Malaysia's Unemployment Rates

Jump to: Causes of Unemployment | Types of Unemployment | Unemployment in Malaysia | Impact of Unemployment | Unemployment and Inflation | Conclusion

The main objective of this paper is to investigate the unemployment and growth rates of Malaysia. Unemployment is an important issue for developing economies in a country. Inefficiently of using labor resources will cause to high unemployment rate. The result shows that the economics in Malaysia is better with high employment. In economics, unemployment statistics measure the condition and extent of joblessness within an economy. Full employment should be a major macroeconomics goal because it maximizes output. For many years, the manufacturing has been the strongest sector in the country until it is now being progressively replaced by the service sector.

In this research, we will measure how unemployment affects economics growths in Malaysia and also the reason of high unemployment rate of fresh graduate. Thus further research and relevant factors is required. 

Introduction

This paper asks the question of how the rate of economic growth affects unemployment. The main considerations that lead us to think that this is an interesting question have to do with the re-allocative aspect of growth. Faster economic growth must come from a faster increase in knowledge.

Besides, unemployed graduates have become a serious case in Malaysia that need more concern by the government. In year 2006 involving 132,900 graduates from institutions of higher learning all over Malaysia indicated that 30.7% of graduates remained unemployed six months after graduation, while 5.7% were still awaiting job placement (Tan, 2007). There are more female graduates in this country were unemployed because they lacked the relevant skills required in the labor market despite having excellent academic results. The number was much higher in comparison to male graduates (Nor Hartinin, 2007).

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In the sixties and seventies “Okun’s Law” was regarded as one of the most reliable macroeconomic relations. “Okun’s Law” can clearly present the relationship between GDP growth and unemployment. Most economists were playing down the relationship between growth and unemployment. Unemployment was explained by structural factors, mainly by inflexible labor markets: too high wages, too high unemployment benefits and labor’s attitude.

Unemployment

Unemployment or joblessness occurs when those individuals actively seeking jobs remain unhired within the past four weeks. Unemployment is expressed as a percentage of the total available work force. The level of unemployment varies with economic conditions and other circumstances.

The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals currently in the labor force. During periods if recession, an economy usually experiences a relatively high unemployment rate.

In a 2011 news story, Business Week reported, “More than 200 million people globally are out of work, a record high, as almost two-thirds of advanced economies and half of developing countries are experiencing a slowdown in employment growth”.

Causes of unemployment

The level of unemployment differs with economic conditions and other market forces. Unemployment occurs when an individual is out of his current job and looking for another job. It also means that they are unemployment during the time period of shifting between two jobs. Normally the job seeker needs few months to hunt for their favourite job.

When there is a mismatch of skilled workers in the labor market, the structural change within an economy will influence the unemployment. Some of the causes of unemployment are geographical immobility, occupational immobility and technological change. Nowadays, most of the companies are using information technology to carry out the job. The employees who have no upgrade himself will disqualify from the company. Moreover they need to go for training to increase their knowledge on the working field.

Unemployment will occur when trade unions and labor organization bargain for higher wages, which leads to fall in the demand for labor. Currently the fresh graduates are hunting for the job which has high salary, nice environment and easy task. They do not have determination and bear hardships to face the challenges.

Unemployment occurs when there is a downturn in an economy, the aggregate demand for goods and services decrease and demand for labor decreases. At the time of recession, unskilled and surplus labors become unemployed. When there is insufficient demand in the economy to maintain full employment, the problem of unemployment will occurs. If demand falls, firms sell less and so reduce production. If there are producing less, this leads to lower demand for workers. Either worker is fired or a firm cuts back on employing new workers. In the worst-case scenarios the fall in demand may be so great a firm goes bankrupt and everyone is made redundant.

Reasons for unemployment in Malaysia

Lack of experience

Nowadays most of the companies prefer to employ people with experiences rather than those without working experiences. Based on our research, there are several reasons leading to the high unemployment rate.

People lacking of experience are mostly fresh graduates from university or college. The syllabus in university should provide more exposure on real-life industrial training, such as industrial attachment and internship program. Different circumferences have to be managed in different solutions, and the problem-solving skills can be accumulated from the real-life experiences. For example, a programmer has to be familiar with a series of computer languages such as C++, PHP, Java and etc. If the applicant did not meet the basic requirements of the company, the company cannot offer the job to this applicant.

In University, the knowledge is mostly gained from textbooks, but sometimes the knowledge learnt is hard to be applied on working environments. University may extend the required internship period from 3 months to 6 months or even longer. If the training duration is not long or sufficient enough, students may not be able to apply what they have learnt in school on their works. University students are suggested to apply for companies related to their courses. This may help them improve the learning and practical skills. It is not recommended to join those companies which simply arrange the trainees sitting in front of the computers and do nothing but day dreaming.

Firstly, the reason why employers prefer experienced employees is because experienced employees can complete the jobs easily without spending much time on learning their works. Having employees without experiences, companies need to provide additional training and courses for those employees. This will definitely contribute to the cost of the company.

Besides, the employee may be not familiar with the industry, thus, it is possible that they cannot complete the job well on time. It is not ensured that they are able to complete their jobs precisely and correctly with their assigned supervisors. They may spend some time on adapting to the new environment and less focus on the jobs.

Thirdly, the skills learnt from school are insufficient in real lives. In real life, company job is based on project and it requires the employee to communicate with colleagues. Universities also have to provide more project-based modules for students. This can create more chances for students to discuss with their group members. In addition, it helps improve the soft skill of students.

Last but not least, the fact that new graduates demand for high salaries also causes the high unemployment rate. Some of the graduate job-seekers are with high expectation for their first jobs. Even they are aware they lack of working experience, they still try to apply for higher salaries compared with those with one or two year’s experiences. Furthermore, students who graduated with excellent academic results are no longer secured with good jobs or competitive edges in career advancement.

Lack of social and communication skills

Most of the graduates with rural background lack of communication skills compared with those from city. The reason may be because most of the residents staying in villages communicate with their elder adults and friends using their own dialects or mother tongues. They seldom speak in English. However, the working environment in Malaysia mostly requires people to communicate efficiently in English and Malay. Therefore, “Kampung” students may not be competitive in terms of communication skills even though they graduate with excellent academic results.

Besides, a number of town students who further study in university seldom use English to communicate with their teachers or friends. For example, the author mostly speak mother language, Mandarin, with her friends. This situation also makes the communication skill in English poor among town students.

According to a survey conducted by Ministry of Human Resources, it shows that in Malaysia compared with male graduates, female graduates become unemployed because the female are weaker in communication and social skills. Furthermore, the female have a poor command of language and low levels of self-confidence. The unemployment rate of female graduates is much higher than that of male graduates. The result also indicates that a lot of female graduates are able to achieve excellent academic results but they could not secure their employment without the relevant skills required in the labor market.

According to JobStreet.com which conducted an English Language Assessment (ELA) test whereby it had ranked Singaporeans is first, Filipino is second and Malaysians is third. This has proven that Malaysian English level standard is not up to satisfaction. The survey reveals that 65% of employers have turned down job seekers due to poor communication of English, which is the official business language for 91% in Malaysia’s companies.

Another report shows that, graduates throughout the country were unemployed due to poor communication skill in English. Though the fresh graduates possess excellent qualification and technical backgrounds, but they are unable to speak English efficiently when facing an interview. They definitely should improve their English language standards.

For the basic process of an interview, the first point that the interviewer would assess the interviewee is his/her English communication capability. The way in which the interviewee speaks and interacts with the interviewer is a benchmark when the company measures suitable candidates for the job. If the interviewee even could not talk properly, it is impossible for the supervisor to assign a task to this interviewee.

Most of the fresh graduates are not good team players. They are somehow arrogant and believe that they are talented and able to complete the tasks. If the fresh graduates did take part in co-curriculum and be the main committee, this will help prove that they are well trained and capable of managing the task. Co-curriculum also can build characters of people. It provides a platform for students to show their personalities. In addition, the social skill, which is also essential for each graduate, is practiced with various co-curriculums as well.

Education in Malaysia

• Choosing the wrong course and the poor result.

Bahasa Malaysia is the national and official language in Malaysia. Bahasa Malaysia is used as the teaching language for primary school and secondary school. In recent years, Ministry of Education Malaysia has begun focusing on English teaching. However, so far Malaysian education still mainly uses Bahasa Malaysia as teaching media, while in working environment people mostly communicate in English. The fresh graduates who are unable to communicate in English fluently will be very tough when finding a job.

Generally, the citizens in government organizations use Bahasa Malaysia as communication language. The citizens have got used to communicating in Bahasa Malaysia. However, there are a lot of Multinational Corporations which set their head offices or Asia pacific offices in Malaysia. They require their Malaysian employees capable of communicating in English efficiently. Could Malaysia provide sufficient manpower armed with English communication skills? This is a big challenge for Malaysia educations system.

Besides, high-level education of Malaysia is not competitive compared to overseas education. In Malaysia, the top university is University of Malaysia (UM), but its ranking is the 167th so far, among the worldwide university according to investigation of USNews.com. Compared with our neighbour country Singapore, the National University of Singapore (NUS) ranks at the 28th and Nanyang Techonological University (NTU) is the 58th. This is a great distance between the education systems of the two countries. Therefore, Malaysia government has to put a lot of effort into the education sector to upgrade the ranking and provide talents to international labour markets.

The syllabus in local university is not sufficient or up to the satisfaction of working environment. Most of the students gain their knowledge purely from textbooks. They lack of practical skills. Facilities in university have not reached the global standard and still maintained in “Kampung” standard. Professors and researchers are not graduates from world-class Universities. Equipments in the laboratories are 10-20 years backward. These are all the reasons why more and more students are willing to study in overseas universities although the cost of education is expensive.

Moreover, the qualification lines of entering the universities are very low, as the corresponding university standard is low as well. University should set the higher entry qualification to increase the standard of coming students. Besides, the university should increase their level as well by employing professional stuffs to strengthen education levels. A lot of private colleges which are unqualified set by the Ministry of Education intend to promote as a university. The official explanation is this can improve the quantity of undergraduates. However, it seems the government did not include the quality of undergraduates into their consideration.

It is suggested that Ministry of education should review the education system in Malaysia by referring to foreign education systems to improve Malaysia education system.

With a huge number of students graduating with CGPAs below 3.0, it is unsurprising that these people become “unemployable” in the Malaysian private sectors. It is recommended that students should take courses based on their capabilities and interests but not based on what is apparently “in-demand” in the society (e.g., IT courses). If students are not interested in the courses, less effort would be put in the study; hence, the result would not be scored in flying colour. Normally the company hire employees based on their paper results and abilities instead of their capabilities in other fields. Student with lower scores would probably get lower opportunities of interviews.

Types of unemployment

After the research, we found that there are four type of unemployment. And below is the summary of structural unemployment, frictional unemployment, and cyclical unemployment.

Structural unemployment

When there are less suitable job provide for the people will cause to structural unemployment because there is a mismatch between the skills needed for the jobs and the skills of the unemployed workers. For example, A employee fired by his car maker company because machine had replace human in making car and the employee does not know how to operate the machine, so the employee only have the skills of make car and he have the difficulty in searching a new job.

Structural unemployment may also be affected by cyclical unemployment. If a nation’s economy is suffers from a recession, that means many of the unemployed workers become discouraged, while their skills become rusty and outdated. This means that they (unemployed workers) may not suitable for the job vacancies that are reserved for them when the economy turns to normal. Some economists see this scenario “The implication is that sustained high demand may lower structural unemployment” under the speech from British Prime Minister Margaret Thatcher during the 1970s and 1980s. This theory has been referred to as an example of path dependence.

A lot of technological unemployment occurs, because of the replacement of workers had change into machines to produce more effectively, we called as structural unemployment. Thus technological unemployment refer to the way in which production increases by machine but lesser workers to produce the actual same level of output or more output every year. The fact that aggregate demand increase suggests that this problem is instead one of cyclical unemployment. As like we said before “Okun’s Law”, the demand side must grow rapidly to absorb the growing labor force but also the workers made redundant by increased labor productivity.

Frictional unemployment

Frictional unemployment is the time period between jobs and unemployed workers when a worker is seeking for a better job and or a new environment. Frictional unemployment is always present in an economy no matter which country are u, so the level of unemployment is calculated by the unemployment rate minus the rate of frictional unemployment. This means that any changes in unemployment rate are normally represented in the simple statistics.

Frictional unemployment exists because both jobs and workers are multifarious, and a mismatch between the demand and supply. Such a mismatch can be related to skills, payment, work-time, location, attitude, and other factors. New entrants of employee such as graduated students and homemakers that want to return to the career can also include in frictional unemployment. Workers as well as employees accept a certain level of compromise or risk. Time and effort will be invested to find a better match but there is always a risk. This will increase the economy growth since it results in a better allocation of resources.

However, if the mismatches are taking too long finding a job or too frequent, the economy will suffers a decreasing, since some work will not get done. Therefore, governments should search for multiple ways to reduce unnecessary frictional unemployment happen too deep through planning nicely which means including providing education, advice, training, and assistance such as having some camp providing the more information about how to seeking job.

An increase or decrease in labor market frictions will shift the curve outwards or inwards. The frictions in the labor market sometimes will illustrate graphically with a Beverage curve, a downward-sloping, convex curve that shows a relationship between the unemployment rate and the vacancy rate. Changes in the demand or the supply for labor cause movements along the curve.

Cyclical unemployment

Cyclical unemployment, also known as deficient-demand unemployment, occurs whenever there is not enough aggregate demand in the economy to provide jobs for everyone who needs a job (People who seeking for job). Demand for most goods and services decreases will lead to less production and for sure fewer workers are needed when they are less product in the market, wages fall and fail to meet the equilibrium level. Its name is derived from the frequent shifts in the business cycle although unemployment can also be persistent (during the Great Depression of the 1930s).

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Besides, with cyclical unemployment occurs, the number of unemployed workers will increase and exceeds the number of job seekers, so that even with full employment and all open jobs were filled, they are still some workers will remain unemployed. These two friction “cyclical unemployment and frictional unemployment” happen because of the cyclical variables. For example, a surprising decline in the money supply may influence the entire rational economic factors and will cause to restrain aggregate demand.

Summary

• Structural unemployment – Where their skills becomes outdated. (Example: Someone who do not use computer get fired because he do not know how to type in information into computer.)
• Frictional unemployment – where people lose their jobs in order to look for better ones or still searching for job.
• Cyclical unemployment – Unemployment occurs when there is a recession of economy in a nation.

The thing about unemployment is that the economy has to do with gross domestic product (GDP). We can produce more stuff with full employment. So if there is high unemployment, we should produce more but if we don’t, this will lead to a bad economy growth in a nation.

Malaysia Unemployment Rate

Normally unemployment rate in developed countries is higher than developing countries due to higher competition. For example, in the last three quarters of 2011, United Kingdom’s unemployment rate has rose from 7.8% to 7.9% and followed by 8.3% respectively.

At the same time, Malaysia’s unemployment rate has went up from 3% to 3.2% and followed by 3.3%, and was ranked at 170th place out of 198 countries based on their degree of severity (The Human Resource Ministry of Malaysia and CIA World Factbook, 2012). Observation reveals that youth unemployment rate is even greater than the overall unemployment rate for both of the countries suggesting that youngsters are facing more difficulties in finding jobs as compared to adults.

In Malaysia, one of the badly affected sector is the nursing field whereby in 2010, more than 54% of the private nursing graduates were unemployed three to four months after graduating, compared to only 21.7% in 2008 (The Star, 2012). It is a worry situation as fresh graduates find themselves difficult to get employed despite having a solid academic qualification.

• Malaysia Unemployment Rate (From July 2010 until January 2012)

The unemployment rate in Malaysia was last reported at 3 percent in April of 2012. Historically, from 1998 until 2012, Malaysia Unemployment Rate averaged 3.3600 Percent reaching an all time high of 4.5000 Percent in March of 1999 and a record low of 2.8000 Percent in March of 2012. The unemployment rate can be defined as the number of people actively looking for a job as a percentage of the labor force. This page includes a chart with historical data for Malaysia Unemployment Rate.

Needs of the Labour Market

Quality of education

Firstly, the quality of education has become a significant cause in current situation and it getting worst. Seems like every year our country produces more and more excellent students. This is proved where our students get better and better result (straight A) in SPM or PMR. With the increasing number of straight ‘A’ students in SPM and PMR, it seems like our student is improving a lot. Besides that, it is also easier to find degree holders anywhere. Surely, this is a good sign of the graduate’s quality.

This statement may not bode well with some of the institutions out there but this should be taken as a challenge, not a mockery. (Abdul Razak Ahmad, New Straits times Sunday, March 20 2005) Most of the students will concern only on the major subject instead of minor subject.

Besides, government also offer less minor subject to the students. Now the majority of student studying only for certificate, so they do select the easier subject compare to others. Most schools also began to commercialization to benefit, they will reduce the level of subject, resulting in a lot more apparent (look impressive but is worthless) of the University.

Economy

Secondly, fresh graduate unemployed because of the recession of economy in our nation too. The changing of the economic structure is a probably cause for the increasing number in unemployment.

For many years, the manufacturing has been the strongest sector controlling the unemployment rate in the country until it is now being replaced by the services sector step by step. The services sector requires people who do not only know the right technical knowledge, but also those people who know the right soft skills – wisdom, communication, interpersonal, maturity and business oriented.

Economics growth

Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. An increase in the capacity of an economy to produce goods and services, compared from one period of time to another. Economic growth can be measured in nominal terms, which include inflation, or in real terms, which are adjusted for inflation.

As an area of study, economic growth is generally distinguished from development economics. The former is primarily the study of how countries can advance their economies. The latter is the study of the economic aspects of the development process in low-income countries.

As economic growth is measured as the annual percent change of gross domestic product (GDP), it has all the advantages and drawbacks of that measure.

Advantages of Economic Growth

Sustained economic growth is a major objective of government policy – not least because of the benefits that flow from a growing economy.

Higher Living Standards: For example measured by an increase in real national income per head of population – see the evidence shown in the chart below.

Employment effects: Growth stimulates higher employment. The British economy has been growing since autumn 1992 and we have seen a large fall in unemployment and a rise in the number of people employed.

Fiscal Dividend: Growth has a positive effect on government finances – boosting tax revenues and providing the government with extra money to finance spending projects.

The Investment Accelerator Effect: Rising demand and output encourages investment in new capital machinery – this helps to sustain the growth in the economy by increasing long run aggregate supply.

Growth and Business Confidence: Economic growth normally has a positive impact on company profits & business confidence – good news for the stock market and also for the growth of small and large businesses alike.

Disadvantages of economic growth

There are some economic costs of a fast-growing economy. The two main concerns are firstly that growth can lead to a pickup in inflation and secondly, that growth can have damaging effects on our environment, with potentially long-lasting consequences for future generations.

Inflation risk: If the economy grows too quickly there is the danger of inflation as demand races ahead of aggregate supply. Producer then take advantage of this by raising prices for consumers.

Environmental concerns: Growth cannot be separated from its environmental impact. Fast growth of production and consumption can create negative externalities (for example, increased noise and lower air quality arising from air pollution and road congestion, increased consumption of de-merit goods, the rapid growth of household and industrial waste and the pollution that comes from increased output in the energy sector) These externalities reduce social welfare and can lead to market failure. Growth that leads to environmental damage can have a negative effect on people’s quality of life and may also impede a country’s sustainable rate of growth.  Examples include the destruction of rain forests, the over-exploitation of fish stocks and loss of natural habitat created through the construction of new roads, hotels, retail malls and industrial estates.

How does unemployment affect your economy?

If more people are unemployed, less people pay taxes or less money for spending. Spending money boosts the economy through taxes which is why everything is taxed. The taxed money adds up when everyone shops. If one is unemployed, they live on what is saved or what unemployment departments give them. Therefore, they do not have more money to spent, they only buy necessities.

Also by not having the money to buy wants, not only needs, it means some business will have to cut prices in order to try to sell. By cutting prices this leads to less, no, or sometimes negative profits. Enough of this happens and that business might go out of business which leads to MORE unemployment. All of this leads to deflation which could lead to a depression. Deflation does not encourage spending, in fact it does the opposite. Also your dept numerically stay the same but now you earn less so it will be even harder to pay them off.

The consequences of unemployment to the Malaysian economy

Unemployment can lead to stress emotionally and mentally. When stress occurs, the individual and the loved ones around them suffer. There would be unnecessary pressure and expectations and a case of low morale. Thus leading to misunderstandings. 

When misunderstandings occur, one may resort to violence and in turn affect the relationship or lead to an increase in crimes.

Unemployment affects the economy by having a reduction in AD (aggregate demand), and economic growth. There would also be a lack of demand as people unemployed are saving.

Unemployment influence and effect economic growth

Unemployment affects the economy in ways that most people do not visually see. If more people are unemployed, less people pay taxes or have money for spending. Spending money boosts the economy through taxes which is why everything is taxed. The taxed money adds up when everyone shops. If one is unemployed, they live on what is saved or what unemployment departments give them. Therefore, they do not have money to be frivolous, they only buy necessities. Spending less doens’t benefit the economic growth. With the increase in unemployment people will be more inclined to turn to a life of crime thereby decreasing the economic growth.

Some of the well-known effects of unemployment on the economy are:

• Unemployment financial costs

The government and the nation suffer. In many countries the government has to pay the unemployed some benefits. The greater the number of the unemployed or the longer they are without work the more money the government has to shell out.

Therefore, the nation not only has to deal with the lost income and decreased production but also with additional cost.

• Spending power:

The spending power of an unemployed person and his/her family decreases drastically and they would rather save than spend their money, which in turn affects the economy adversely.

• Reduced spending power of the employed

Increased taxes and the insecurity about their own work may affect the spending power of the working people as well and they too may start to spend less than before thus affecting the economy and also the society in a negative manner.