Do Downsizing and Global Financial Crisis Affect SMIs Labour Productivity in Malaysia?

Abstract

—This paper examines the effect of downsizing and global financial crisis on the labour productivity of the manufacturing industries in Malaysia. Due to the crisis, many industries retrenched their workers to adjust to the declining demand in their respective industries. Two distinctive sub-industries that have the highest retrenchment rates are the manufacturing of radio, television and communication (27%) and the manufacturing of rubber and plastics (13.3%) out of total retrenchments within the last three years (2009-2011). The main reason for the downsizings is the deteriorating demand for their products. Using panel data analysis with fixed effects on monthly data from 2003 till August 2011, the study finds that the global financial crisis has positively affected labour productivity of the SMIs but it has negatively affected the large ones. Downsizing activities among the SMIs did not have a significant impact on labour productivity of industries in general.