This article first appeared in Forum, The Edge Malaysia Weekly on April 22, 2024 - April 28, 2024

The chronic scarcity of skilled labour in crucial sectors like manufacturing, IT, green technology and medicine presents not merely a challenge but an urgent issue requiring prompt resolution. Data from the Ministry of Investment, Trade and Industry underscores this urgency, revealing a stark disparity between demand and supply, particularly in engineering. Companies annually seek around 50,000 engineers while Malaysian universities produce a mere 5,000 engineering graduates, intensifying the talent deficit and undermining the nation’s global competitiveness.

Meanwhile, Malaysia contends with an excess of underemployed individuals and faces the challenge of brain drain as skilled professionals opt for opportunities abroad, enticed by higher wages and better prospects. Deputy Minister for Investment, Trade, and Industry Liew Chin Tong recently underscored the fact that persistently low wages serve as a significant factor propelling the departure of young Malaysian talent overseas, exacerbating the shortage of skilled workers domestically. Additionally, findings from a study conducted by the Japanese External Trade Organization indicate that a notable 64% of Japanese firms operating in Malaysia encounter difficulties in sourcing skilled labour.

As Malaysia’s economy undergoes expansion driven by increased investments and technological advancements, addressing the shortage of skilled labour and skills mismatch becomes increasingly imperative. To effectively tackle this issue, it is crucial to embrace a fresh perspective and pursue innovative solutions. Presented below are three actionable strategies that can be implemented in the short to medium term to transition the labour force from predominantly low- and semi-skilled to predominantly high-skilled.

Primarily, it is imperative to re-evaluate the size of our public sector and facilitate the transition of public-sector employees into more lucrative roles within the private sector. Malaysia has one of the world’s largest public sector workforces, with approximately one in 10 workers employed by the government, translating into one civil servant for every 20 individuals (whole of population). In comparison, countries like South Korea and Singapore exhibit significantly lower ratios, at one in 50 and one in 71 respectively, yet both countries outperform Malaysia in the Chandler Good Governance Index.

At the entry-level, civil servants start with salaries as low as RM1,200 per month, which is below the private sector’s minimum wage of RM1,500. Moreover, productivity levels in the public sector lag behind those in the private sector, compounding the inefficiencies stemming from the current staffing ratio. Additionally, the substantial number of civil servants places a significant fiscal burden on the government, necessitating expenditure of approximately RM7 billion monthly solely for employee emoluments.

To tackle these challenges, strategic reforms are necessary to streamline the public sector workforce and redirect human capital towards sectors of greater economic significance and efficiency. Encouraging skilled public servants to transition to higher paying private-sector roles and implementing a reduction in new civil service hires should be explored, alongside efforts to boost productivity and performance within the public sector. Rationalising the size and structure of the civil service will alleviate fiscal strain and cultivate a more agile and responsive government apparatus better equipped to address the evolving needs of the nation’s economy and society.

As Malaysia’s population ages, it is imperative to consider raising the retirement age and implementing innovative training programmes to upskill and reskill our workforce to move our workers up the value chain. The proportion of older workers aged 36 and above has increased from 45.4% in 2010 to 46% in 2023, indicating a significant demographic shift. Meanwhile, the younger workforce, aged 20 to 34, has slightly decreased from 27.6% to 26.5% during the same period. With those aged above 60 now constituting more than 11.3% of the population compared with 7.9% in 2010, and a shrinking pool of workers below 20 years old, there is a pressing need to address the growing dependency ratio that is economically unsustainable.

Malaysia’s retirement age, currently set at 60, contrasts with the increasing life expectancy seen in recent decades, attributed to improvements in healthcare and overall quality of life. With many countries raising their retirement ages — Australia and Singapore have increased to 67 and 62-65 respectively — Malaysia’s retirement age stands among the lowest globally.

Granting older individuals the option to prolong their careers offers numerous benefits. First, not all individuals wish to retire at 60; those in good health and capable of contributing to their roles may prefer to continue working past retirement age. Empowering them with this choice allows individuals greater control over their lives. Secondly, older workers bring invaluable industry knowledge, expertise and skills amassed over decades that would enrich the productivity of our workforce. Thirdly, individuals who are still capable of working but face challenges in securing employment due to old age may find themselves trapped in cycles of poverty, dependency and helplessness.

To address these issues, the government could incentivise employers to rehire individuals over 60 who want to work and are in good physical and mental health. Incentives such as income tax breaks and government grants could be provided to companies hiring older workers to encourage their inclusion in the workforce. It is crucial that such initiatives complement rather than displace younger workers, serving as a supplement to an expanding economy that requires a broader talent pool.

Finally, Malaysia is not in want of human labour, but faces a critical issue of skills mismatch. A recent publication by the Khazanah Research Institute reports that the number of highly educated individuals exceeds available skilled job opportunities by approximately 2.4 times. Moreover, the study highlights a significant disparity between the specialisation students pursued in higher education and the actual needs of businesses. While companies in Malaysia demand engineers, chemists and technicians, a majority of graduates possess degrees in business, law and social sciences.

To address this challenge, collaboration between the higher education ministry and the Ministry of Human Resources is crucial to align university degrees with industrial demand. Additionally, measures to provide upskilling courses for graduates who cannot secure jobs matching their educational qualifications are essential to bridge the skills gap. For example, business graduates could undergo training to acquire skills relevant to management or logistics roles in the manufacturing and services sector.

An economist, public policy thinker and environmentalist at Penang Institute, Doris Liew regularly observes Asean’s economic development, policy frameworks and regional and international trade dynamics

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