Young and jobless in Malaysia

AmBank Group chief economist Anthony Dass(pic), who is projecting a 4.5% GDP growth this year for Malaysia, said the economic growth hinges largely on domestic demand and private investment. To this end, he told StarBiz it is imperative for the government to arrest the alarming decline in private-sector investments which has slid from 6.9% in the third quarter of last year (3Q18) to 0.4% in 1Q19.

AS the global economy continues to recover, labour force is improving, albeit at a slower pace.

Global unemployment in 2018 is projected around 5.5%, slightly better than 2017’s reading of 5.6% on the back of a better global GDP outlook, with an expected growth of around 3.6% in 2018 from 3.3% in 2017.

Youth unemployment, which includes unemployed individuals aged 15 to 24, a typical age range that covers those who have just finished high school or graduated from colleges and looking for jobs, remains stubbornly high. In fact, global youth unemployment is higher than global unemployment. It is around 13.2% in 2017 and is estimated to stay around the same level in 2018.

Looking at Malaysia, although headline unemployment is around 3.4% in 2017, the youth unemployment rate is over three times higher at around 10.8% in 2017. Among Asean countries, the youth unemployment rate is lowest in Singapore at 4.6%, followed by Thailand (5.9%), Vietnam (7%), Philippines (7.9%) and Indonesia (15.6%). In China, it is at 10.8% while India’s youth unemployment is at 10.5%.

Is it a new problem?

High youth unemployment is not new. A key reason is the slower hiring compared to the number of job seekers. The slower pace of hiring is due to cautious business sentiments and a moderate economic performance that restrains businesses from expanding their workforce.

Unemployment among young people is one of the contentious political issues as well as a burden for people living through it. If left unchecked, it will result in serious long-term negative effects.

The country will have a generation of economically marginalised youth and this can lead to negative and far-reaching consequences on the economy and social landscape. They will be forced to contend with more self-reliant economic arrangements and even more job displacements, more so with the advent of the wider interconnectedness, alongside rapid technological advancement and the employment of foreign workers. There is a strong risk of brain drain.

The alarming rise in youth unemployment and the equally disturbing high number of young people who still live in poverty despite having a job shows how difficult it is to reduce unemployment, unless strong efforts are being made to achieve sustainable economic growth.

Wide disparities between young women and men, underpinning and giving rise to wider gaps during the transition to adulthood, need to be looked at seriously. The labour force participation rate for young men is around 53% compared to 37% for young women – representing a gap of 16 percentage points.

Malaysia’s youth unemployment

Despite the workforce becoming increasingly more educated, job creation remains concentrated in the low- and mid-skilled jobs as domestic industries stay in low value-added activities that emphasise cost efficiency and dependence on cheap labour, rather than pursuing innovation as a source of growth.

Amongst the reasons are the mismatch between changes in educational attainment of the workforce and the types of jobs created have manifested, to some extent, in an anaemic demand for young people. These dent the ability to attract high quality investments that could move up the value chain and thus create more high-paying, high-skilled jobs for the local workforce.

Structural shifts also add pressure to youth employment.

Looking at shifts in the sectoral composition of employment, the service sector jobs will be the main driver of future employment growth, while agriculture and manufacturing employment continue to decline. Since vulnerable and informal employment are prevalent in both agriculture and market services, the employment shift across sectors may have only limited potential to reduce decent work deficits, if it is not accompanied by strong policy efforts to boost job quality and productivity in the service sector.

Also, high youth unemployment is partly due to many unable to find employment right after they leave school or complete tertiary education. The last-in, first-out practice suggests youths are more vulnerable than more mature adults in difficult economic times. They are likely to have less exposure and work experience.

Thus, the youth who is entering the labour force for the first time will be at a disadvantage and have a harder time finding employment compared to an adult with a longer history of work experience.

In times of surplus labour when people are competing for a limited number of jobs, the youth will be the “last in”.

Furthermore, a young person often lacks both labour market information and job search experience.

In many countries, it is only through informal placement methods – typically through family and friends – that a young person finds work.

Beyond the word-of-mouth approach through families and friends, they simply might not know how and where to look for work. Adults, on the other hand, might have the possibility of finding future work through references from previous employers or colleagues, and are more likely to know the “right” people.

Another possibility is that youth might take longer to “shop around” for the right job, meaning that they might have to wait longer to find work that suits their requirements. This, however, implies that a support structure, such as the family, exists to economically support them while they search for work.

But in countries where such support structure does not exist for the majority of young people, what happens is that these young people simply cannot afford to be unemployed and are likely to take whatever work that is available, regardless of the working conditions or whether or not the job fits their education or skills base.

The lack of mobility among the young people due to financial resources constraints that make it difficult for them to re-locate nationally or internationally in pursuit of work, further adds pressure on youth unemployment.

Because many will continue to depend on household incomes, their job search threshold will be limited to the vicinity of the family home. The explanations above are a mixture of demand-side causes and supply-side causes.

None of the explanations is likely to explain in full the difference between youth and adult unemployment rates.

What is most likely is that the different factors work together, resulting in the proportion of unemployed youth in the youth labour force being significantly higher than that of unemployed adults in the adult labour force.

Switch gears

Looking at Malaysia, jobs in the tertiary sector require different and higher levels of skill.

Employment based on education attainment shows that about 52% come from secondary level and 51% from tertiary level.

Besides, the 52% employed are mid-skilled while about 28% are low-skilled. The challenge here is addressing the failure of the basic education system and the difficulties of young people facing entrance into the labour market with limited skills partly.

The mismatch between the skills required for jobs and the levels of skills the young people have when they leave school is one of the main reasons for the high youth unemployment rates.

Educational reforms need to be fast to address what is needed in the current job market and what are the skills required.

There may be a need for a major overhaul in the education system.

For a start, schools should go back to the basics and concentrate on the three “Rs”—reading, ‘riting and ‘rithmetic. By developing the skills in the three Rs, it will provide great value and importance to the labour force.

Could it be a scenario where the true basics of how to study as well as become self-learners have been overlooked by educators and students?

At the tertiary level, Malaysian bachelor degree holders recorded the highest unemployment rate at around 28% in 2015.

By fields of study, graduates from the Sciences as well as Literature and Social Sciences have higher rates of unemployment.

Meanwhile, by household income brackets, those from lower-income bracket tend to have higher unemployment rates across all qualifications.

So, tertiary education should not only focus on academic papers but also on industrial training, communication skills and developing self-esteem in preparing the graduates for the market needs.

Hence, the tertiary education should focus on basic business ethics which also sit along the lines of three “Rs” – respect, responsibility and results.

By focusing on the three “Rs”, one can help reduce the employers’ likelihood of distrust on the quality of the certificate or qualifications and instead rely on “flags” with regards to the young person’s competencies.

Such practice could raise the entry-level requirements and demand for higher certifications, even for entry-level jobs.

Thus, employers may resort to referrals, which means young people need to have access to social networks that can connect them to the labour market.

However, many young people could have limited access to these “productive networks.”

And then there are several more short-term solutions such as apprenticeships, which have worked well in countries like Austria, Denmark and Germany to tackle youth unemployment.

The need to focus on new area for green jobs is vital since the desire is to maintain a more sustainable economy.

Of course, entrepreneurship is another aspect that needs to be fostered among youths, and frameworks designed to help them build their entrepreneurial thinking and think through what it means to set up businesses.

A possible manner to encourage the inclusion of youth in the labour market is through the employment tax incentive.

Although there is mixed evidence about its success, the incentive seems to have had a positive effect in smaller companies, where most youths find their jobs.

Policies that help small businesses grow and employ youths are important.

Finally, a more integrated system that can provide up-to-date information about economic growth areas and associated skills as well as details on training options and pathways made available to young people who wish to pursue particular career options should be good.

It is important to look at the levels of the education system across the board and institute changes across all levels of the education system so that we can place the right person in the right job.

This is vital because youth unemployment appears to be a structural issue due to skills gap which is brought about by skills shortages.

It is important to start rethinking not only labour market institutions, but also the traditional education system, and what it means for universities and apprenticeships in the future.

Anthony Dass is the chief economist/head of AmBank Research

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