Underemployment hurts younger population, exacts toll on economy
By Adeline Pope and Qarrem Kassim
Malaysia’s young population continues to face a significant challenge in the labour market: underemployment.
Evidence suggests that many young Malaysians are stuck in low-paying jobs that do not provide them with opportunities to utilise fully their skills and abilities. Combined with growth of the gig economy, this could have far-reaching implications for Malaysia’s long-term growth trajectory.
The prevalence of youth underemployment is due to various factors, including the types of jobs available in abundance, which in Malaysia are low-skill labour-intensive in agriculture and construction. Meanwhile, among the better educated middle class, an oversupply of university educated young workers has resulted in more competitive employment outcomes.
For young graduates, the highly competitive labour market has forced many to settle for jobs that they are overqualified for, resulting in a phenomenon known as skills-based underemployment.
According to the Statistics Department, in 2022, a third of the employed with tertiary education work in semi- and low-skilled occupations, not requiring further education or 1.6 million graduates. More worryingly, 95% of workers aged under 30 experience skills-based unemployment, with a study from Universiti Pendidikan Sultan Idris estimating a 17% wage penalty from overqualification.
Consequently, this results in lower earning potential and denies them the opportunity to build experience in their chosen vocation. Over the long term, repercussions persist as the youth bracket ages and will impact on the ability of firms to fill mid- and high-skilled vacancies.
Moreover, this trend will exacerbate the prevalence of Malaysia’s “brain drain” while a host of secondary effects, such as the inflation of illusory courses and suppression of real wages, limit the ability of various industries to invest in competitive innovation as technical skills remain underutilised.
Malaysia runs the risk of forgoing its development advantage, ultimately being displaced by its fast-growing, market-oriented Asean neighbours should it fail to act now. This is not an easy fix and requires proactivity, cooperation, time and administrative persistence.
Improving the quality and relevance of tertiary education is crucial to address underemployment. Students need to graduate with in-demand skills, including practical components for work readiness and proficiency in global communication. Employers have long complained about poor English abilities and a lack of critical thinking, problem solving and networking among new hires.
Further, the socio-cultural aspect of tertiary education has become ingrained into the fabric of the Malaysian mindset, where many students enrol into universities for enrolment’s sake or to fulfil familial expectations.
Students, parents and schools must understand that a university education is no longer the main determinant to obtain a high-skilled job. This phenomenon of blind enrolment not only wastes resources but also degrades the quality of education as graduates become mass produced.
The Higher Education Ministry estimates that the percentage of post-secondary enrolment of Malaysians aged between 18 and 23 has reached 48%, significantly higher than World Bank and United Nations targets of 35% for nations at Malaysia’s level of development.
Moreover, the high dropout rates in public universities, coupled with the gradual lowering of passing standards and the long-term issue of student loan debt highlight the inefficiencies in the current tertiary education system of “mass enrolment” and the value of educational outcomes. Thus, local universities must strive to ensure a quality-over-quantity mindset to cure the rot.
The involvement of the private sector is also crucial. SMEs, which constitute more than 97% of Malaysian businesses, must play a key role through engagement with universities, being explicit about the skills and capabilities they seek and offer work placements and apprenticeships.
A Malaysian Employers’ Federation salary survey reported that only 52% of firms consider hiring fresh graduates for available roles – largely reflecting the “perceived quality” of fresh graduates. This suggests that Malaysian firms also need a mindset shift.
Ideally, SMEs should be the first in line to hire inexperienced graduates, which numerous studies have shown improves workplace creativity and agility, while having comparatively lower salary demands.
Moving up global value chains, innovation must come first. Though the idea of “knowledge-led growth” has been embraced, persistence is needed to ensure that Malaysia’s graduate talent base and potential of the Malaysian youth goes unwasted. The dream of a high-income Malaysia can only be realised through the full utilisation of Malaysia’s human capital base.
