Low Unemployment in Penang for Now


But the future requires that work skills match employer requirements and that job seekers look to the private rather than the public sector.

Penang’s labour market is expected to remain buoyant in the second half of 2017. The labour force participation rate moderated to 69% in 2016, up from 69.9% in 2015; ranking third after Putrajaya (77.6%) and Selangor (74.2%).

Male employment makes up about 58% of Penang’s labour force market; employed persons aged 25-29 years old accounted for the largest share (17.4%), followed by the next age group (30-34 years old) at 16.1%. This shows that approximately one-third of the workforce are young – or Generation Y – workers.

In 2016, employment of tertiary-educated staff constituted 32.6%, an increase of 5.7% from 2015. The share of employment in high-skilled occupations also increased by 3.1%, while employment in both mid- and low-skilled occupations dropped by 1.8% and 1.3% respectively. The services sector continued to record the most workers at 58.4%, followed by the manufacturing sector (32.9%).

Higher Employment... and Unemployment?

Labour force participation is predicted to stabilise in the coming quarters despite a marginal increase in the estimated rate of unemployment. Figure 1 demonstrates the forecast trends of labour force participation and unemployment rate. With higher labour force participation throughout 2016, it is reasonable to foresee higher numbers for both employed persons as well as greater unemployment.

A number of factors determine this: Firstly, Penang received more people moving into the state, meaning there is an increase in immigration. According to the 2016 Migration Survey Report recently released by the Department of Statistics Malaysia, Penang recorded the second highest net migration after Selangor in the period of 2015-2016. While being the second smallest state in Malaysia, its net migration expanded by 3.6% from 8,400 persons in 2014-2015 to 12,000 persons in 2015-2016. Most strikingly, Penang achieved the highest positive effectiveness ratio of migration at 58.4% in Malaysia, implying about 58% increase moving in and out for every 100 inter-state migrants.

Secondly, employment volatility is also crucial. If manufacturing facilities are relocated outside the region, a number of jobs will be cut. Some employment movement was observed throughout 2016, but this is expected to be milder in the second half of 2017 due to reduced redundancy exercises.

Another factor is frictional unemployment. The establishment of new companies has a high tendency to disrupt the dynamics of the employment market. If new foreign-owned companies offer attractive remuneration packages, some employees with similar skill sets may consider a job change. Suppose many jobs require similar skill sets across industries within the region; this will create labour market distortion when employers compete to hire workers. Thus, higher unemployment reflects a temporary job-change effect; constant efforts to address this issue are needed to ensure a sustainable high-quality labour supply cohesive to industry needs.

Unemployment and Employability

Since 1990, Penang’s unemployment rate has lingered below 2.5%;. It reached a historical low of 0.7% in 1996.

The rate consistently grew below the national rate. In 2016, Penang flourished again as it registered the third lowest rate of unemployment at 2.1% after Melaka (0.9%) and Putrajaya (1.8%). With its labour force making up 5.8% of the nation’s, Penang was rather worried by its year-on-year hike of 0.5 of a percentage point.

The lower unemployment in Melaka, for example, can be explained by the small size of its labour force. Penang’s labour force along with its employment numbers is twice as large; employment in Penang was at 827,400 persons whereas Melaka’s was at 397,300 persons. In fact, the level of employability in Penang is higher than that of many states, including KL where the unemployment rate was recorded at 3.3% (Figure 2) and it had approximately the same number of employed people as in Penang.

Penang still operates at full employment, and its workers are able to find jobs at the prevailing wage rate. The natural rate of unemployment or full employment is set differently across countries: Singapore regarded 2% as its natural rate of unemployment; South Korea 3.6%; and Hong Kong 3%.1 Taking 3.6% as the natural rate of unemployment, all states achieved full employment except Labuan, Sabah, Terengganu and Kelantan.

Employability among graduates is a point to ponder. Graduates from arts and social sciences backgrounds appear to find it most difficult to find a job. Nearly half of the 54,867 graduates who were unable to find jobs within six months after graduation were from arts and social science courses, followed by 15.4% for science courses.

If Malaysia’s aspiration is to achieve developed status by 2050 through the long-term development plan, Transformasi Nasional 2050 (TN50), its human capital issues – specifically among tertiary education graduates – will have to be addressed immediately.

Quantitatively, Malaysia has successfully expanded its student enrolment. Over the past two decades, tertiary-educated employed persons swelled by about fourfold from a share of 8.4% in 1990 to 32.2% in 2016; this has exceeded the target set in Vision 2020, which is for at least 21% of the labour force to have tertiary education by that date.

However, according to the National Graduate Employability Blueprint 2012-2017, fresh graduates’ poor command of English is the top hiring challenge faced by employers; other skill deficits include analytical thinking, problem-solving and communication abilities.2 While there is a sizeable labour pool, the quality is rather questionable. Undertaking immediate corrective measures are necessary: command of English needs to be improved at the primary level and interactive classrooms at secondary and tertiary level should be implemented.

Vacancies vs Vacancy Fill Rate

The recruitment market is expected to grow moderately in the second half of 2017. As can be seen from Figure 3, the number of job vacancies published through JobsMalaysia.com has softened over the past five years. It registered an annual reduction rate of 19.7% from 2011-2015. This could of course be attributed to fewer employers advertising vacancies through the JobsMalaysia.com portal or a decline in available jobs.

It is difficult to conclude that the decline in available jobs reflects a slowdown in the job market. Interestingly, the vacancy fill rates remained low: of 71,433 vacant positions, only 3.8% or 2,745 positions were filled in 2015. This also means that there are many unfilled vacant positions in private companies. The data could be under-reported, perhaps because no proper institutionalised monitoring framework exists to make it possible for validation of each advertised position.

Malaysia’s two largest recruitment portals are JobStreet.com, a privately held organisation; and JobsMalaysia.com, a job search engine maintained by Malaysia’s Ministry of Human Resource. These carry mainly advertisements put up by private companies. Be that as it may, they do provide job seekers with job hiring information, and employers with the possibility of identifying candidates with the right skills to fill the available jobs.

Alternatively, job positions that require specific skills or managerial competences are largely outsourced to selected employment-consulting agencies. Some employment consultants headhunt candidates with the required specialisations who currently have employment, which may lead to higher wage inflation, pressuring the hiring cost of other employers within the industry.

Public Sector Employment

The situation in the public sector deviates from job applications in the private sector – more apply for work in the public sector than in the private sector. It was markedly reported by Hariati (2017) that the Public Service Commission (PSC) received 1.56 million applications in 2016 to fill 25,046 vacancies.3 If we suppose that each applicant concurrently applied to 10 of the advertised jobs, then about 156,000 job seekers applied for the 25,046 jobs, which means that as many as 130,000 who are looking for a public service job were left unemployed.

It should be noted here that job seekers are attracted to join the public sector due to its attractive remuneration package: long-term security, pension scheme, healthcare benefits and house loans – some of which are not limited to family members. It is likely that chances of being hired in the private sector are higher for these applicants.

Due to the excess supply of tertiary educated workforce, some graduates would need to work in low- to mid-skill level positions. This excess supply can be explained by the fact that there was an increase in graduate unemployment between 2010 and 2015, where graduates with masters, professional and PhD degrees, and postgraduate diplomas possessed higher unemployment after six months of graduation (Figure 4).


1 Groenewold, N. and Tang, S. H. K. (2004). The Asian Financial crisis and natural rate of unemployment: Estimates from a structural VAR for the Newly Industrializing Economics of Asia. Pacific Economic Review, 9: 45-64.

2 World Bank (2014). Malaysia Economic Monitor: Towards a middle-class society. December 2014.

Ong Wooi Leng is a senior analyst at Penang Institute. Her interests lie in industrial economics, consumer behaviour and labour economics.

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