By: Dr. Diana Abdul Wahab
The World Bank’s Malaysia Economic Monitor (October 2024) projects Malaysia’s economy will grow by 4.9% this year, a 0.6 percentage point increase from earlier estimates. While this signals a recovery, the report stresses that achieving high-income status by 2028 won’t guarantee “high development”.
According to Dr. Apurva Sanghi, the World Bank’s lead economist for Malaysia, poor macro-fiscal management or mismanagement of commodity exports could still pull the country back into middle-income status. A critical issue threatening Malaysia’s development is the insufficient creation of high-skilled jobs, which leaves many tertiary-educated Malaysians stuck in low- and semi-skilled positions.
The skills mismatch problem
Malaysia’s labor market has been unable to keep pace with the country’s rapidly growing number of university graduates. In 2023 alone, 287,000 graduates entered the workforce, but only 48,700 high-skilled jobs were available. This dramatic gap underscores the deepening mismatch between the supply of graduates and the demand for skilled labor.
The problem is not new. Between 2018 and 2019, the number of graduates in the labor force was double the increase in high-skilled jobs, and the situation worsened after the pandemic. As a result, the number of degree holders employed in low-paying or semi-skilled jobs has nearly tripled since 2010. This trend reflects a broader structural issue: Malaysia simply isn’t creating enough high-skilled jobs for its educated workforce.
Several factors contribute to Malaysia’s ongoing struggle to create enough high-skilled jobs for its growing number of graduates. One major issue is the misalignment between the education system and market demands. Malaysian universities continue to churn out graduates in fields that are oversupplied, such as general programs and services, which do not align with the needs of the labor market. As a result, the country faces a surplus of job seekers in these fields, while industries that require advanced technical skills are left underserved. This mismatch has led to a growing number of graduates entering the workforce with qualifications that are not in demand, exacerbating the problem of underemployment.
Another critical factor is Malaysia’s low investment in research and development (R&D). High-skilled jobs are often driven by innovation and technological advancement, but Malaysia lags behind other high-income countries in R&D spending. Without a strong foundation in innovation, the growth of high-tech industries is stunted, limiting the creation of high-skilled employment opportunities. As a result, Malaysia remains dependent on sectors that do not require advanced skills, hindering the transition to a more knowledge-based economy.
Compounding these issues is the country’s reliance on low-skilled labor, particularly in industries like manufacturing, agriculture, and construction. A significant portion of the workforce is employed in semi-skilled jobs, and the influx of cheap migrant labor has only reinforced this economic structure. Employers in these sectors often opt for low-cost foreign workers over investing in technology or high-skilled talent. This reliance on low-skilled labor has stifled the demand for high-skilled roles and has slowed the country’s economic diversification, keeping Malaysia locked in a cycle of low- and semi-skilled job creation.
The insufficient creation of high-skilled jobs has far-reaching implications for Malaysia’s economy. The World Bank warns that while Malaysia may reach high-income status by 2028, the country risks stagnating if the labor market cannot support its growing educated workforce. Underemployment of highly educated individuals limits productivity, innovation, and the country’s long-term competitiveness. Moreover, many high-skilled graduates are forced to work in jobs that do not utilize their qualifications, resulting in an economic inefficiency known as “over-education.”
Addressing the skills mismatch
To address these challenges, a multi-pronged approach is needed. Malaysia must first reform its education system to better align with industry needs. Stronger partnerships between universities and businesses could help shape curricula and provide graduates with the skills required in the job market. Additionally, increased investment in R&D would stimulate the growth of high-tech industries, which in turn would generate more high-skilled jobs.
The government should also implement policies that incentivize employers to invest in upskilling their workforce. This could involve tax incentives for companies that provide training programs or adopt new technologies that require high-skilled talent. Reducing dependence on low-cost foreign labor and encouraging firms to focus on productivity gains through automation and innovation could further shift the economy toward high-value sectors.
Despite current challenges, there are opportunities on the horizon. Emerging technologies are expected to drive demand for high-skilled workers in areas such as IT, data science, and environmental sustainability. For example, industries are anticipating a rise in the need for niche engineering professionals, data analysts, and ESG (Environmental, Social, and Governance)-related roles. Promoting entrepreneurship and innovation can also create new job opportunities, helping to reduce the reliance on traditional employment pathways.
Malaysia’s economic growth may be back on track, but the structural challenges in the labor market remain. The country’s inability to generate enough high-skilled jobs for its graduates risks undermining its path to high-income status. To secure sustainable development, Malaysia must urgently address the skills mismatch, invest in innovation, and reform its labor market to meet the needs of its evolving economy. Without these reforms, the risk of stagnation looms, and Malaysia’s educated workforce may remain underutilized.
The author is a senior lecturer at the Department of Decision Science, Faculty of Business and Economics, Universiti Malaya, and may be reached at diana.abdwahab@um.edu.my
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