The economic reality for Malaysia’s youth

To significantly increase the number of jobs created, our economy must shift from its current economic mix

pic by TMR FILE

RECENTLY, I shared a story about a young Malaysian who came from a poor background, did well in his SPM, got a state scholarship to study economics at a prestigious UK university, but only to struggle to find the right job here in Malaysia upon graduation.

He decided to pursue masters at a local university while waiting for the right offer. Only after completion of his masters did he finally land a job as a contract analyst for a financial firm. His starting salary? RM1,800.

Little did I expect the response to this tale from fellow Malaysians, as it was shared in the thousands on social media and got hundreds of reactions.

But beyond the rhetoric and anecdotes, what’s the economic reality for Malaysian youths? For that, we will look at three areas of concern — wages for entry-level positions, job creation for youths and finally, cost of living.

Green World Genetics Sdn Bhd executive showing some seeds of fruits. The calls on Malaysia to venture into agriculture appear timely – pic by MUHD AMIN NAHARUL

Stagnant Wages is Not a Myth

There are plenty of anecdotal stories of how starting salaries for graduates have been the same since the mid-2000s and the statistics lend credence to this narrative.

According to Bank Negara Malaysia’s (BNM) Economic Development 2018 report, starting salaries (after adjustment for inflation) actually declined for those with tertiary education between the period of 2010 and 2018.

A fresh graduate with a diploma earned a real salary of only RM1,376 in 2018 (2010: RM1,458) while a masters degree holder earned a real salary of RM2,707, a significant decline from RM2,923 in 2010.

Interestingly, the reverse is true for those without tertiary education. School leavers with only PMR, SPM, STPM or certificate level qualifications have seen their starting salaries rise between 1.1% and 4.6%.

We often hear people citing the huge pay packages for mid and senior management, in particular CEOs and directors, of Malaysian companies including government-linked institutions as contrary evidence of stagnating wage growth.

For example, in 2005, the ED of a government-linked telecommunication giant was paid close to RM1 million in salaries and bonuses.

By the end of 2016, the same role saw a total payout worth RM5.8 million, with salary increasing to RM2.3 million for the year despite absolute revenue — before even adjusting for inflation — being higher in 2005.

While this wage growth for top executives is in line with global trend and by itself should not be a cause for concern, the problem lies in the unequal distribution in growth, especially for fresh graduates and those in non-executive roles.

According to World Bank’s 2019 Malaysia Economic Monitor report, which looks at data from 2004 to 2016, the median monthly income for those between 20-29 years old with post-secondary education remained basically flat at between RM2,000 and RM2,500.

Meanwhile, those between 40-49 and 50-59 years old experienced the biggest growth in median wages moving from around RM5,000 to more than RM6,000 within the same 12 years.

This supports the earlier narrative that wage growth has been stagnant for the youths throughout the years despite Malaysia experiencing an average of 7% GDP growth annually.

Young Malaysians, especially graduates, are suffering from a decline in starting salaries, while their wage growth has been stagnant since mid-2000s.

There are many factors to this, but I would like to focus on what I feel is the biggest contributor — the state of Malaysia’s job market.

Malaysia’s primary GDP growth must come from export and increased foreign capital in the country – pic by MUHD AMIN NAHARUL

Focus on Underemployment, Not Unemployment

We often hear of “youth unemployment” with many news reports citing 2018’s 10.9% youth unemployment rate in Malaysia as being a major cause for concern.

This is alarmist in isolation, especially when reporters use phrases like “youth unemployment is three times higher than national unemployment rate”.

The facts are simple — our labour participation rate is growing, we are technically fully employed by the Organisation for Economic Cooperation and Development’s definition, and the 10.9% youth unemployment rate is below global average and comparable to other growing economies.

Without context, this figure is meaningless. For example, the youth unemployment rate for Rwanda is 1.64% and for Australia it is 12.9%, but do we prefer Rwanda’s state of economy or Australia’s? Our youths are facing a more serious problem — underemployment.

Underemployment is where youths are employed in roles where they are not working full-time or having regular jobs (eg freelancing) or where they are overqualified for the role.

Sure, a job is a job and beggars can’t be choosers, but do we have to accept that our youths have to beg for a job in the first place? According to BNM, between 2010 and 2017, the number of tertiary graduates entering the workforce surpassed the number of jobs created for them.

Between 2002 and 2010, 8% of the net change in new jobs created were for low-skilled work, but between 2011 and 2019, this figure rose to 16%; a 100% increase.

In short, this economy has created more low-skilled work than high-skilled work since the financial crisis of 2008/09, while the number of graduates continues to remain constant.

When there aren’t enough highskilled jobs created, skilled workers, including fresh graduates, will take on any job thus putting downward pressure on wages as medium and low-skilled jobs pay on average less than high-skilled ones.

The Reality on Expenses

Overall, Malaysia’s labour market has created insufficient mediumand high-skilled jobs for the number of graduates which has resulted in stagnating wages, especially for the youths and those occupying the lower-income jobs. Surely, this is unsustainable, what with our rising cost of living.

But herein lies a more nuanced truth — while “rising cost of living” has been bandied about by leaders, politicians and news outlets, the reality is that Malaysia’s core and headline inflation has been fairly stable over the years.

In fact, studies have shown that there is a huge gap between the perceived inflation rate and the actual inflation rate. This is not helped by the fear-mongering in public discussions.

Still, this does not mean that Malaysians are earning “enough”.

In 2018, BNM presented a paper putting forth the idea of a “living wage” in Kuala Lumpur (KL).

Based on their assumption, a single adult needed to earn RM2,700 per month to be able to have a meaningful participation in KL.

According to the same report, starting salaries for those with degrees were on average only RM2,207. A big component of living expenses is accommodation. Everyone agrees, and Khazanah Research Institute supports this: That housing prices in Malaysia — especially in major cities — are at a severely unaffordable level.

What is more worrying, and related to wage stagnation, is the prospect of intergenerational social mobility for the current generation.

Intergenerational social mobility means the ability of the present generation to live a “better life” — measured by income and education attainment — compared to the previous generation.

Based on Khazanah Research’s 2019 paper on this matter, those who were born to lower-income parents experienced upward mobility in education and income, while those who were born to higher-income parents did not experience the same.

If this trend continues, the generation born in the 2000s will find it harder to earn more and live a “better life” than their parents.

A career fair at KLCC. According to BNM, between 2010 and 2017, the number of tertiary graduates entering the workforce surpassed the number of jobs created for them – pic by MUHD AMIN NAHARUL

It’s All About Jobs, Jobs and More Jobs

Discussions on youth unemployment and stagnating wages often veer towards solutions focusing on improving the youths themselves.

Skills mismatch, Technical and Vocational Education and Training, increasing higher order thinking skills, revamping education system — these are all focusing on improving the “supply” side of the labour market.

While there are merits to these ideas, the simple fact remains: Our economy has not created enough jobs, in the right sector, at the right pay, in the past 12 years that could absorb the number of supply coming through, no matter how much improvement we make to their quality.

The reason why policy discussions often veer to the supply side is because it is relatively easier to “correct” the youths as opposed to solving the harder problem of job creation.

I put forward that we focus on ideas to:

(1) create more jobs for Malaysians;

(2) increase the growth of highskilled jobs; and

(3) increase the income level for these jobs.

We could start by revisiting our policies on foreign labour. According to BNM’s 2018 report, in 2015 and 2016, a large share of net jobs created went to foreigners.

Our documented migrant to population ratio at 8% is also higher than other regional peers (with the exception of small states like Singapore and Brunei). This loose policy on cheap foreign labour has resulted in the reliance on manpower over automation, which reduces overall productivity per worker and prevents the introduction of higher paying jobs especially for our graduates from STEM (science, technology, engineering and mathematics) fields.

Related to this but more controversial is the proposal for government- linked institutional investors to put shareholders’ pressure on invested companies to give preference to local talents in senior management roles.

The above measures may not increase the overall jobs created or the quality, but it will increase the availability of such roles for Malaysians.

To significantly increase the number of jobs created, our economy must shift from its current economic mix and undergo the same massive transformation we experienced in the 80s as we moved from agriculture base to manufacturing.

It is my belief that to truly catapult us into a high-income nation, Malaysia’s primary GDP growth must come from export and by increasing foreign capital into the country.

There are many industries which I believe can be exportable and create massive highly skilled employment, and where we have some inherent strategic advantage that cannot be easily replicated.

For example, our climate and location makes us the prime candidate to benefit from the battle for global food security. The calls on Malaysia to venture into agriculture appear timely.

Another industry that stands to benefit from our natural advantage is renewable energy (RE). The government should embark on a massive RE initiative through direct rebate and tax incentives for local households and businesses to shift towards solar energy, which in turn would further drive down the cost of solar panels produced in Malaysia.

Fun fact: As of 2016, Malaysia was already the largest exporter of solar cells and modules to the US.

We should endeavour to make Malaysia one of the top nations in terms of energy security, energy cost AND sustainability to attract energy-intensive industries to shift here such as data centres.

Other sectors at the top of my head which can be further encouraged to be exploited to our existing advantages include: Tourism (specifically edu-tourism and events), halal products and certification, electronic and electrical manufacturing in remote devices, and automotive manufacturing for electric vehicles.

As for increasing wages, I find it perplexing that a lot of the discussions focused on the high-income earners of senior management and on closing the gap by putting caps on high wages.

While it may make good optics and be popular for a short while, in the long term, making some people earn less will not help the vast majority who are low-income earners to meet their living needs.

The key has always been to create growing demand for skilled workers that are higher than the supply of them to stimulate wage growth across the board.

At the same time, I strongly believe that companies that operate on the basis of government-sanctioned monopolies (eg in power, transport, telecommunications, financial services), have virtually zero competition and enjoy above-average margins should take the lead in both capping pay for senior management and increasing drastically the overall median pay of their lower-income group.

This will create competition for talents, especially young graduates, and force other companies to offer similarly attractive packages.

By focusing on creating more jobs for Malaysians, in industries of higher value, we will improve the economic conditions for our youths.

I know that many are sceptical of the recently announced Shared Prosperity Vision 2030, but at its core, it tries to address the issue of inclusiveness in economic growth and that includes improving the wages, living standards and economic reality for youths.

As always, the devil is in the detail, and as Steve Jobs once (allegedly) said, “Ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions”. For the sake of our present and future youths, we must get the execution right this time.

M Najmie Noordin

The views expressed are of the writer and do not necessarily reflect the stand of the newspaper’s owners and its editorial board.