PETALING JAYA: On the back of strong labour market demand data for the fourth quarter of 2025, economists are calling for stronger minimum and progressive wage policies to address persistent labour market challenges.
Founder and director of Williams Business Consultancy Sdn Bhd Geoffrey Williams said the registration and training requirements should be removed and replaced with a reverse income tax, where instead of paying tax, workers receive a tax credit, highlighting the need for simplified mechanisms to support workers effectively.
Williams highlighted that more than two million Malaysians are underemployed, with 35.5% of skills-related underemployment affecting graduates.
“Unemployment is low because people cannot afford not to work, so they take any job, no matter if it is below their qualification level. So underemployment rises and disguises the problems in the labour force,” he told SunBiz.
According to a Feb 12 report by the Department of Statistics Malaysia (DOSM), labour demand in Malaysia increased 1.8% to 9.21 million jobs in the fourth quarter of 2025, the highest growth since Q1 2024.
The services sector dominated at 53.1% of filled positions, followed by manufacturing and construction, while semi-skilled workers accounted for 62.3% of employment.
Despite strong headline job growth, economists say structural challenges such as underemployment, skills gaps and low wages remain significant.
Williams also pointed to declining median wages as a significant concern. According to September 2025 data, median wages fell to RM2,864 per month from RM3,064 in January 2025.
“Half of formal private sector workers, or 3.53 million people, were earning below the living wage of RM3,100 set by the government,” he noted, stressing that young adults and Bumiputera workers are disproportionately affected.
From a developmental perspective, Universiti Teknologi Malaysia Faculty of Management professor Nanthakumar Loganathan said youth employment is being shaped by education choices and the changing nature of work.
“Certain degree programmes do not fit with current labour market demand. Graduates may face challenges in finding suitable jobs and may need to enhance their digital knowledge and skills through additional training,” he said.
Nanthakumar noted that the services sector, which contributes almost 60% of Malaysia’s GDP, has been the main driver of post-pandemic job creation, with digital roles expanding opportunities for Gen-Z workers.
He also cited the upcoming Visit Malaysia 2026 campaign as a modest jobs driver in the tourism sector, though it primarily creates short-term, lower-wage positions.
“The country will benefit from hotels, transportation, food and beverage, travel agencies, etc. Despite the announcement of VMY2026, the boost to employment will be limited but still meaningful,” he said.
Both economists highlighted that structural labour issues go beyond unemployment metrics. Williams warned of persistent informal work and the rise of own-account workers, while Nanthakumar emphasised that female labour force participation remains limited despite more women pursuing higher education, often due to household commitments.
Policy intervention remains critical, they said.
Williams advocated for broader and simpler wage support mechanisms, while Nanthakumar said minimum wage adjustments and selective foreign worker policies would significantly influence labour market quality in 2026.
“Certain economic sectors may experience a shift towards technology-intensive production. It’s important to observe the employer’s reaction once the foreign worker policy is announced,” he added.
Overall, economists caution that while Malaysia’s low unemployment is a positive headline, the underlying labour market landscape, underemployment, wage stagnation, youth-job mismatch and informal work, suggests that meaningful reforms are needed to translate strong employment figures into sustainable income growth and productivity gains.
