File pix — YAP CHEE HONG/The Star
PETALING JAYA: While Malaysia’s unemployment rate has held steady at a decade low of 3% as of June, underemployment has been rising – inching close to the two million mark due to a persistent skills mismatch in the labour market.
Skill-related underemployment climbed from 1.183 million in the first quarter of 2017 (1Q17) to 1.956 million in 2Q25, edging up from 1.954 million in the previous quarter.
By gender, underemployed females rose to 1.073 million in 2Q25 from 1.068 million in 1Q25, while males eased to 882,000 from 886,000.
Among those aged 15 to 34, skills-related underemployment increased to 1.239 million from 1.188 million, whereas for those aged 35 and above, it fell to 717,000 from 766,000.
Sunway University economics professor Yeah Kim Leng said the trend reflects a mismatch between the graduates that universities are producing and the skills the labour market needs.
“They are engaging in occupations that are not in their line of training or specialisation,” said the economist, who also serves as one of five advisers on the Policy Advisory Committee to the Prime Minister.
He added that skilled labour shortages are evident in sectors such as semiconductors, chip design, robotics and artificial intelligence (AI) applications – and that universities need to reorient their curricula to meet industry demands.
Economist Geoffrey Williams, meanwhile, noted that skills-related underemployment has been on an upward trend for years because “the number of graduates entering the workforce exceeds the number of graduate-level jobs created in the labour market.”
“Universities produce graduates but do not create jobs for them. The government is not a job creation machine, and private businesses are focused on non-graduate jobs,” said Williams, the founder of Williams Business Consultancy Sdn Bhd noted.
He added that underemployment is likely to remain persistently around the two million mark and may continue to rise slowly in the coming years.
Malaysia’s labour market remained stable in June 2025, with the unemployment rate unchanged at 3% compared to a month earlier.
The number of unemployed fell by 3,700 people, or 0.7%, to 518,700 in June, down from 522,400 in May.
Employment rose to 16.92 million from 16.86 million a month earlier, and from 16.42 million a year ago.
The employment-to-population ratio stayed at 68.7%, but rose from 68.3% in June 2024.
The labour force expanded by about 50,000 to 17.43 million in June from 17.38 million in May, and by almost half a million from 16.97 million a year earlier.
With an expanding labour force and rising employment, the labour force participation rate (LFPR) remained steady at 70.8%.
By gender, the male labour force rose to 10.98 million in June from 10.95 million in May, with the LFPR unchanged at 83.3%.
The female labour force edged up to 6.45 million from 6.44 million, with the LFPR steady at 56.4%.
The number of individuals outside the labour force was little changed at 7.18 million, mainly due to housework/family responsibilities (43.7%) and schooling/training (40.9%).
In 2Q25, Malaysia’s labour force averaged 17.37 million, up 0.8% from 17.23 million in 1Q25 and higher than 16.91 million in 2Q24.
The LFPR also improved, rising one percentage point to 70.8% in 2Q25 from the previous quarter.
Employment rose 0.9% quarter-on-quarter to 16.85 million from 16.7 million in 1Q25.
Meanwhile, unemployment fell 1% to 520,900 in 2Q25 from 526,300 in the prior quarter. The unemployment rate for 2Q25 averaged 3%, down from 3.1% in 1Q25.
Sunway University’s Yeah said these figures confirmed that the economy is “moving in the right direction” and reflect the implementation of approved investment projects.
Based on Malaysian Investment Development Authority data, approved investments in 1Q25 totalled RM89.8bil, up 3.7% from the same period last year.
For 2024, approved investments stood at a record of RM378.5bil.
Yeah said sustaining the current 3% unemployment rate is “already a commendable achievement” given global uncertainties, and noted that the rate could dip below 3% if high growth continues.
“I believe around 3% is considered full employment,” he added.
The key question now, Yeah said, is whether tighter labour market conditions will push wages higher.
Williams, meanwhile, expects hiring to remain stagnant due to the challenging global economic environment.
Still, he sees unemployment remaining low. “The pressure will be seen in stagnant wages because high underemployment allows companies to hire easily at low wages,” he said.
The unemployment rate peaked at 5.3% in May 2020 due the Covid-19 pandemic, up from 3.2% at the start of that year.
The last time it fell below 3% was in November 2014, when it hit a low of 2.6% before climbing to 3.1% the following month – a level it has stayed above since.
