Raising the Ceiling, Raising the Floor

 

Malaysia has expanded education, employment, and incomes over two decades of steady growth. Yet real wage gains, while broadly aligned with productivity, have been modest relative to rising education, aspirations, and living costs. 

The Special Issue of the Malaysia Economic Monitor by the World Bank argues that Malaysia’s central challenge is no longer job creation per se. With labour force participation at historically high levels and unemployment remaining low, the economy has demonstrated a strong capacity to generate jobs in aggregate. The more pressing challenge, rather, is the creation and scaling of high-quality, and well-matched roles which result in significant wage growth. This means jobs in higher value-added activities generated by productive firms that are able to pay higher wages, which allow workers to better utilize and upgrade their skills, and which support durable gains in purchasing power. 

Durable wage growth is the product of a virtuous cycle linking opportunity creation with capability building. It cannot be delivered by wage-setting policies alone. On the opportunity side, this means an ecosystem where productive businesses can enter and expand; on the capability side, it means skilling and upskilling the workforce in line with the opportunities created. Productivity growth—driven by firm upgrading, the business environment, and effective use of skills—is the binding constraint. Evidence from Malaysia confirms this: labor productivity has lagged real wage growth, particularly when examined on per worker basis, though with notable variation across states and groups of workers.

 

 

Rising skills-related underemployment over the last decade signals that high-productivity job creation is not keeping pace with rising workforce capabilities. Despite some improvement in recent years, more than one-third of tertiary-educated workers are now employed in jobs below their qualification level, weakening the translation of human capital into higher productivity and earnings. This primarily reflects demand-side constraints—firms not creating enough high-skill, high-productivity jobs to absorb an increasingly educated workforce. Skills mismatches and capability gaps, however, compound the problem. 

As said before, Malaysia needs to invest more in R&D and create an environment for innovation and invention. Our R&D is at 1.0% (or thereabouts) of GDP. Other nations are above 3.0%. Next, our education system from school to tertiary is not geared for the future. Both Ministers of Education and Higher Education cannot envisage the future! 

Reference:

Malaysia Economic Monitor, World Bank Group, April 2026