THE unprecedented nature of the Covid-19 pandemic has set in motion one of the most abrupt disruptions in decades, which has seriously affected labour market conditions.
In the post-recovery period, the pandemic is expected to inflate the size of graduate mismatch in the Malaysian labour market if necessary interventions are neglected.
The term “graduate mismatch” refers to employees who are holding positions that do not commensurate with education levels – such as a graduate with a Bachelor degree working as a cashier or clerk.
This is similar to the case of under-employment, whereby the talents and skills possessed by the graduates could not be fully maximised in the economy.
For the purpose of explanation, the Social Security Organisation (Socso) has mapped the graduate and non-graduate jobs based on occupation-qualification taxonomy, as indicated in Table 1.
According to this taxonomy, the first three occupational categories (1-3) are jobs for graduates while the other six occupational categories (4-9) are classified as non-graduate jobs.
Figure 1 illustrates the incidence of mismatch derived from the Graduate Tracer Study in 2017.
The study revealed that 63,911 graduates or 47% of the total samples (137,087) are in non-graduate occupations. The total graduate mismatch is mainly dominated by the Bachelor degree and diploma holders with 43% and 55% of the total graduate mismatch, respectively.
Is the size of graduate mismatch growing?
The incidence of graduate mismatch in Malaysia is considerably large.
Figure 1: Graduate employment and mismatch by occupations (2017)
Although the growth of graduate employment expands at an average of 7.2% per annum in the 2001-2016 period, the number of graduates in jobs which do not require higher education qualification also increases.
This can be clearly observed in Figure 2. Figure 2 tabulates the number of graduates occupying non-graduate jobs (positions other than managers, professionals, technicians and associate professionals), analysed from the Labour Force Surveys.
In Figure 2, the past trend for graduates occupying non-graduate jobs registered a double-digit growth of 11% per annum between 2001 and 2016.
A total of 669,200 or 20.7% of the total graduate employment is found in non-graduate occupations in 2016, resulting in the incidence of education mismatch.
This situation indicates that it is harder for graduates to secure suitable jobs based on their qualifications as compared to seeking employment itself.
In the 15 years from 2001 to 2016, employment of graduate workers recorded an increase of two million.
On average, about 133,800 new jobs for graduates are added into the economy each year. Of the total, 73.6% of these new jobs are created for the high-skill bracket matching the diploma and degree qualifications. The remaining 26.4% of the job creations for graduates are in the lower category of occupations, indicating a certain level of mismatch.
Based on past trends, graduate mismatch is seen as persistent over time, depicting a structural nature similar to unemployment. From economic perspective, this calls for a serious attention for two main reasons.
First, a huge amount of human capital expenditure has been allocated for the educational sector. The share of education expenditure to gross domestic product (GDP) is 4.7%, which is almost close to the average OECD (Organisation for Economic Co-operation and Development) level at 5.2% in 2019.
When a large number of graduates is underemployed, this implies an underutilisation of human capital and ineffective use of resources.
Second, the economic growth and development tend to create more non-graduate jobs than the graduate jobs whereas the growth in supply for graduates exceeds the demand.
Thus, a serious gap exists between the demand-side policy directions, which are characterised by the structure of economic growth and industrial development, and the supply-side decisions that involve the higher learning institutions.
Supply of graduates by field of study
The Department of Statistics Malaysia has estimated that about 300,000 to 350,000 fresh graduates will enter the labour market in 2020.
According to the Tracer Study for 2019 conducted by Higher Education Ministry, there were 307,818 fresh graduates ready to enter the labour market but about 80,775 remained unemployed after six months of graduation. This indicates that one out of five graduates remains unemployed.
Figure 3 combines the information on total number of graduates produced by higher learning institutions (public and private universities, polytechnics and community college) and graduate employability.
For the period of 2016 to 2019, employability of graduates is extremely high with an average of 96%. Although employability among graduates is high, it does not indicate whether graduates are employed in the right occupations that match their qualifications.
Statistics in Figure 2 confirm this expectation as they show the considerably large incidence of graduate mismatch.
Next, let us examine a comparative analysis between the supply and demand of graduates in the recent periods by analysing data from the Tracer Study and MyFutureJobs.
Is the economy creating enough jobs for graduates?
Figure 4 details the distribution of graduates by programmes in 2019, obtained from the Tracer Study.
Social Sciences, Business and Law categories dominated the supply of graduates in the labour market with 33%, followed by Engineering, Manufacturing and Construction (23%), Science, Mathematics and Computing (10%), Arts and Humanities (8%), General Programmes (8%), Services (6%), Health and Welfare (6%), Education (5%) and, Agriculture and Veterinary (1%).
Figure 4 also details vacancies that are available on the MyFutureJobs portal from Jan 1 to Sept 10,2020. MyFutureJobs is a job portal maintained and monitored by Socso on behalf of the Human Resources Ministry.
The employment database available at Socso only covers about 7.1 million employees in the private sector.
In 2019, Socso’s employee database covers 11.2 million or 74% of the total employment in the economy.
Thus, as far as employees are concerned, the Socso database provides a good estimate of the national workforce.
To date, there are 188,841 vacancies available on MyFutureJobs. From the total vacancies, the portal ranked the top 100 vacancies for graduate and non-graduate positions and classified them according to the fields of study.
Figure 4 has proven descriptively that economic growth creates more jobs for non-graduates compared to graduates.
Analysis in Figure 4 shows that only 43,645 or 23.3% jobs are available for graduates, while 76.7% or 143,284 are for non-graduates.
Among the fields of study, demand of graduates is large for the services category with 18,957 vacancies.
The top five occupations that are highly demanded by the employers in the services category are commercial sales representative, department store manager, marketeer, management assistant and financial planner.
The second category of fields of study that are highly demanded by the market is Social Sciences, Business and Law with 7,628 vacancies.
The top-five occupations highly demanded by employers are administrative assistant, accounting assistant, bookkeeper, quantity surveyor and insurance broker.
One may argue that the vacancy database on MyFutureJobs may be influenced by the economic conditions post-movement control orders (MCOs) following the Covid-19 pandemic.
However, the incidence of graduate mismatch is a long-term structural issue in our economy for the past two decades. Thanks to the Covid-19 pandemic, that has further exposed this structural issue.
Vacancies in the Education and Health and Welfare categories may not be fully representative of the national vacancies because the database in MyFutureJobs comprises only vacancies for the private sector, excluding the public sector.
Nevertheless, the publicly available database could clearly show the incidence of mismatch for graduates in these two categories.
For example, a total of 3,489 registered doctors, dentists and nurses were recorded by the Department of Statistics Malaysia in 2019, compared to the supply of 17,830 doctors, dentists and nurses in the Tracer Study.
Does graduate mismatch harm the economy?
Various studies show that graduate mismatch has close association with economic outcomes.
In most cases, reducing graduate mismatch will not only improve the labour market efficiency but also will promote economic growth through productivity enhancement.
For policy makers, here is a summary of a few economic outcomes that address the economic consequences of graduate mismatch:
Low return of human capital investment: Investment in human capital through education is one of the instruments that contribute to a lifelong difference in people’s lives and thus promote economic betterment.
The rate of return on education is considered one of the most important determinants in the decision-making process of investment in education.
When mismatch in the labour market exists, the rate of return on education is less attractive because the wages earned by the mismatched graduates are lower than the matched graduates.
Productivity: A key finding from various studies is that having employees who are over-qualified is positively associated with the firm’s productivity but negatively correlated to the allocative efficiency of human capital.
There is a considerable scope to improve the efficiency of human capital allocation in Malaysia which certainly will further improve the productivity growth.
Output growth: Studies show that one of the costs of the mismatch is output growth.
For example, a study conducted for OECD countries shows that the cost of mismatch is 3% of output growth. This means that that eliminating mismatch would raise output by 3%.
The key indicator that explains the output cost of mismatch is not the percentage of mismatched workers but their wages relative to well-matched workers.
Income inequality and cost of living: Mismatch is one of the explanatory indicators of the increase in the cost of living and income inequality.
Mismatch implies that the wage received by the particular worker is relatively lower than the well-matched worker.
Evidences show that the high cost of living in Malaysia is due to relatively lower wage growth than the price increases.
This is likely to affect the “survival” of mismatched workers because of relatively slower income growth, implying a low return in human capital investment.
When the size of mismatched workers is large, the distribution of income is likely to be “frozen” because the large segment of population experiences low income growth.
How to manage supply-demand of graduates?
Linking statistics in Figure 3 and Figure 4 provides a clear evidence of the serious graduate mismatch in the country’s labour market.
Large imbalances between the supply and demand for graduates in developing countries like Malaysia are driven by economic structures and growth types, and misalignment of the education system with the labour market needs.
The costs of mismatch can be large and long-lasting for workers, firms and the economy as a whole, with long periods of over-education implying a loss of human capital for graduates and ineffective use of resources for our economy.
There are four medium-term approaches to reduce graduate mismatch in Malaysia that can be considered.
1. Integrating demand-side policy intervention: The supply-centric intervention has its limitation since it does not overcome the structural issues of the labour demand (job creation for high-skilled workers).
It is proposed that the long-term strategy for this matter is to redirect the policy focus to address the structural changes in production and economic growth factor, which has a significant impact on the dilemma.
Hence, it requires a paradigm shift in policy formulation and implementation, which is evidence-based.
2. Sectoral interventions minimising graduate mismatch: It is observed that there are gaps in sectoral policies (industry strategies) which is loosely linked with the labour component.
On the same note, the labour and human capital-related policies at the national level are unable to deep dive into the various economic sectors.
The “one-size-fits-all” solution might not be efficient to tackle the graduate mismatch issue due to the dynamic nature of each economic sector.
3. Industry role in the supply-side education: Greater industry role in curriculum designs must be accelerated to a different level.
Such involvement will have the potential to spur innovation in teaching and learning and ensure the application and relevancy of the subjects taught in tertiary institutions.
A shift from a supply-driven to demand-driven education model is necessary to cope with the graduate mismatch issue.
4. Development of skill taxonomies: Weak linkages between programme outcomes set by higher learning institutions and skill requirements determined by the market are one of the factors explaining the incidence of graduate mismatch.
Therefore, development of skill taxonomies could facilitate the graduates and guide higher learning institutions in determining the required skills for specific programme-occupations.
Development of the Malaysian Skills, Occupations, Qualifications and Competences (MSOQC) by Socso is a progressive effort that aims to reach out to education and training institutions to improve planning and curriculum development and to react quicker on emerging skill needs.
This article limits the macro-view on the “quantity” of graduate mismatch without addressing the “quality” of matched graduates.
Wages, occupational-matching by fields of study, job satisfaction and sectoral distribution are among the determinants that influence the quality of matched graduates.
Although graduate mismatch cannot be fully eliminated, there are several ways that can support better matching.
One of the effective ways is to use and strengthen the Labour Market Information (LMI) and the development of early warning information systems that can contribute to the reduction of graduate mismatch.
The whole process needs to be supported by a coordinated institutional framework that involves all important stakeholders.
Datuk Mohd Sahar Darusman is Chief of Employment Insurance Office, Socso