PETALING JAYA: Economists project Malaysia’s labour market to remain stable in the first quarter of this year (1Q26), but caution that challenges lie ahead.
Centre for Market Education chief executive officer Carmelo Ferlito said employment conditions are likely to remain relatively stable in 1Q26, supported by services activity and ongoing investment pipelines.
However, Ferlito said he is choosing to “avoid precise quantitative forecasts” on how the labour market will perform during that timeframe.
“Labour markets, like all complex social processes, cannot be reduced to short-term prediction without falling into a false sense of scientific certainty. There will be potential challenges in early 2026 that will relate less to cyclical weakness and more to external factors.
“For example, the constant will to create negative incentives for foreigners (at each level of the job pyramid), in a scenario with virtually no unemployment, may end up slowing down economic dynamics, thus penalising local workers too,” he told StarBiz.
Ferlito believes the labour market in early 2026 will depend less on short-term stimulus and more on whether the country embarks on pro-market reforms.
“This can nurture sustainable development and therefore create better conditions for everyone. The biggest threat is a mounting anti-foreigners narrative that may threaten the general ecosystem for growth.”
According to official statistics, Malaysia’s labour force participation rate in December remained firm at 70.9%, with employment continuing to rise and unemployment staying low.
Total employment increased by 3% year-on-year (0.2% month-on-month) to 17.13 million persons in December 2025, underpinned by broad-based job creation across most major economic sectors.
The country’s unemployment rate also hit an 11-year low.
Despite the promising numbers, Williams Business Consultancy Sdn Bhd founder and economist Geoffrey Williams said the stellar statistics “disguise the issues in the labour market.”
“Underemployment is more than two million, which is 12.3% of the labour force, while 35.5% of those in skills-related underemployment are graduates. This is the main structural problem.
“Unemployment is low because people cannot afford not to work, so they take any job no matter if it is below their qualification level. Therefore, underemployment rises and disguises the problems in the labour force.”
Another issue is low wages, Williams said. “The latest data for September last year had median wages at RM2,864 per month. This had fallen from RM3,064 in January 2025.
“Therefore, half of formal private-sector workers, or 3.53 million people, were earning below the living wage of RM3,100 set by the government.”
Williams said most of these individuals are young, with half earning less than RM2,000.
“For bumiputra employees, half are earning less than RM2,427 per month. Women earn almost the same as men, but 50% of them are only getting RM2,800 per month or less.”
Williams acknowledged that while labour force participation is rising, this is largely because household incomes have remained stagnant.
“Therefore, there is a need to earn to support the family. The same is true for younger individuals – more are working instead of going to college because they need to support the household income.
“All of these factors are structural and will not change in 2026 unless the minimum wage rises and the progressive wage model is simplified and extended.”
Apex Securities, meanwhile, said strengthening domestic activity, alongside an improving external backdrop, should continue to underpin the labour market going into 2026.
“Stronger tourism flows under Visit Malaysia 2026 are expected to support job creation in services, particularly in the accommodation, transportation and retail segments.
“Meanwhile, government cash assistance, including Sara (Sumbangan Asas Rahmah) and STR (Sumbangan Tunai Rahmah), is set to reach a record RM15bil in 2026 (2025: RM13bil), helping to lift household incomes and spending on essential services.”
Externally, the research house said global growth, driven by the artificial intelligence-led technology upcycle, should lend further support to export-oriented manufacturing, especially the electrical and electronics segment.
“Together with the domestic-oriented cluster, manufacturing remains the second-largest contributor to employment.
“Although Malaysia’s January manufacturing PMI (purchasing managers index) indicated a marginal reduction in hiring after December’s surge, manufacturers’ improved optimism on demand and new orders points to near-term support for manufacturing employment.”
TA Research said the labour market is expected to remain resilient in the coming months, underpinned by steady economic expansion, sustained labour demand and continued recovery in key sectors, particularly services and manufacturing.
“Macroeconomic conditions have remained supportive and with 2025’s gross domestic product exceeding 5%, it will generate positive spillover effects on labour demand and job creation.
“For 2026, we project the unemployment rate to improve further to an average of 2.8%, reflecting sustained economic momentum, stronger private investment and ongoing structural reforms.”
TA Research added that continued policy support, accelerated skills upgrading, digitalisation efforts, and rising private-sector participation should further reinforce labour market stability.
“Collectively, these factors point to a stable and increasingly robust employment environment, supporting income growth, strengthening domestic demand, and facilitating broader economic diversification in the medium term.”
Ferlito said indicators such as unemployment or participation rates suggest relative stability, but questions remain on the quality of job creation and the constant difficulty in sourcing workers, not only for 3D (dirty, dangerous and difficult) functions but also for middle management positions.
