Study Malaysian Labour Market S Public Sector Reliance Hurts Graduate Jobs

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An input-output analysis revealed that government consumption is the primary driver of labour demand in Malaysia, accounting for 47.1 percent.
It far surpasses contributions from private consumption (14.5 percent), investment (17.6 percent), and exports (14.6 percent).
Input-output analysis is an economic method used to examine how goods and services move between different sectors within an economy.
The report by the Centre for Future Studies Berhad (The Future) highlighted the disproportionate role of the public sector in absorbing labour, particularly among graduates.
While this may help reduce unemployment figures, it also reflects a troubling reliance on government-driven employment.
The report cautioned that this model is increasingly unsustainable given rising fiscal pressures and tighter constraints on public sector hiring.
“In contrast, the limited share of labour demand from the private and external sectors points to weak structural conditions for high-quality job creation. It reflects subdued innovation, limited industrial upgrading, and weak domestic demand for graduate-level roles.
“Without stronger private sector-led demand for high-skilled talent, Malaysia risks entrenching a cycle where graduate employment is numerically adequate but qualitatively deficient, suppressing wage growth and long-term productivity gains,” The Future said.
The Statistics Department reported last Friday that the labour market remained resilient in the first quarter of 2025, with the labour force reaching 17.23 million and the unemployment rate holding steady at 3.1 percent.
In its Labour Market Review, First Quarter 2025 (LMR Q1 2025) report, the agency said that the local labour force grew by 458,700 people compared to the same period last year (Q1 2024: 16.77 million), supported by a 3.0 percent year-on-year increase in the number of employed persons.
It said labour force participation also edged up to 70.7 percent (Q1 2024: 70.5 percent), while unemployed individuals fell to 526,300.
According to chief statistician Uzir Mahidin, labour demand continued to rise in the first quarter of 2025, with the number of jobs increasing by 1.4 percent to 9.06 million. Of this, he said 8.87 million jobs were filled, reflecting a high-fill rate of 97.9 percent.
ADS“The quarter also registered 194,100 job vacancies, representing a vacancy rate of 2.1 percent. These indicators point to a strong and resilient labour market.
“Additionally, the number of jobs created saw an improvement of 3.4 percent year-on-year, recording 33,200 in Q1 2025 compared to 32,100 in Q1 2024,” Uzir said in a press statement.
Skills mismatch: A sobering reality
The analysis noted that while Malaysia has experienced a steady rise in the number of graduates entering the labour market over the past decade, the reality remains challenging due to deeper structural issues.
Data from the Higher Education Ministry showed that around 80 percent of graduates transition into employment, while the remaining 20 percent pursue further studies.
The Future said that although the headline employability rate appears strong, it fails to distinguish between high-quality, skill-aligned employment and underemployment.
The report stated that a significant proportion of graduates are taking up roles that do not correspond to their field of study or level of qualification.
“Skill-related mismatch, calculated as the share of graduates in semi- and low-skilled employment, has worsened over time, from 22.9 percent in 2016 to 34.2 percent in 2022, before slightly improving to 32.4 percent in 2023.
“This growing trend indicates a systemic failure in aligning educational outcomes with labour market needs. The mismatch is not just a reflection of temporary job placement issues, but a persistent structural issue, rooted in both the design of academic programmes and the quality of job creation in the economy,” the report explained.
It stated that the consequences of this mismatch are plainly evident in salary outcomes.
‘Gaji cukup makan’
The report pointed to the Graduate Tracer Study, which highlighted that 95.2 percent of diploma holders and 65.3 percent of degree holders earn less than RM3,000, indicating that many graduates are not experiencing the salary increases typically associated with tertiary education.
“These wage levels barely provide for a decent standard of living in urban areas, reinforcing the notion of ‘gaji cukup makan’ (pay just enough to eat).
“The disconnect between credentials and compensation not only diminishes the perceived value of higher education but also discourages future investments in human capital, particularly among lower-income groups,” the report read.
It further noted that while graduate mismatch constitutes a global phenomenon commonly observed even in high-income nations, in many cases, such as the UK, Germany, or the Netherlands, higher salary levels serve to cushion the impact.
This allows graduates to sustain reasonable living standards, even in positions that do not entirely correspond with their qualifications.
In Malaysia, however, it was noted that the same buffer does not exist.
“Graduate wages are comparatively low, both in absolute and purchasing power-adjusted terms, which magnifies the consequences of mismatch and underemployment.
“This puts Malaysia in a particularly vulnerable position. Without addressing the wage stagnation and improving graduate job matching, the country risks undermining its long-term economic goals.
“Lower returns on education will not only reduce individual motivation to pursue higher education but also compromise the national objective of building a skilled, innovation-driven economy,” The Future added. - Mkini

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