This article first appeared in The Edge Malaysia Weekly on May 30, 2022 - June 5, 2022

WHILE most business sectors have reopened, leading to an increase in job creation, many of these jobs have not been taken up by Malaysians, as evidenced by the unemployment rate, which remained stubbornly high at 4.1% in the first quarter (1Q) of 2022. This is equivalent to 671,200 who are interested to work but do not have jobs.

Though it was an improvement compared with 4.3% and 4.7% in 4Q and 3Q2021 respectively, it has yet to return to the pre-pandemic level of below 3.5%.

In 1Q2022, the number of jobs created surpassed that of the pre-pandemic period, growing 23.7% quarter on quarter (q-o-q) to 25,800. By economic sector, services contributed the largest share of 47.6% or 12,300 jobs, largely from the wholesale and retail trade and transport and storage sub-sectors. This was followed by manufacturing (33.3%), construction (12.9%), agriculture (5.8%) and mining and quarrying (0.4%), according to the Department of Statistics Malaysia’s (DoSM) Labour Market Review for 1Q2022.

This, coupled with previous unfilled vacancies, brought the total vacancies to 184,300 in 1Q2022 from 183,600 in 4Q2021, representing an increase of 0.4%. During the quarter under review, the rate of filled jobs was stable at 97.8%.  

Of the 15.57 million employed persons, close to 60% were semi-skilled, while skilled and low-skilled made up the remaining 27.9% and 12.1% respectively.

Simply put, there is a mismatch between job openings and job seekers.

The general principle is that a country is considered as having achieved full employment if its unemployment rate is below 4%.

On that score, Dr Yeah Kim Leng, professor of economics at Sunway University, says Malaysia’s unemployment rate is not worrying, but it does reflect the under-utilisation of the country’s labour resources. And the mismatch in the job market is partly due to the country’s economic structure that is heavily dependent on low-skilled workers in the plantation, construction and low-end services sectors.

“We are facing shortages of low-skilled workers, but unemployed Malaysians are not willing to take up these low-wage jobs. It is either due to the wages being too low or the nature of the jobs that are difficult, dangerous and dirty,” he tells The Edge.

Also, the younger generation is not prepared to take up those entry-level jobs. Notably, the unemployment rate among youth (15 to 24 years old) has been consistently higher than other age groups. As at end-March 2022, it was lower at 11.1% compared with 11.7% in 4Q2021.

Citing local wages as being too low for Malaysians, Yeah notes that youth are more attracted to jobs in other countries, especially Singapore, where the salaries are higher owing to the exchange rate advantage (See “When a stronger currency beckons”).

“Employment is more lucrative abroad, and people can gain experience and skills in the more developed markets,” he says.

Nonetheless, Yeah highlights that high youth unemployment is typically not alarming, except that it could result in social problems and discontent if young people have difficulty integrating into the economy and society.

“For those without high academic qualifications, certain jobs are out of their range, with job opportunities mainly requiring training. In this case, our technical and vocational education and training (TVET) has to be strengthened quickly, so that we can produce enough vocational training and technical education — a need for the skilled-based industries,” he explains.

MIDF Research economist Zafri Zulkeffeli believes that the double-digit unemployment rate for youth is common due to the education and skills levels. To him, skill-related underemployment is more of a concern, given that more than one-third of employed persons with tertiary education were in the semi-skilled and low-skilled occupations, according to DoSM.

In 1Q2022, the number of persons in skill-related underemployment declined 4.7% year on year (y-o-y) to 1.81 million persons. This resulted in the share of tertiary-educated employed persons working in semi-skilled and low-skilled occupations decreasing by one percentage point to 36.9% from the same quarter a year ago. Q-o-q, it was down 0.6 percentage points.

On the trend of more youth joining the food delivery and e-hailing services, Yeah is of the view that the gig jobs should be supplementary or temporary while exploring permanent options. “These jobs are good to supplement their income and tide them over the temporary situation — where they couldn’t find full-time jobs. Over the long term, it may not provide them with financial security due to the capping of income levels.”

Besides low-skilled jobs, the mismatch in high-skilled jobs should not be ignored, he adds. “The skills required by employers are not met by the graduates. For example, currently, the market is seeing shortages of data scientists and talent with digital skills. Those without the relevant experience may not be able to fullfil the job requirements.”

Meanwhile, UOB Global Economics and Markets Research senior economist Julia Goh points out that the increase in the labour force participation rate to record levels — as more people return to the job market to look for work as the economy reopens and conditions normalise — has led to the unemployment rate remaining high above the pre-pandemic levels. The labour force participation rate edged up to 69% in 1Q2022 from 68.7% in 4Q2021.

“However, these people may not return to the same jobs they had before and some may have found other opportunities. There are a rising number of individuals who prefer to be self-employed or seek part-time employment while having other incomes on the side. Hence, the mismatch of demand and supply of jobs is likely the reason for the unfilled vacancies,” Goh explains.

Going forward, she says more effort is needed to advance knowledge and skills while ensuring that salaries commensurate with output and productivity to ensure that Malaysia’s labour market remains attractive and competitive.

Human resources solutions agency Randstad Malaysia country director Fahad Naeem opines that it is not unusual to see a mismatch between employers and talent expectations, especially since employer-employee dynamics have changed significantly after the pandemic.

“Market inflation and the increasing cost of living have resulted in more Malaysians prioritising salary over other employment factors. Job seekers are looking for opportunities that offer a higher salary than their last-drawn, or at least the same salary if they join a multinational company.”

At the same time, he says employers have higher talent expectations after the pandemic, partly due to the rapid digital transformation and increasing salary rates in Malaysia.

“Hiring managers are increasingly looking for talent who are equipped with specialised skills and have relevant work experiences to hit the ground running. Job applicants are expected to be able to perform tasks using digital tools and software and think creatively to solve problems,” he adds.

Despite having little work experience, many Gen Z workers have already developed a specific set of expectations on the types of companies that they want to work for, as well as the responsibilities of the role, Fahad says.

“For example, many accountants have curated a tiered list of companies that they want to work for after graduating from university, starting with the Big Four firms before moving on to the next tier of employers. Until they can secure a job with the employer they want to work for, Gen Z workers will likely wait until they get the right opportunity. There is no real rush for them to start work right after graduation as most of them have not incurred financial obligations yet and would rather prioritise their time on finding the perfect job and employer,” he explains.

As the labour market is highly correlated to the economic situation, Yeah points out that slower growth in private investment could hinder the pace of job creation in the labour market.

It is worth noting that private investment in 1Q was not robust. A slower rate of investment leads to job creation lagging a growing labour force. As such, there is a need to accelerate investment as higher investment will lead to higher job creation.

While private investment is likely to pick up as the economy fully reopens, he says the question is the magnitude of the increase. “The government could help facilitate new investments in order to provide jobs for Malaysians. Of course, there should be active programmes that are able to help investors find the necessary workers.”

Overall, Yeah observes that there has been a recovery in the job market, but not at a pace that could quickly absorb all unemployed persons. This is because both supply and demand have not demonstrated a very strong expansion.

Taking the US as an example, he says its unemployment has fallen to the pre-pandemic level of 3%, underpinned by the resumption of production activity and, more importantly, investments.

“Basically it was the strong demand that exceeded the capacity in the US. As a result, US businesses had to expand but found that they were facing labour shortages,” Yeah explains.

At home, the job market’s recovery is expected to sustain in the remaining quarters of the year, given the robust exports and local consumption.

“We do expect a pick-up in the coming quarters given that foreign direct investments and approved investments numbers suggest that the situation has normalised, especially for the manufacturing and services segments. We must ensure that the policy does not hinder the recovery, which could dampen investor confidence and sentiment. Otherwise, it may lead to outflows and diversion to other countries.”

Malaysia’s gross domestic product (GDP) grew 5% y-o-y in 1Q2022, mainly underpinned by improving domestic demand. Private consumption saw 5.5% growth, but private investment only expanded marginally by 0.4% during the quarter.

Zafri is maintaining his unemployment forecast of 4% for this year, and sees it trending lower to pre-pandemic levels by the middle of 2023. “The main issue for the labour market is the lack of foreign workers. We believe the return of foreign workers will be in gradual phases. We do not foresee the total return of 106,000 foreign workers immediately this year,” he says.

“Despite facing various economic shocks and crises, Malaysia’s local employment remains expanding healthily. In addition, the outlook for Malaysia’s economy is bright this year amid elevated global commodity prices benefiting the primary sectors, continuous robust external demand, which boost export-oriented industries, and domestic reopening encouraging the revival of domestic-focused sectors,” he adds.

Fahad says the labour shortage will worsen in the second half of the year, as Malaysia is still attracting new business and foreign investments.

“Already, the hospitality industry in Malaysia is reporting workforce shortages to manage the influx of domestic and international tourists. In the coming months, we’ll see more jobs being created in the technology, manufacturing and construction industries as companies continue to expand their operations and workforce in Malaysia.”

Typically, in a tight labour market, employers tend to raise wages due to labour shortages. However, this is not the case in Malaysia yet. “In Malaysia, the demand for labour is not that strong, so employers are still not willing to raise wages. We are still recovering from the pandemic, and it takes time for market confidence to strengthen and for demand to pick up. When businesses are fully confident that the growth is sustainable with the ability to attract new investors, then the situation will improve,” Yeah explains.

The minimum wage in Malaysia was increased to RM1,500 on May 1 this year. This initially applies to big companies and government-linked companies.

Yeah stresses that the structural problem in the labour market is that the production side has large labour-intensive sectors like plantation, construction, low-end services and manufacturing.

“Unless we can move up the value chain and restructure more aggressively for high-wage and skill-based jobs, it will be difficult to reduce the requirements for cheap labour and the mismatch issue will linger,” he cautions.

Having said that, the downward trend in the ringgit against the greenback and other regional currencies has also diminished the attractiveness of Malaysia in the eyes of foreign workers, leaving businesses in limbo if they do not try to adapt.

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