MALAYSIA is set to achieve pre-pandemic economic growth this year but struggles to stay on track due to global headwinds, as well as certain structural constraints, especially in the labour market.
National unemployment rate remains above 4%.
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As of February, some 671,800 people, 4.1% of Malaysian labour force, were unemployed in our economy. Despite the continuous decline in the number of unemployed persons since mid-2021, the unemployment rate remains well above the pre-pandemic level of 3.3%.
In addition, unemployment rate among youths, particularly with tertiary educational attainment, remains high mainly due to the mismatch between graduates’ skills and industry requirements.
As a matter of fact, some 175,900 (4.2%), out of 4,231,100 people who attained tertiary education, were unemployed in 2017.
Separately, the share of low-skilled jobs in Malaysia increased significantly to around 14% in 2017 from only 8% in 2010, while high-skilled employment shrank to 37% from 45% over the same time period.
What is more worrying is that, skill-related underemployment in Malaysia increased by 6.3% to record 1.9 million persons in 2021 (2020: 1.8 million persons).
Hence, the rate of skill-related underemployment to employed persons with tertiary education edged up from 38% in 2020 to 38.7% in 2021.
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Critical reforms to the country’s labour market should be very much within its reach to tackle the structural problems within our labour market.
In other words, the labour force must be well remunerated in order to contribute to a sustainable economic growth.
Demand for high-skilled jobs
Nowadays, the advancement of artificial intelligence has automated many different types of jobs.
Thus, it is no surprise that the most demanded high-skilled jobs in Malaysia, as well as in a large portion of the world, are related to computer science and technology.
In fact, TalentCorp lists systems analysts, software developers and applications programmers as highly demanded skilled occupations in its 2020/2021 Critical Occupations List (COL).
This compilation comprises of numerous job titles grouped by occupation, including managers, engineers and computer scientists.
Unsurprisingly, these are the main high-skilled professions that are currently sought-after in Malaysia, particularly within the manufacturing sector in 2021, which accounted for 57% of total job vacancies. The services sector came in third place at 15% of total job vacancies.
The COL gives a breakdown of each occupation, outlining the skills that are required to fill each position and the main reasons for the vacancies observed.
The three recurring reasons contained throughout the report include: lack of required technical skills, lack of relevant job experience and shortage of applicants.
Applicants not having the relevant and necessary technical skills are strongly correlated with their academic pursuits.
Almost all jobs listed on the COL require a minimum of bachelor’s degree, with many demanding additional certifications or qualifications.
In 2019, around 80% of total graduates obtained either a Diploma or First Degree, with the remaining 20% receiving a Master’s Degree, Ph.D, Post Graduate Diploma or Advanced Diploma.
According to the World Bank, the number of graduates from tertiary education as a percentage of the total tertiary education age population is around 11% in Malaysia, compared to 24% in Canada, 17% in the US and 16% in Japan.
These figures indicate that Malaysia still has some catching up to do in terms of incentivising young people to pursue higher education, as well as encouraging more graduates to obtain advanced qualifications.
With regards to experience, almost all employers prioritise workers who have been in the workforce for a longer period, with an average of around five or more years of work experience.
For example, respondents of the TalentCorp Call-for-Evidence survey in the field of chemistry, opted to hire experienced candidates rather than fresh graduates.
Starting salaries and underemployment
In their efforts to boost Malaysia’s wage growth, the government has announced that the minimum wage is to increase to RM1,500.
Although nominal wages in Malaysia have been on the rise albeit at a slow pace, real starting monthly salaries (inflation-adjusted) for fresh graduates have declined since 2010.
As stated in Bank Negara’s Annual Report for 2018, a fresh graduate with a diploma earned an average salary of RM1,376 in 2018, compared with RM1,458 in 2010. With the ongoing environment with high inflation risks, the average salary could have further declined currently.
According to Statistics Department, the total vacancies in skilled jobs in 2021 yields an estimate of around 42,900 total jobs, which is significantly lower than the number of unemployed graduates with tertiary education of 169,000.
As a result, firms need not raise fresh graduates’ salaries due to the over-supply of fresh graduates in the labour market.
It is also alarming to see that the largest portion of job vacancies remain concentrated around low-and medium-skilled jobs.
In fact, in 2021 around two per third of total job vacancies were for elementary positions compared to high skilled jobs such as scientific and technical activities.
The above findings justify the presence of high levels of youth unemployment, although they may seem contradictory to the feedback reported in the COL regarding shortage of applicants; thus raising the issue of underemployment.
As a matter of fact, approximately 50% of young workers in low-skilled manual jobs are said to be over-qualified for these occupations.
Therefore, many young, educated people have to resort to jobs that do not utilise their expertise.
In addition, some of these young people who are fresh graduates tend to seek lower-skilled jobs because they pay more than high-skilled jobs. For example, a Grab driver working for 40 hours per week, is estimated to earn around RM3,156 per month. This calculation uses the revenue calculator provided by Grab.
Reforms needed
Fresh graduates currently find themselves in a situation where they are underqualified and inexperienced for many high-skilled jobs, but are overqualified for the remaining available jobs.
Although funding by the government will contribute towards reducing youth unemployment levels, the challenge now is for educators and employers to synergise for a smooth transition between the education stage and work stage of life.
This can be done by adjusting the curricula, providing more internship opportunities for students to gain exposure and industrial experience. To tackle unemployment among graduates, we are keen to see the government step in with long term investment in education. This is to revamp the tertiary education system in line with job creations in skill-intensive sectors.
As such, a three plus one (three years university and one year in industrial training) approach could be ratified in Malaysia’s higher education system to minimise the mismatch between graduates and what the labour force needs.
Thorough discussions should take place on the way forward to bridge this gap.
To empower students with the necessary skills during the job training phase, the government should consider giving incentives to the hiring firms in terms of tax reduction.
This is in the hope of encouraging more companies, especially the small and medium enterprises since they make up around 98% of total firms in Malaysia.
Malaysian firms could significantly reduce the unemployment among graduates through industrial training programmes coupled with a promise of employment at the end of their tertiary studies; at the same time having a tax reduction benefit for their company. As such, these schemes offers a win-win situation for firms and graduates as firms are motivated to hire more fresh graduates, and graduates are able to obtain a skill-matched career through these industrial training programmes.
Manokaran Mottain has served the industry as an economist for over 30 years and is currently the director of Rising Success Consultancy Sdn Bhd. The views expressed here are the writer’s own.