Labour Market Imperfection: A Case Study of Graduate Underemployment in Malaysia

Underemployment is a global issue in which graduates are employed in jobs that do not fully utilise their skills and education. Graduates are often employed below their skill level, on a part-time basis and receive lower salaries. In Malaysia, the government has prioritised higher education as a key driver of economic growth through various policies, initiatives, and budgets over the decades. Have these efforts improved graduate employability in the labour market? This study aims to examine underemployment trends by focusing on occupational skills and the socio-economic background of Malaysian graduates using secondary data from 2020 to 2023. The analysis shows that about one-third of Malaysian graduates were underemployed. In semi-skilled occupations, service and sales jobs were the most common among graduates, followed by clerical support jobs. There was a decline in low-skilled occupations among graduates. Female graduates outnumbered their male counterparts in service and sales occupations. Prime-age graduates (25 to 34 years old) recorded the largest share of underemployment. The wage growth of semi-skilled graduates was consistent but slower as compared to that of skilled graduates. The time-related underemployment from 2020 to 2022 fluctuations reflected COVID-19 impacts, while 2023 showed stabilisation of underemployment. Several policy recommendations are proposed to reduce graduate underemployment in Malaysia.