This article first appeared in Forum, The Edge Malaysia Weekly on April 15, 2024 - April 21, 2024

Malaysia’s labour market was battered in the wake of the pandemic but has since recovered, with unemployment rates returning to pre-crisis levels. However, beneath this seemingly positive trend lies a persisting challenge: underemployment. While the headlines celebrate decreasing joblessness, underemployment continues to loom large. This conundrum not only stifles human capital development but also poses a hurdle to Malaysia’s ambition of becoming a highly productive and developed nation.

As it is not a commonly discussed statistic, often overshadowed by the more commonly discussed unemployment rate, one may ask, what exactly is underemployment?

It refers to two main measurements: time-related underemployment, where individuals work part-time but desire full-time work, and skills-related underemployment, where workers possess qualifications exceeding their job requirements and seek roles that fully utilise their capabilities. In Malaysia’s context, the latter statistic is particularly concerning, with a high prevalence of tertiary-educated workers in semi-skilled and low-skilled jobs.

Recent statistics paint a telling picture. While the unemployment rate and time-related underemployment rate have returned to pre-pandemic levels, skills-related underemployment remains elevated. At least 37.4% of tertiary-educated employed persons were in semi-skilled and low-skilled occupations in 2023, up from 37% in 2022 and much higher than the pre-pandemic average of 32.7% between 2017 and 2019. While the jump at the onset of the pandemic was understandable, given that layoffs and job losses were prevalent, the continued mismatch between skills and job opportunities post-recovery is concerning.

Several factors contribute to this underemployment trend. First, there simply are not enough jobs available for the growing number of college graduates entering the workforce. The share of the labour force with tertiary education grew to 31.6% in 2023, up two percentage points from 2019, indicative of a growing skilled workforce. However, the number of skilled jobs did not expand as fast, with its share only inching up to 25% of total jobs, from 24.4% over the same period. The soft growth in demand for skilled labour or the mismatch between skills possessed by the workforce and available jobs might have forced workers to settle for jobs below their skill levels.

Second, the pay offered for jobs requiring a college degree often fails to justify the years of education and training invested. The median monthly wage of a tertiary-educated employee stood at RM3,890 in 2022, still below the RM3,901 in 2019 before the pandemic. The earning power among the younger cohort is likely to be even lower, with a recent report by the Ministry of Finance stating that around 70% of fresh graduates in Malaysia earn below RM2,000 per month. Anecdotally, we have heard of graduates choosing to become gig workers such as e-hailing drivers because of the higher income potential compared to a typical entry-level position. This situation creates a dilemma for many young professionals, caught between accepting a job requiring a college degree or one that is less skill-intensive. This partly explains why skills-related underemployment is more prevalent among younger age groups.

As graduates with college degrees find themselves in jobs that underutilise their skills and fail to offer the growth they aspire to, this manifests in a workforce that is not fully engaged or utilised. The consequences of Malaysia’s underemployment extend far beyond the immediate challenges faced by individuals, as it directly affects the nation’s productivity and economic potential over the long run. Jobs that require degrees typically offer better long-term prospects, higher skill ceilings and opportunities for income growth. When skilled individuals are underutilised or trapped in low-quality jobs, the economy suffers from inefficiencies.

To address Malaysia’s underemployment challenge, a multi-faceted approach is needed. Malaysia needs to create an economic environment in which businesses demand more high-skilled jobs. Job creation must match the pace of college graduates we produce every year. In addition, policies that encourage full-time employment with fair wages and benefits are crucial.

Moreover, there must be a concerted effort to bridge the skills gap between what fresh graduates possess and what is demanded by the evolving job market. A common feedback from employers about the supply of graduates in Malaysia is that they lack the skills, knowledge and attitude needed to be employable. Collaboration between the government, private sector and educational institutions is essential in designing programmes that will help produce a quality workforce that is sought after.

As Malaysia looks towards the future, the underemployment issue cannot be ignored. This article has only scratched the surface of a complex and multifaceted topic. The underemployment challenge demands deeper research, robust discussions and decisive actions from policymakers. Failure to address this issue now could have lasting repercussions on the nation’s economic trajectory.

Woon Khai Jhek, CFA, is a senior economist and head of the economic research department at RAM Rating Services Bhd

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