SITI Nursyazalina Zailani is the face of a deep, long-standing problem of the economy that threatens Malaysia’s aim of becoming a sustainable high-income nation – youth unemployment.

After failing to get a job with her engineering degree, the Ipoh lass became a maid to make ends meet.

It is problems like these that economists say must be tackled in Budget 2018 even though it’s likely be filled with “election goodies” targeted at the ruling coalition’s traditional supporters.

Aid and handouts are important for a significant portion of the population in 2018, but structural reforms to solve issues like youth unemployment and stagnant wages are critical for the country in the next five years.

“It will be timely for Budget 2018 to catalyse the shift towards private sector-led and market-based approaches,” said Professor Dr Yeah Kim Leng of Sunway University’s Business School.

“(This is) to address the stagnant wage, weak employment growth, low productivity and over-dependence on unskilled foreign workers.”

Other issues that experts said the government needs to deal with include being disciplined with how it spends public funds and reducing barriers to business to drive more investment.

Although the government is expected to spend more in 2018 over expectations that revenue will increase, it should not overspend, said Yeah.

“The budget should continue its prudent and disciplined path of fiscal consolidation and deficit reduction as this will ensure sustainable growth, enhanced investor confidence,” said Yeah.

Another economist, Lee Heng Guie, said whatever extra money that is earned should be spent efficiently.

“The government should stay the path of fiscal consolidation to ensure optimal deployment of resources and preserve fiscal stability,” said Lee of the Socio-Economic Research Centre (SERC).

“With a broad-based consumption tax (the goods and services tax), the federal government does not suffer from a lack of revenue (so) it’s important not to overspend and to plug leakages,” Lee told The Malaysian Insight.

High growth but fewer jobs

This year, the economy grew at a stronger pace after a slump of two years, said Lee, powered by consumer spending, rebound in private investments and a strong surge in exports.

“Real GDP (gross domestic product) growth roared back to expand strongly by 5.7% year-on-year in the first half of 2017.”

This has allowed the overall unemployment rate to remain low at 3.3%.

But the youth unemployment rate hit 10.6% in 2016 and about 23% of university graduates are unemployed, said Lee, which is a worrying figure.

“The youth employability must be tackled both at the supply- and demand-side equations. It is not just a simple mismatch between training and job requirements.”

It is a problem that is closely tied with the rapidly changing technological landscape, the quality and investment in universities and industries’ addiction to cheap, unskilled foreign labour, they said.

Lee said getting more youth back in the job market requires more money and emphasis on technical and vocational education & training (TVET) and developing entrepreneurs.

“The government should consider introducing incentives for the creation of a dual-training system a la Germany,” said economist Professor Raja Rasiah of Universiti Malaya.

The renown German education system sees vocational schools and small and medium companies work together to produce highly skilled workers for industries. It has been credited for keeping youth unemployment low.

Rajah added that more money should be spent on creating entrepreneurship programmes in public and private universities.

Lee said policies to help companies to invest in the “Fourth Industrial Revolution” will also create new skilled job opportunities.

“The revolution is essentially about ‘smart factories’, leveraging on robotics, digitalised data censoring, the internet of things to reap cost savings in real-time quality control and maintenance.”

This calls for targeted incentives and grants, investment capital allowance and high-tech Industrial Adjustment Fund to facilitate more manufacturers, especially SMEs to automate and embrace industrial internet, he said.

Depressing wages

Upgrading the country’s industrial base will also help deal with another economic bugbear – addiction to low-skilled foreign workers.

Manufacturing firms need to be pushed more to upgrade their operations so that they relied less on low-skilled foreign workers, said Rajah.

Lawmakers, such as Liew Chin Tong, said the country’s unchecked use of low-skilled foreign workers had led to depressed wages for everyone.

“(An) influx of unskilled foreign labour hurts the wages of Malaysians at all levels, not just for labour,” Liew wrote on his blog.

“Since there is abundance of supply of labour, workers have no bargaining power to demand better pay and conditions in the ‘race to the bottom’ for wages.”

The use of less-skilled foreign labour in export-oriented firms has reduced the pressure on firms to upgrade, said Rajah.

In order to get more firms to upgrade, the government needs to review its incentive programmes, he said.

Another way to wean companies off foreign labour is to require them to have health insurance for all workers, local and foreign, Rajah added.

This, along with stringent policies against illegal foreign workers, will then reduce the strain and cost of funding public hospitals and clinics. – October 20, 2017.