MALAYSIA KLEMS: PRODUCTIVITY PERFORMANCE THE 2 ND ASIA KLEMS DATABASE MANAGEMENT WORKSHOP 17 OCTOBER 2014 Mazlina Shafi’i Wan Fazlin Nadia Wan Osman Malaysia Productivity Corporation

Malaysia KLEMS Team The project is lead by the Malaysia Productivity Corporation (MPC). Data Development Team: MPC Department of Statistics Malaysia Economic Planning Unit, Prime Minister’s Department Technical committee – data validation: Key expert, MPC, Department of Statistics, Economic Planning Unit and stakeholders.

To investigate the sources of economic growth of Malaysia at industry level. To develop a database on productivity by 30 industries with a breakdown into contributions from capital, labour, energy, materials and service inputs as well as total factor productivity. Coverage over the period of To conduct a number of analytical research projects in areas of: analysis of productivity, industry structures, technology and innovation at the sectoral and industrial level. labour markets and skills. technological progress and innovation. link to productivity research using firm level databases. Industry benchmark among KLEMS practicing countries. Objectives of Malaysia KLEMS Project

1. Output (Value Added) Source of data: National Account Data from the Department of Statistics, Malaysia ( Time period: Data from National Account was grouped into KLEMS-30 industries (sectors 31 and 32 in Asia KLEMS manual is not available).

Share of Value Added by Main Economic Sectors Malaysia's Industrial Structure:

Share of Value Added by Industry Code Industry % Share 1Agriculture Mining and Quarrying Food Products, Beverage & Tobacco Textiles, Leather & Footware Wood & Products of Wood & Cork Paper & Paper Products, Printing & Publishing Coke, Refined Petroleum Products & Nuclear Fuel Chemicals & Chemical Products Rubber & Plastic Products Other Non-Metallic Mineral Products Basic Metals & Fabricated Metal Products Machinery Electrical & Optical Equipment Transport Equipment Other Manufacturing & Recycling Electricity, Gas & Water Supply Construction Sale, Maintenance & Repair of Motor Vehicles Wholesale Trade & Commission Trade Retail Trade, Repair of Household Goods Hotels & Restaurants Transport & Storage Post & Telecommunications Financial Intermediation Real Estate Activities Renting of M&Eq and Other Business Activities Public Admin & Defense; Compulsory Social Security Education (private) Health & Social Works (private) Other Community, Social & Personal Services

Growth of Value Added by Main Economic Sectors Growth Rate (%) Malaysia Agriculture Mining Manufacturing Construction Services

Growth of Value Added by Main Economic Sectors:

Approach by Jorgenson, Gollop and Fraumeni was used to estimate changes in labour quality. In this way, aggregation takes into account the changing composition of labour force. This variable indicates the labour services per hour worked. It is measured as the difference in growth of labour service and hours worked. Methodology 2. LABOUR ACCOUNT

Data Variables No. of Employees total man hours work salaries and wages Sample 30 industries according to Asia KLEMS categories Period by gender, education and age Data used in the study are taken from the preliminary version of the Malaysia-KLEMS database, which is constructed in close cooperation with the Department of Statistical Malaysia (DOSM) and Economic Planning Unit (EPU). The main sources of data are from various official publications such as National Accounts Statistics (NAS), Input-Output tables, Annual Industries Survey (AIS), Household Income Survey (HIS), Labour Force Survey (LFS), and Salary and Wages Survey (SWS) and supplemented by many unpublished sources documents provided by the DOSM for the Malaysia-KLEMS project. Data Source

Labour Quantity Growth by Main Economic Sector, (%) Malaysia Agriculture Mining Manufacturing Construction Services Labour Share by Main Economic Sector, (%) Labour Quality Index by Main Economic Sector,

IndustryCategory Manufacturing NEC; Recycling unskilled skilled Electricity, Gas & Water Supply unskilled skilled Construction unskilled skilled Sale, Maintenance & Repair of Motor Vehicles & Motorcycles unskilled skilled Wholesale Trade & Commission Trade, Except of Motor Vehicles & Motorcycles unskilled skilled Retail Trade, Except of Motor Vehicles & Motorcycles; Repair of Household Goods unskilled skilled Hotels & Restaurants unskilled skilled Transport & Storage unskilled skilled Post & Telecommunications unskilled skilled Financial Intermediation unskilled skilled Real Estate Activities unskilled skilled Renting of M&Eq & Other Business Activities unskilled skilled Public Admin & Defense; Compulsory Social Security unskilled skilled Education unskilled skilled Health & Social Works unskilled skilled Other Community, Social & Personal Services unskilled skilled IndustryCategory Malaysia unskilled skilled Agriculture, Hunting, Forestry & Fishing unskilled skilled Mining & Quarrying unskilled skilled Food Products, Beverages & Tobacco unskilled skilled Textiles, Textiles Products, Leather & Footwear unskilled skilled Wood & Products of Wood & Cork unskilled skilled Pulp, Paper, Paper Products, Printing & Publishing unskilled skilled Coke, Refined Petroleum Products & Nuclear Fuel unskilled skilled Chemicals & Chemical Products unskilled skilled Rubber & Plastics Products unskilled skilled Other Non-Metallic Mineral Products unskilled skilled Basic Metals & Fabricated Metal Products unskilled skilled Machinery, NEC unskilled skilled E&E unskilled skilled Transport Equipment unskilled skilled Share of Labour: Skilled and Unskilled by Industries, (%)

Labour Quantity Growth: Skilled and Unskilled by Industries, (%) Industry UnskilledSkilledUnskilledSkilledUnskilledSkilled Malaysia Agriculture, Hunting, Forestry & Fishing Mining & Quarrying Food Products, Beverages & Tobacco Textiles, Textiles Products, Leather & Footwear Wood & Products of Wood & Cork Pulp, Paper, Paper Products, Printing & Publishing Coke, Refined Petroleum Products & Nuclear Fuel Chemicals & Chemical Products Rubber & Plastics Products Other Non-Metallic Mineral Products Basic Metals & Fabricated Metal Products Machinery, NEC E&E Transport Equipment Manufacturing NEC; Recycling Industry UnskilledSkilledUnskilledSkilledUnskilledSkilled Electricity, Gas & Water Supply Construction Sale, Maintenance & Repair of Motor Vehicles & Motorcycles Wholesale Trade & Com. Trade, Except of Motor Vehicles & Motorcycles Retail T., Except of Motor Vehicles & Motorcycles; Repair of Household Goods Hotels & Restaurants Transport & Storage Post & Telecom Financial Intermediation Real Estate Activities Renting of Machinery & Equipment & Other Business Activities Public Admin & Def.; Compulsory Social Security Education Health & Social Works Other Community, Social & Personal Services

Labour Quality Index by Industries, Industry Malaysia Agriculture, Hunting, Forestry & Fishing Mining & Quarrying Food Products, Beverages & Tobacco Textiles, Textiles Products, Leather & Footwear Wood & Products of Wood & Cork Pulp, Paper, Paper Products, Printing & Publishing Coke, Refined Petroleum Products & Nuclear Fuel Chemicals & Chemical Products Rubber & Plastics Products Other Non-Metallic Mineral Products Basic Metals & Fabricated Metal Products Machinery, NEC E&E Transport Equipment Manufacturing NEC; Recycling

Labour Quality Index by Industries, Industry Electricity, Gas & Water Supply Construction Sale, Maintenance & Repair of Motor Vehicles Wholesale Trade & Commission Trade Retail Trade, Repair of Household Goods Hotels & Restaurants Transport & Storage Post & Telecommunications Financial Intermediation Real Estate Activities Renting of M&Eq & Other Business Activities Public Admin & Defense; Compulsory Social Security Education Health & Social Works Other Community, Social & Personal Services

Capital stock measurement is using the Perpetual Inventory Method, capital stock (A) is defined as a weighted sum of past investments is defined as a weighted sum of past investments with weights given by the relative efficiencies of capital goods at different ages according to (industry subscripts are suppressed for convenience) Methodology with A k,t, the capital stock for a particular asset type k at time t, θ k,τ, the efficiency of a capital good of age t relative to the efficiency of a new capital good and I k t−τ, the investment in period t-τ. Hence with a given constant rate of depreciation δ, different for each asset type, θ t = (1−δ ) t and it follows that the capital stock of a particular asset k at time t, A k, t is given by: 3. CAPITAL ACCOUNT

For the aggregation of capital services over the different asset types it is assumed that aggregate services are a translog function of the services of individual assets. It is further assumed that the flow of capital services for each asset type is proportional to its stock, independent of time. Hence the corresponding index of capital input K is a translog quantity index of individual assets in a particular industry given by: Where the weights are given by the average share of each component in the value of capital compensation and with the price of capital. Methodology (continue)

Data Variables Net Capital Stock by asset types (Constant and Current) Rate of return Depreciation rate Deflator Data Source Department of Statistics, Malaysia Bank Negara Malaysia (Adjusted by MPC) Asia KLEMS Manual Department od Statistics Malaysia Sample 30 industries according to Asia KLEMS categories Period

Capital Services Growth by Main Economic Sector, (%) Capital Share by Main Economic Sector, (%)

Sector Contribution to Aggregate Capital Services ITNon-ITTotalITNon-ITTotalITNon-ITTotal Agriculture Mining Construction Manufacturing Services Growth of Capital Services ITNon-ITTotalITNon-ITTotalITNon-ITTotal Malaysia Agriculture Mining Construction Manufacturing Services

Growth in IT Capital Services, Note: All values are average annual growth rate IT Capital Services Share, Note: All values are average annual share

Industry Contribution to Aggregate Capital Services, SectorsITNon-ITTotal Agriculture Mining and Quarrying Food products, beverages and tobacco Textiles, textile products, leather and footwear Wood and products of wood and cork Pulp, paper, paper products, printing and publishing Coke, refined petroleum products and nuclear fuel Chemicals and chemical product Rubber and plastics products Other non-metallic mineral products Basic metals and fabricated metal products Machinery, nec Electrical and optical equipment Transport equipment Manufacturing nec; recycling Electricity, Gas and Water Construction Sale, Maintenance & Repair of Motor Vehicles Wholesale Trade & Commission Trade Retail Trade & Repair of Household Good Hotels & Restaurants Transport & Storage Post & Telecommunications Financial Intermediation Real Estate Activities Renting of M&Eq & Other Business Activities Public Admin & Defense; Compulsory Social Security Education Health & Social Works Other Community, Social & Personal Services

Average Growth of Capital Services by Industries, SectorsITNon-ITTotal Agriculture Mining and Quarrying Food products, beverages and tobacco Textiles, textile products, leather and footwear Wood and products of wood and cork Pulp, paper, paper products, printing and publishing Coke, refined petroleum products and nuclear fuel Chemicals and chemical product Rubber and plastics products Other non-metallic mineral products Basic metals and fabricated metal products Machinery, nec Electrical and optical equipment Transport equipment Manufacturing nec; recycling Electricity, Gas and Water Construction Sale, Maintenance & Repair of Motor Vehicles Wholesale Trade & Commission Trade Retail Trade & Repair of Household Good Hotels & Restaurants Transport & Storage Post & Telecommunications Financial Intermediation Real Estate Activities Renting of M&Eq & Other Business Activities Public Admin & Defense; Compulsory Social Security Education Health & Social Works Other Community, Social & Personal Services

4. Total Factor Productivity (TFP) The sources of VA growth can be expressed as: VA growth = ConK + ConL + TFP and the inputs can be further detail as: VA growth = ConK IT + ConK NONIT + ConL SK + ConL UNSK + TFP Compute for 1.The whole economy 2.Main Economic Sectors i) Agriculture ii) Mining iii) Construction iv) Selected Manufacturing & Services industries Methodology Data Sources Value Added Data refer to real GDP obtained from National Account Data from the Department of Statistics, Malaysia ( for the period www.statistics.gov.my

Source of Malaysia’s Value Added Growth (%)

Agriculture Mining Construction Manufacturing - E&E Source of Value Added Growth by Main Economic Sectors and Selected Industries (%)

Manufacturing - Chemical Manufacturing - Food Manufacturing – Transport Equipment Services - Retail Source of Value Added Growth by Main Economic Sectors and Selected Industries (%)

Services - Transport & Storage Services - Financial Intermediation Source of Value Added Growth by Main Economic Sectors and Selected Industries (%)

Source of Value Added Growth by Main Economic Sectors and Selected Industries, (%) Value AddedCapitalLabourTFP Malaysia Agriculture Mining Construction Manufacturing - E&E Chemicals Food Transport Eq Services - Retail Transport & Storage Financial intermediation

ISSUES & CHALLENGES Capital Inputs Agriculture and mining are important sectors to Malaysia thus assets incorporate biological assets and mineral exploration. However, assets not including Land which is important to Agriculture & Real Estate. Labour Inputs For labour, even though services sector recorded the largest share in labour, the quality index of the sector was smaller than the other main sectors. Furthermore, services sector has more than 85% of skilled labour in the sector. MPC contribution Development of - Capital services & Assets for land. - Labour quality

Future Task 1.IO Calculation: Add land estimates 3.Use actual rate of return 4.New national account with R&D, IO with new IO 2010 structure 6.More assets class Telecommunication equipment (ICT) R&D (intangible)

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