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"Malaysia’s Bank Negara Draws Attention to Youth Unemployment" a Commentary by Lee Hwok-Aun

2017/13, 30 March 2017

Youth unemployment, a chronic issue in contemporary Malaysia, has risen to prominence again courtesy of a somewhat unexpected source: Bank Negara. A feature article within the respected central bank’s 2016 Annual Report, published on 23 March 2017, draws attention to some labour market developments and policy concerns. A flurry of media coverage, riding headlines such as “Young and jobless” and “Jobless youth an alarming trend” has conveyed the message quite expeditiously.

From 2014 to 2015, the unemployment rate of Malaysia’s youth (aged 15-24) rose from 9.5% to 10.7%, by a greater margin than the concurrent change in the national unemployment rate, which inched up from 2.9% to 3.1%. The Report’s observation that youth unemployment is three times that of the national rate has perhaps generated more alarm than is warranted; the ratio generally holds through the past decade and a half. From 2001 to 2010, youth unemployment hovered around 11% while the national rate was close to 4%; from 2011-2014, both maintained lower levels of about 10% and 3%, respectively.

Technically, the unemployed includes persons not working but looking for work. Those who are not looking for work are excluded from these labour force statistics (in some countries, discouraged workers who have stopped looking for work constitute another category, but Malaysia does not make this distinction). Young adults are more likely to be looking for work because they have just graduated from a learning institution and entered the labour market, or because they are changing jobs, being more mobile at the early stages of their work life. Of course, the tendency for youth unemployment to be higher than average does not negate the gravity of the problem.

Likewise, whether or not the uptick in Malaysia’s youth unemployment rate gains momentum this year, it is vital to consider the structural barriers to resolving the problem. The Bank Negara report insightfully points out both labour demand and supply issues. On the demand side, the profile of new jobs offers is incongruous with that of new job seekers. Between 2001 and 2015, 20 percent of jobs created were classified as high skilled, 52% as middle skill, and 28% low-skilled, although half of the increase in the labour force comprised of tertiary educated workers, and the other half had secondary level schooling. Growth of job listings on a major online job portal increased more for managers and executives than the offerings to fresh graduates. Correspondingly, wages for entry-level jobs of degree and diploma holders have stagnated.

On the supply side, some unemployment patterns among the young are cause for concern, with particular reference to employability of graduates and skills deficiency or mismatch. Tertiary educated youth register higher unemployment (15.3%) than non-tertiary educated youth (9.8%). This pattern holds across various countries in Southeast Asia, including Singapore, Indonesia, Thailand and the Philippines, but the converse occurs in most advanced economies, such as Germany, Japan, the UK and France, where tertiary educated youth are less likely to be unemployed.

The report’s remedial prescriptions ring familiar, largely reiterating or calling for expansion of various policies already in place, such as industry collaboration in technical and vocational education and training (TVET), work exposure for university and college students, and programmes cultivating entrepreneurship and innovation.

Nonetheless, it is commendable for the central bank to acknowledge and assess youth unemployment as a national macroeconomic concern. Future explorations of possible roles of monetary policy and financial regulation alleviating Malaysia’s labour market problems will be welcome.

Dr Lee Hwok-Aun is Senior Fellow at ISEAS - Yusof Ishak Institute.