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Estimating Economic Impacts Due to Impaired Workforce Productivity (PART 1)

by Najlaa Ramli for Young Digital Leaders

Updates of MCO in Malaysia

Movement Control Order (MCO) in Malaysia has been exercised since March 18, 2020. The order requires civilians to show solidarity by enforcing social distancing for the safety of all. On the flip side, this measure has deprived business-as-usual for many economic and social activities. This measure has also impacted the optimal productivity of the current workforce in most economic sectors. However, Malaysia is starting to lift some restrictions allowing a large number of economic activities to restart on May 4, 2020.

The Prime Minister conceded that the country records economic losses for each day the MCO is being enforced. Up until now, the country has recorded losses amounting to RM63 billion, or approximately RM2.4 billion each day. Taking the complexity of the economic environment into consideration, we are exploring a quantitative evaluation to understand the interplay between workforce productivity and the extent of the economic losses. 

Model for Epidemic-induced Workforce Losses

Santos. et. al developed a dynamic model capable of generating sector-disaggregated economic losses based on different magnitudes of workforce disruptions. The model was used as an instrument to analyse post-2009’s H1N1 pandemic. It is an extension of the Inoperability Input-Output Model (IIM) developed by Jiang and Haimes (2001).  

The model by Santos. et al. took into consideration the rate of absenteeism and working hours lost during the pandemic. These were used as measures of workforce disruptions. Meanwhile, economic losses give information on the monetary value to the impairment to the overall production of goods and services. The complete framework of their model is presented below:

Source: Santos et.al (2012) Risk-Based Input Output Analysis of Influenza Epidemic Consequences on Interdependent Workforce Sector

In the period of social distancing, non-essential services experience sharp declines due to decreased demand. On the supply side, productivity is impaired because of restricted business operations and labor supply. It creates productivity impairment to the economic sectors to produce at its maximum potential. Due to inter-sectoral linkages, adverse impact in one economic sector cascades into other sectors, whether they are directly or indirectly related to the initial perturbation.

YDL’s Inoperability Input-Output Model

Therefore, we at Young Digital Leaders (YDL) are commencing our attempt to work on a simple Inoperability Input-Output Model, which combines the inoperability level of the sectors and economic impact assessment. The dependence of economic sectors on workforce productivity directly impacts the inoperability level. Meanwhile, the input-output (I/O) framework offers a neat way to describe cascading economic effects and the economic system’s sensitivity through inter-sectoral linkages. This model is based on preceding models.

Sample output:

The I/O framework

Department of Statistics Malaysia (DOSM) published the Supply and Use Tables that are essential in the construct of this I/O framework. We are also leveraging on Gross Domestic Product (GDP) and employment data points from DOSM in this model.

Our model currently estimates the impacts for two measures – Output and Value Added in the Malaysian economy. Output is the broadest measure of economic activity that considers total gross value in production. Meanwhile, Value Added refers to the additional value over the cost of inputs used in production (i.e. the difference between revenues and expenses on intermediate inputs). Value added is regarded as a more meaningful measure of economic impact as it avoids double-counting during each round of impacts. 

The I/O framework allows us to estimate total economic impact through three different categories – direct, indirect, and induced impacts. Direct impacts result from changes associated with the specified sector – in our case, impairments to full sectoral productivity. Indirect, or second-round impacts, result from impacts to the suppliers of goods and services to the specified sector. Induced impacts result from the displaced income of workers in direct and indirect sectors, in impacting further rounds of household spending.

Next steps

After the establishment of a framework for this model, we will continue to perform our analysis with data points related to impaired sectoral productivity in Malaysia. As mentioned earlier, we hope this model will be helpful to illustrate cascading effects of certain changes that are taking place in our economic environment. Especially with the recent restrictions lift, it is important to understand the trade-offs that we have been and continue to experience in regard to the economy.

Source: 

  1. Santos et.al (2012) Risk-Based Input Output Analysis of Influenza Epidemic Consequences on Interdependent Workforce Sector. National Center for Biotechnology Information
  2. Santos JR. Inoperability Input-Output Modelling of Disruptions to Interdependent Economic Systems. Systems Engineering. 2006;9(1):20–34
  3. Haimes YY, Jiang P.  (2001) Leontief-Based Model of Risk in Complex Interconnected Infrastructures. Journal of Infrastructure Systems. 2001;7(1):1–12
  4. Congressional Budget Office, U.S. Congress (2006)A potential Influenza Pandemic:Possible Macroeconomic Effects and Policy Issues