Special

ArticleYouth Unemployment in
Malaysia & the Region
By Calvin Cheng & Juita Mohamad

Context
In recent decades, world governments have been increasingly
recognizing that high levels of youth unemployment can have dire
and wide-ranging impacts on global economic development. A large
body of evidence suggests that being unemployed while young,especially for longer periods, has long-lasting negative effects on
future income and employment prospects – in addition to lowering
the jobseeker’s mental well-being and life satisfaction for decades(“The Long-term Labor Market Consequences of Graduating from
College in a Bad Economy” by Lisa B. Kahn, Labour Economics, April
2010, vol. 17(2); “The Long-Term Effects of Youth Unemployment”,
by Thomas Mroz and Timothy Savage, The Journal of Human
Resources, 2006, 41(2)). On a macro level, a high percentage ofyouth unemployment compounds these negative effects, leading tolower aggregate labor productivity and labor force human capital
accumulation for decades. There is some evidence to show thatyouth unemployment in a country produces broader socio-political
impacts too, increasing the prevalence of social unrest and crime(“Youth Unemployment and Crime: New Lessons Exploring
Longitudinal Data” by Hans Grönqvist, 2011. https://www.sole-jole.
org/12129.pdf). As such, addressing problems of youth
unemployment and youth upskilling have been recognized in the
UN’s Sustainable Development Goals (SDGs), adopted by all United
Nations Member States in 2015.
In Malaysia, this is an equally pressing issue. In 2018, the youth
unemployment rate in Malaysia stood at 10.9% – lower than theregional average of 12.2% in Southeast Asia and the Pacific (Chart1), but the third-highest youth unemployment rate in ASEAN afterIndonesia and the Philippines. Local policymakers are thusincreasing efforts to reduce the magnitude and persistence of youth
unemployment, cognizant that as Malaysia continues to climb up thedevelopmental ladder, future economic growth needs to increasingly
come from gains in productivity. Additionally, as technologicalchange continues to mount, it is becoming increasingly urgent to
prepare the nation’s youth for the labor demands of the future.

Realities of Youth Unemployment in Malaysia
Looking deeper into more detailed statistics from the Departmentof Statistics and the Institute for Labour Market Information Analysis
on youth unemployment in Malaysia reveals some interesting
https://www.jef.or.jp/journal/

Author Calvin Cheng

Author Juita Mohamad

CHART 1Youth have higher rates of unemployment
than the total population
Unemployment rates youth vs total (%)

20%

15-24

16%

Total

12%
8%
4%
0%

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ap Ko ala eal ustr SE W on
g
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n ut
i
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Source: Department of Statistics Malaysia, International Labour Organisation, ISIS Malaysia
calculations

CHART 2

Teens have worse employmentoutcomes than young adults
25%
20%

Unemployment rates by age group, Malaysia (%)

Teens (15-19)

15%
10%
5%

Young adults (20-24)

Total

0%

82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20

Source: Department of Statistics Malaysia, International Labour Organisation, ISIS Malaysia
calculations

Japan SPOTLIGHT • January / February 202049

Special

ArticleCHART 3

Unemployment among degree holders
is relatively high & has increased
8%

Unemployment rates by education, Malaysia (%)
2018

CHART 4Huge geographical & income
component to youth unemployment
40%

2008

6%

30%

4%

20%

2%

10%

0%

P

SR

U

R

PM

S

PM

PM

ST

*or educational equivalent

C

e

f
rti

ic

e
at

D

m

lo

ip

a

e
re

D

eg

Unemployment rates by state, Malaysia (%)
Teens (15-19)
Young adults (20-24)

0%

a g L g or n k or is h k n h n u a
ak an K han oh bila wa ng erl eda era nta aba bua gan jay
el en
J m ra la P K P la S a g tra
M P
L en uPae Sa Se
Ke
P
r
.S
Te
N

Source: Department of Statistics Malaysia, International Labour Organisation, ISIS Malaysia
calculations

Source: Department of Statistics Malaysia, International Labour Organisation, ISIS Malaysia
calculations

realities:
The first is that youth unemployment in Malaysia is skewed
towards teenagers (Chart 2). Breaking down the youth labor force
into narrower age bands, the data shows that teenagers (ages 15-19)
have far higher unemployment rates than young adults (20-24).
Teenage jobseekers are almost 1.7 times more likely to be joblessthan young adults – and almost five times more likely to be
unemployed than the overall population. As the young adult age
group includes a high number of tertiary graduates, while theteenage group will almost invariably exclude tertiary-educatedjobseekers, this makes sense from a perspective of increasing
returns to human capital accumulation. As such, this highlights aduality in the issue of youth unemployment in Malaysia, showing that
there are two separate but inter-related issues of teenage
unemployment and graduate unemployment. Yet, it is important tonote that, basic and secondary-educated jobseekers have a lower
unemployment rate than tertiary-educated jobseekers (Chart 3). Thisdissonance between the higher teenage unemployment rates and yet
lower unemployment rates for basic and secondary-educatedjobseekers is potentially explained by differences between the lowereducated young and the lower-educated adults who have alreadybeen in the labor force for some time.
Second, the headline average youth unemployment rate obscuresa large degree of heterogeneity between regions and between income

groups. In reality, there is a significant geographical and income
component to youth unemployment in Malaysia. Notably, looking atstate-level data (Chart 4), the worst states to look for a job as ayoung adult (and as a graduate) are Terengganu, Sabah, andKelantan, which have the highest young adult unemployment rates in
Malaysia. This picture shifts slightly when looking at the teenage
group – states with elevated rates of teenage unemployment are
Perlis, Kelantan, Sabah, and Kedah. This is further supported by the
Ministry of Education’s Graduate Tracer Study (various years) whichshows that there are indeed significant disparities between the labormarket prospects of lower-income graduates and higher-income
graduates – and between more developed and less developed statesin Malaysia.
Third, while the youth unemployment rate in Malaysia is notimmensely high relative to the world average, Malaysia’s youth
unemployment-to-total unemployment rate ratio – which is a roughmeasure of youth employment prospects relative to the overall
population – is much higher than the world average (Chart 5). Moreworryingly, over the last two decades, this ratio of youth
unemployment to total unemployment has been rising in tandemwith the world average – suggesting that, on average, it has become
increasingly hard for young people to find a job today than 20 years
ago.
Lastly, it is important to note that youth labor market challenges

50 Japan SPOTLIGHT • January / February 2020

Special

ArticleCHART 5Youth unemployment “premiums”
have been rising
4.0x

Youth/total unemployment rates (ratio)

Youth inactivity is a broader issue
than just youth unemployment
Youth not in employment, education or training (NEET) rate (%)

25.0

Malaysia

3.5x

CHART 6

22%

20%

20.0

15%

15.0

3.0x

14%

12%

12%

10%

10.0
2.5x

World

4%

5.0

2.0x
1.5x

0.0
2000

2003

2006

9%

2009

2012

2015

2018

In

ia

es

n
do

Ph

es

in

p
ilip

nd

ila

a
Th

S

U

ew

N

d

an

al

Ze

M

a

si

ay

al

m

na

et

Vi

lia

tra

s
Au

S

e

or

ap

g
in

3%

n

pa

Ja

Source: Department of Statistics Malaysia, International Labour Organisation, ISIS Malaysia
calculations

Source: Department of Statistics Malaysia, International Labour Organisation, ISIS Malaysia
calculations

are broader than youth unemployment. Going beyond just youth
employment, yet another major challenge is the proportion of
inactive youths in the population, or young people who are not in
education, employment or training (Chart 6).

(2014); “Youth Unemployment in Malaysia: Developments and Policy
Consideration” by Dian Hikmah Mohd Ibrahim and Mohd Zaidi
Mahyuddin, Bank Negara Annual Report 2016). On aggregate, a large
proportion of Malaysian youth, especially in lower-income areas,
continue to have low levels of education and skills (soft and technicalskills).
Demand-side factors: Youth unemployment rates are very
sensitive to the level of aggregate demand, and thus the pace ofeconomic growth in an economy. During the 2008 global financial
crisis, youth unemployment increased at a faster rate than the total
unemployment rate. As such, youth unemployment rates are usually
the first to increase when aggregate demand in an economy cools.
Additionally, potential mismatches between the demand and supply
side of the labor market have contributed to higher unemployment
rates, and this is especially true for new labor market entrants likethe youth. Jobs-added data suggests that the pace of skilled job
creation is still relatively slow – annually, more semi-skilled jobs thanskilled jobs are created, on average. Overall, the labor market iscurrently still demanding a relatively low proportion of skilled jobs,
though this is changing, with the amount of skilled jobs graduallyand steadily inching upwards while the amount of low-skilled jobs
has continued to decline (Chart 7 & 8).

Looking at Some Potential Causes
Two main factors contribute to the relatively elevated level of youth
unemployment in Malaysia: supply-side factors and labor demand
factors – in addition to other miscellaneous factors relating to
information asymmetries, matching failures and intra-country labormobility.
Supply-side factors: i.e. the characteristics of the youth labor
force. Most youths are first-time labor market entrants and have yet
to build the information and social networks, and the human capital
they need to boost their employment prospects. There is also a
sense that education and training (or lack thereof) has not provided
young jobseekers with the necessary soft and technical skills theyneed. A survey conducted by the World Bank and Talent Corporation
found that 90% of companies surveyed thought jobseekers needed
more industrial training and 81% of companies reported a lack ofcommunication skills as a major problem, while 80% responded that
university curricula are not reflective of the current realities (Malaysia
Economic Monitor, Towards A Middle Class Society, World BankJapan SPOTLIGHT • January / February 202051

Special

ArticleCHART 7Semi-skilled jobs are still the largest
growing job type in Malaysia
140

100

Average annual jobs added* by skill (1000s), 2017-2019, Malaysia
127.3
95.4

Low-skilled positions have thehighest vacancy rates
4.0%

Vacancy rates (%) by job type, Malaysia
3.6%

3.0%
2.4%
2.0%

60

2.1%

1.0%

20

20

CHART 8-1.9
SkilledSemi-skilled

Low-skilled

0.0%

SkilledSemi-skilled

Low-skilled

Note: Jobs added is the sum of the change in positions and new jobs createdNote: Jobs added is the sum of the change in positions and new jobs created

Source: Department of Statistics Malaysia, ISIS Malaysia calculations

Source: Department of Statistics Malaysia, ISIS Malaysia calculations

Seeking Solutions
So how can public policy work to reduce the incidence andpersistence of youth unemployment? We highlight some potential
near-term solutions:Streamlining TVET programs and ensure rigorous monitoring.
Both the government and private sectors need to play a role inupskilling and reskilling workers in Malaysia. To date, there are
numerous Technical and Vocational Education and Training (TVET)
programs provided by seven different ministries at certificate,
diploma, and degree levels. This creates an issue of overlapping andredundancies. Consolidating these programs into fewer flagshipprograms, along with establishing rigorous, measurable monitoringand evaluation mechanisms can help in removing lower-performing
programs and improving program administrative capacity.
Additionally, making deliverables and recommendations madeunder the Cabinet-approved Technical and Vocational Education andTraining Empowerment Committee (JKPTVET) public is vital so thatstakeholders can give concrete feedback on the recommendations
that are proposed (“Roundtable on Current Economic Issues”, ISIS
Malaysia, Unpublished Report, Collated Discussion on the RCEI
Roundtable Series, 2019). This can narrow the gap between policies
and their on-the-ground implementation effectiveness. Building on
the newly established committee, upgrading JKPTVET to the
52 Japan SPOTLIGHT • January / February 2020

ministerial level will also empower the committee to makenationwide changes to the existing programs. This is needed tostandardize the existing programs and ensure that monitoring cantake place more efficiently.
Improving quality and enrolment of TVET for youths. For youth inparticular, research suggests that increasing the quality and accessto vocational training is linked to lower rates of youth unemployment(“Youth Unemployment and Vocational Training” by Constanza
Biavaschi et al, IZA Discussion Paper No. 6890, 2012. http://ftp.iza.
org/dp6890.pdf). Currently, TVET enrolment in Malaysia is low
compared to our regional peers (“Labour Market Inventory ASEAN
2010-2015: Labour Market Policy in an Age of Increasing Economic
Integration” by Andre Gama, Catherine Saget & Adam Elsheiki,
International Labour Organisation report, 2018) (Chart 9). On this,
Malaysia can emulate the successful TVET programs introduced in
Switzerland, Sweden and Germany (The Future of Jobs Report 2018,
World Economic Forum, Geneva). The Switzerland model uses a“dual” vocational education and training system, in which students
combine learning in school with learning in workplace settings(“Gold Standard: The Swiss Vocational Education and Training
System”, by Nancy Hoffman and Robert Schwart, Washington, DC,
National Center on Education and the Economy, 2015). Additionally,
adjusting international best practices on TVET for the local labor
force through fostering close collaboration between local andSpecial

ArticleCHART 9

Malaysia’s TVET enrolment is low compared to global & regional peers% of secondary students enrolled in TVET
35%

32%

30%

BruneiSingapore

ThailandIndonesia

0%

6%

12%

12%

Japan

8%

2%

ASEAN

Austria

12%

10%South Korea

21%

Switzerland

16%

Cambodia

17%

Malaysia

20%

China

40%

Non-ASEAN

Source: International Labour Organisation, UNESCO Institute for Statistics, ISIS Malaysia calculations

international institutions will be beneficial.
Increasing private sector cooperation in apprenticeship, training
and internships. Additionally, firms can contribute by improving
integration with the local labor market by offering more internshipprograms, increasing collaboration with colleges/universities andcareer centers. Further, firms can increase the level of on-the-job
training for fresh graduates in the initial year of employment toovercome the issue of skill mismatch. This has worked well in Japan
as workers in most of the sectors are re-skilled in the first year of
their employment to cater to the demands of the industry.
Hiring experts. In addition to revamping the programs, ensuringthat the Department of Skill Development of the Human Resources
Ministry is mobilized by specialists with industry knowledge is vitalto ensure the staff are aware of the skill-sets needed by local
graduates, so that they are able to perfectly match the needs of theindustries in Malaysia and beyond.

as a pressing issue, amid the forces of technological change andslower structural economic growth rates.
Looking at the labor data, the problem of youth unemployment in
Malaysia is multifaceted – having strong age, geographic, andincome components. Teenagers are more likely to faceunemployment than young adults and graduates; youth joblessness
is much higher in relatively lower-income states like Kelantan, Sabah
and Terengganu; and is much more prevalent in lower-income,disadvantaged communities. Furthermore, data on job creation andlabor force characteristics suggest that a mismatch between the
supply and demand sides of the labor market, along with information
asymmetries and inefficient matching, has contributed to youth
unemployment in Malaysia. Accordingly, we outline some near-term
solutions to alleviate youth joblessness, leveraging on evidence ofthe positive effect of TVET in reducing youth unemployment indeveloped nations.

Concluding Remarks
Research shows that youth unemployment, especially for longer
durations, can have persistent and negative effects on the lifetime
income and well-being of young jobseekers. This further has effects
on the aggregate economy – weighing down productivity andundermining human capital accumulation in the nation’s workforce.
In Malaysia, youth unemployment has increasingly been recognizedCalvin Cheng is a researcher and Dr. Juita Mohamad is a fellow in the
Economics, Trade & Regional Integration (ETRI) program at the Institute ofStrategic and International Studies (ISIS) Malaysia.

Japan SPOTLIGHT • January / February 202053