,600 (one off) RM1,600 (one off)
Total in 1st month = RM1,600 Total in 1st month = RM1,000
Total in 2nd month = RM1,200 Total in 2nd month = RM600
Subsequent 4 months = RM600 Subsequent 4 months = zero
(one entitled to ERP, (both NOT entitled to ERP,
household entitled to BPN) household entitled to BPN)
Note: Pay-out of BPN for households under RM4,000 household income is RM1,000 in April 2020 and RM600 in May.
KRI Views | Covid-19: Are All Workers Equally Protected? A Case of the Self-Employed 3In this situation, the employee from Household A is entitled to receive a monthly pay-out of RM600 up to six months from the ERP. Meanwhile, the other self-employed workers, both in Household A and B, are entitled to no such benefit despite seeing their incomes diminish to zero, assuming that they are not entitled to the one-off assistance for e-hailing and taxi drivers, or the unmarried singles category of the BPN. With the introduction of BPN for households, both households are eligible for a one-off payment of RM1,600, where payment is disbursed in April and May 2020. In this example, we see how two households with an initial equal amount of household income now fare under the crisis given the available measures. Evidently, Household A is better off than Household B, assuming all other things are equal. With the additional benefit of the ERP pay-out, this household would have a steady stream of income for up to four subsequent months. Meanwhile, Household B would have to make do with the BPN amount of RM1,600 that is received in the first two months over the same four-month course. While neither amount from the BPN or ERP may seem like much compared with their previous income, it is also worth noting that Household A can acquire further funds from EPF savings with the introduction i-Lestari, should they need to for an emergency4. Meanwhile, neither worker in Household B has this benefit as they are unlikely to be registered with EPF. What if the self-employed instead received assistance similar to the ERP? Is there an alternative measure to protect the livelihoods of self-employed workers and their families? An earlier paper5 has argued for equal assistance to all workers alike, by extending the benefits of the ERP to include self-employed workers. This could be done by via participation in the existing Self-Employment Social Security Scheme by SOCSO where its benefits are then extended6. Doing so also has the benefit of opting in most self-employed workers into existing social protection platforms, as it is currently low7, allowing them to be within the reach of the country’s social protection providers post-crisis. What would this look like in place of BPN? Consider again the same example of Household A and Household B (Figure 3). Assume no households receive BPN but this time, self-employed workers are entitled to a monthly pay-out of RM600 for up to six months, and not just employees. For Household A, this scenario may seem worse than the previous scenario given that there is no additional assistance from BPN, at least in the first two months. However, since the self-employed worker in Household A is also entitled to a monthly RM600 from the ERP, Household A is actually better off over the full six months as the total assistance adds up to RM7,200. This is larger than the total RM5,200 from over six months in the previous scenario. 4 While bearing in mind its trade off. See Adam Firouz (2020) for a discussion on this. 5 Hawati (2020) 6 Currently, this scheme provides protection against employment injuries. 7 Hawati (2020) KRI Views | Covid-19: Are All Workers Equally Protected? A Case of the Self-Employed 4
Figure 3: Alternative scenario of two households during covid-19 crisis, with ERP for all workers and no BPN
A B
Employee 1 Self-employed 1
! gets RM600 (x6) ! gets RM600 (x6)
+ +
Self-employed 1 Self-employed 2
! gets RM600 (x6) ! gets RM600 (x6)
Total income (for next 6 months) Total income (for next 6 months)
= RM1,200 = RM1,200
(All entitled to ERP) (All entitled to ERP)
Meanwhile, Household B is also better off, as both workers now receive the monthly RM600
payment from the ERP. The total assistance in this scenario of RM7,200 in over six months is
larger compared with the previous scenario, where they would only receive RM1,600 from BPN
to sustain themselves. In fact, even if both workers are without employment for just three months
(instead of six months), they would still be better off under the ERP, earning RM3,600 per
household with RM1,800 per worker, compared to RM1,600 per household with BPN.
More importantly, this scenario illustrates a fairer approach to protecting workers and
households, regardless of their employment status (employee or self-employed). In this scenario,
both households receive an equal amount of assistance to help them sustain a similar living
standard now, just as they were prior to the crisis.
What are the implications to government spending?
Undoubtedly, the fiscal implications of extending a program such as the ERP and its benefits to
self-employed workers is not insignificant, given the considerable number of workers under this
category in Malaysia. This is estimated to be 2.9 million workers, nearly 20% of the Malaysian
workforce8. Taking this number of self-employed workers, to ensure complete coverage would
cost up to RM10.3 billion for an ERP pay-out of RM600 for six months. If given only for three
months, similar to the WSP, it is half the amount at RM5.2 billion. This can be revised downwards
if the number of affected workers is estimated to be only a certain percentage of all self-employed
workers.
Whatever the amount is, it is likely to be much less than the total allocation for BPN which is up
to RM10 billion, despite the ERP potentially offering a fairer and greater amount of assistance to
households, as illustrated in our final scenario. In fact, if the same RM10 billion for the BPN were
instead allocated to the ERP (and the WSP), its level of assistance could be increased, given the
concerns that RM600 per month is insufficient, being less than 20% of the mean wage and half of
the minimum wage, making it ineffective in ensuring a decent income for households during these
tough times (or in the case of WSP, incentivising employment retention). Alternatively, the
eligibility threshold of RM4,000 for a salary could be relaxed to a higher ceiling, to account for a
greater portion of households in the middle-income distribution as done by BPN.
8 DOS (2019)
KRI Views | Covid-19: Are All Workers Equally Protected? A Case of the Self-Employed 5Conclusion
To conclude, it is clear that the existing measures are inadequate with respect to providing equal
protection to all workers—and by extension, all households in Malaysia. This is through the
failure in providing the same level of assistance to the self-employed compared to formal workers
in this crisis, while instead leaving the majority of them to rely solely on BPN, which even formal
workers can expect to benefit from in addition to the ERP, WSP and i-Lestari.
An extension of the ERP program to self-employed workers with a monthly pay-out that is similar
to what formal workers are currently eligible for is worth considering, as it could yield a fairer
result and offer greater assistance for all workers, as illustrated in our scenarios. Its consideration
is worthwhile despite its fiscal implications, which are not insignificant but potentially much less
than BPN. But whatever these fiscal implications may be, the issue of ensuring adequate, if not
extended assistance, to self-employed workers is crucial given the large number of workers left
otherwise unprotected.
Of course, the scenarios we depict in this paper are a simple illustration of the world. In reality,
households are of many different compositions, be it by the number of formal and self-employed
workers, or the number of old and young members—all factors of which could make a household
benefit more or less from existing assistance from the government. Undoubtedly, relying solely
on the ERP which is dependent on an individual participating in the workforce would leave out
those households with no workers, while a maximum eligibility threshold of RM4,000 may leave
out a single-earner household where the sole breadwinner earns RM4,500. That said, it is
important that our policy response is cognisant of potential exclusion or inadequacy, despite its
best intentions to not leave anyone behind. Seeing how existing measures to assist households of
different circumstances play out in such a way as illustrated in this paper can thus be useful.
References
Adam Firouz. 2020. Why i-Lestari will miss the Most Vulnerable during Covid-19. Kuala Lumpur:
Khazanah Research Institute.
DOS. 2019. Labour Force Survey Report, Malaysia, 2018. Putrajaya: Department of Statistics
Malaysia.
Hawati Abdul Hamid. 2020. Covid19: Peluang Mantapkan Perlindungan Sosial Semua Pekerja.
Kuala Lumpur: Khazanah Research Institute.
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