Labour Market Situational Report


Over the years, Malaysia has always aspired to be a high-income nation. However, the country has been struggling to escape from the middle-income trap for the past 36 years since 1987. The difficulties of Malaysia in wrangling its way into the high-income pasture are partly due to the structural problems infecting its labour market. Malaysia’s current main economic model is still prominently a low-cost production model that deploys a low capital-labour ratio and leverages the influx of low-cost low-skill foreign labour from countries such as Indonesia, Bangladesh, Nepal and Myanmar. In 2021, about 15% of the employed persons in Malaysia were non-citizens. Although the number of foreign workers is on a decreasing trend since 2017, the absolute number is still high.

The current economic model tends to exploit these low-productive employees to work longer hours in order to achieve the pre-determined output. This low-cost, labour-intensive production model also tends to distort the wage-setting mechanism and impede any meaningful overall wage increment. According to the PricewaterhouseCoopers (PwC) Asia Pacific Workforce Hopes and Fears Survey 2023, it stated that salary is one of the important factors for retention and 40% of the workers are highly likely to ask for a pay raise in the next 12 months. As part of the Khazanah Research Institute (KRI) Graduate Tracer Study and Employability (GTSE) project, about 3 in 4 graduates who are working in skilled jobs still earn below USD 440. In a country like Malaysia that could not provide a healthy rate of salary increment due to its economic model, this could lead to another issue which is talent brain drain.

The second structural issue that is negatively affecting the domestic labour market is the low creation of high-skilled jobs. Between 2018 and 2022, the proportion of high-skilled jobs created out of the overall employment creation is decreasing year-by-year from 45% in 2018 to 30% in 2022. While the demand side is dwindling down, the supply side is overflowing, potentially turning into a glut. For example, on average, 151,000 persons graduate in Malaysia on a yearly basis. However, in 2022, the Malaysian economy only managed to create 34,470 highly skilled jobs. This predicament led to a lot of graduates to be underemployed, assuming semi-skilled and low-skilled jobs. 

Third, there seem to be substantial disparities between the skills that workers possess and those that the sector requires. Employers in Malaysia reported shortages in social skills (such as social perceptiveness and social orientation), physical abilities (such as static strength and stamina), and communication skills (such as oral expression and writing), according to an Organisation for Economic Co-operation and Development (OECD) study on skills imbalances in Malaysia. These results are generally in line with the hiring challenges Malaysian companies have previously observed, with the addition of a dearth of advanced cognitive abilities (such as critical thinking and problem-solving). Separate findings from the Critical Occupations List (COL) also identified occupational skill imbalances. Notably, jobs like software developers, electronic engineers, and managers of information and communication technologies (ICT) have continuously emerged in every COL since. The rise of the digital economy and the rapid digitalisation of enterprise will further exacerbate these issues if the Government or the relevant stakeholders do not take the appropriate measures to address these problems.

Every year, the Malaysian Government allocates about USD200 mil to USD300 mil for the purpose of developing the workforce in Malaysia. Apart from that, Malaysia is also blessed with an institution called Human Resources Development Corporation (HRD Corp) that funds training programs of the employees with monies channelled from the collection of levies from each employer.

On the other hand, one of the key workforce development programs by the Government is the recently announced Academy in Industry (AiI) program. By adopting the ‘place-and-train’ concept, Putrajaya has allocated about USD 9 mil to run the pilot phase of the AiI program until the end of the year. About 20,000 out-of-school youth will have the chance to jump straightaway into the labour market and start their career. More than 200 companies have participated in this initiative and the companies will train the participants with the relevant skills between 9 to 18 months. Despite these efforts, the Government cannot do it alone in improving the Malaysian workforce as the country needs to spend about USD 68 bil for the next five years in order to upskill up to 10 mil workers. 

Despite the initiatives being implemented by the Government, USD 68 bil is a huge amount to be achieved by 2028. Hence, it requires the learning and development industry players (both public and private sectors) to play a part in cultivating skilled labourers, which in turn enhances Malaysia’s overall income status.

Labour Market Situational Report