1) Malaysia's labor market faces several structural issues including wages that are misaligned with productivity, insufficient high-skilled job creation, and skills mismatches between graduates and industry needs. 2) To address these issues, Malaysia should focus on creating high-skilled, high-paying jobs while reducing reliance on low-skilled foreign workers. This includes providing clarity on where foreign workers are most needed and how to support productivity growth. 3) Establishing meaningful industry participation is also important to equip the workforce with the right skills through aligning policy with evolving industry needs and learning from existing successful models of collaboration between industry, academia and government.

1. 1
Option 1
Bank Negara Malaysia
LSE Saw Swee Hock Southeast Asia - Khazanah Research Institute Forum 2023:
Malaysia Futures
Session 5: Socio-Economic Futures
Deputy Governor
Abdul Rasheed Ghaffour

2. 2
Long-standing structural issues in Malaysia’s labour market
Structural Issues Where’s Malaysia at?
Misaligned wages relative to
productivity & low labour income
share
1
Compared to select advanced economies1,
Malaysian workers are:
• Paid less for the same level of output
• Faced with lower labour income share
Lower median salary and productivity in sectors
which are more reliant on foreign workers
Low-cost production model
2
Insufficient creation of high-skilled
jobs
3
Skills mismatches
4
1/ Include the US, UK, Australia, Germany and Singapore. These economies are chosen based on the more advanced state of economic
development for aspirational comparisons and data availability
• High-skilled job creation is 1.5x lower than
the number of graduates
• Elevated skill-related underemployment
• Graduates do not possess the required skills
by industries
• Stagnant graduate unemployment rate over
the years
2

3. 3
Create high-skilled, high-paying jobs while reducing reliance of
low-skilled foreign workers
Clarity on where foreign workers are most needed and how they can be best
engaged to support productivity growth
Facilitate technology adoption by firms in addition to demand management
tools such as quotas and levies to reduce reliance on foreign workers
Incremental approach to better manage short-term transition costs, with
clear communication of policies
Key Considerations
1
2
3
4 Attract high quality investment, guided by and measured against the National
Investment Aspirations (NIAs)
3

4. 4
Establish meaningful industry participation in equipping
the workforce with the right skills
• Align policy strategies to meet
evolving industry needs
• Learn from the success of existing
industry-specific models in Malaysia
e.g. Penang Skills Development Centre
(PSDC), Collaborative Research in
Engineering, Science and Technology (CREST)
and Academy in Factory (AiF)
Government
Industry
Academia
Individuals
Formal governance structure between industry, academia, the Government and citizens to
enhance the education and training ecosystem
Leverage more on data analytics to
future-proof the training ecosystem
4

5. 5
Assist vulnerable groups: Safeguard welfare, promote labour
and upward social mobility
Consolidate fragmented social safety net programmes
Integrate conditionalities to assistance programmes
to ensure efficient use of resources. Goes hand-in-hand with a consolidation of
social protection databases
to ensure graduation and promote labour mobility
5