No Skills or Low Skills?

The papers last week hinted of an important clue that should have been picked up in 2008 when the New Economic Model was tabled.

In the article titled “Economy too dependent on Form Five education level, says IKIM DG”, 80% of the economy was said to be too dependent on workers who had SPM, presumably as a minimum qualification. While he goes on to say that SPM-level workers may not be able to contribute due to their lack of skill, the keyword here should be ‘dependence’ -which can be taken to mean that jobs are being created that require no more than the basic rudimentary skills expected from a high school graduate. Which, really, is not very much to speak of.

In contrast, 2 years ago, the argument was about how the supply of university and college graduates was insufficient in Malaysia, thus impeding our move towards a highly skilled workforce.

The distinction is immediate: while the most recent article hinted at a possible lack of demand for university graduates, much of the discourse for moving towards a knowledge-based economy in previous years has been focused on increasing the supply of these graduates further.

Identifying the right scenario is important in deciding which policy path to take, which simple economics can illustrate.

An economy that focuses on the production of goods and services requiring low specifications and technical expertise is well-suited to the use of low-skilled workers, as opposed to their higher-skilled counterparts. This is common in emerging economies which continue to make the most out of a marketplace for goods and services sold on the basis of low cost and low wages. A low-skills equilibrium environment is created, which then reinforces itself: a lack of demand for highly skilled workers results in a diminished focus on producing these workers and/or providing more jobs suited for this category, which then leads to a further lack of skilled workers.

In this situation, arbitrarily increasing the supply of labour that is not in demand will not only reduce the average wage a worker can expect to attain – i.e. the worker’s value in the economy, now that there are more of them – but also increases overall unemployment.

Which, then, is the most accurate description of Malaysia’s labour market?

Data below illustrates job vacancies in Malaysia for May 2012, adapted from the Ministry of Human Resources’ Labour Market Report (click to enlarge):

This paints an interesting picture. A paltry 2.2% out of some 124,899 jobs available were in technical, professional & scientific activities – the ones requiring the most skilled members of the workforce. In contrast, the top three sectors with the most vacancies were agriculture, manufacturing and construction – eyeballing these three categories in the January 2012 data reveals that the picture was similar even 5 months ago.

The MOHR also provided data on vacancies for graduates by industry – and these, too, are interesting. In May 2012, the most jobs available for graduates were in construction with 1,788 jobs.

Meanwhile, supply data reveals that 30% of active registrants by education level comprised degree-holders. These and diploma holders (the third highest proportion in the workforce) make up a whopping 54% of registrants – a number that appears to suggest the opposite of a shortage in skills.

Could this, then, be an indication of a potential low-skills equilibrium in Malaysia?

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