At the mid-point of the 11th Malaysia Plan (11MP), Malaysia Productivity Corporation (MPC) has launched its 24th Productivity Report 2016-2017, indicating that the nation’s labour productivity has grown by 3.5% in 2016 to RM78,218 from RM75,548 in 2015.
This rate was about 85% of the 11MP’s target of RM92,300 to be hit by 2020, despite the nation facing challenges such as a weaker ringgit, lower business confidence, financial market volatility resulting from the “likelihood of protectionist tendencies by certain developed countries,” said the report.
Growth in Malaysia’s GDP of 4.2% at RM1.1 trillion was driven by the growth of labour productivity rather than employment, indicating that growth is gradually moving away from labour intensity and shifting towards digital and technology-driven factors. “This is the intended pattern for a productivity-driven economy, where productivity is the key factor to breach the frontiers towards Industry 4.0,” as cited in the report.
Labour market trends
Malaysia experienced slower growth in total workforce compared to the previous year. Total employment increased by 0.7% to 14.2 million (2015: 14.1 million). The number of job vacancies in 2016 was 854,044 jobs, with the highest vacancies in the manufacturing sector with 376,349 jobs.
This slightly lifted the unemployment rate to 3.4% as compared to 3.1% in the previous year with a labour force participation rate at 67.7%. The increase in the unemployment rate was due to mismatches between job vacancies and job seekers. On top of this, the business sector was also cautious in expanding the workforce due to uncertainties in the global market.
Labour cost competitiveness
The report noted: “Malaysia needs to uplift its productivity further in order to enhance its labour cost competitiveness and better utilisation of labour resources.” In 2016, growth of labour productivity at 3.5% was lower than its labour cost per employees at 4.6%, while the unit labour cost was at 1%.
However, the gap between productivity and labour cost per employee was getting closer compared to 2012 indicating that wages are gradually translating to productivity gain. An increase in the number of high-skilled jobs, especially in professional and managerial positions, will mean higher labour cost per employee, which must be offset by a rise in value-added creation to result in higher labour productivity in the medium and long term.
Labour productivity of selected countries
Global labour productivity growth, as measured by the average change in output (GDP) per person employed, remained at 1.5% in 2016, the same rate as in 2015 but was lower than 2014 (2.1%).
Malaysia’s labour productivity grew steadily by 3.4% in 2015 while other selected ASEAN countries such as Indonesia and the Philippines reported a growth of 4.6% and 4.4% respectively despite a slowdown in global exports. Indonesia and the Philippines showed that the strengthening of their domestic sectors have had a positive effect on their labour productivity.
Advanced economies such as the United States registered a small productivity growth of 0.7% and Japan experienced a marginal growth of 0.03%. China showed an increase in productivity growth in 2015.
Malaysia’s productivity level lags behind several advanced economies such as Japan, South Korea, Singapore, Australia and the United States. The country’s labour productivity per person employed was at US$21,564 while that of the United States was at US$120,584.
In the case of China, despite registering higher productivity growth than Malaysia, its productivity value was still lower than that of Malaysia’s. Malaysia also remained ahead of selected ASEAN countries such as Thailand, the Philippines and Indonesia.
An assessment of human capital initiatives for productivity
“In formulating policy for greater productivity, good quality education must be emplaced with supportive human capital development programme for people to have the right skills and so that they can find the right jobs and ultimately be compensated accordingly,” stated the report.
With a focus on skills being an important determinants of overall well-being, the following initiatives were cited as work-in-progress:
- Based on the WCY 2016, when it comes to the availability of skilled labour, Malaysia was ranked a 10th compared to Switzerland (8th) and Denmark (6th). Based on the flexibility and adaptability of people in facing new challenges, Malaysia was ranked 18th, above Denmark (19th).
- In order to meet the target of the 11MP, the competency gaps that are critical for highly skilled jobs requiring knowledge in specialised engineering and technical fields, problem-solving, people-to-people skills and English proficiency need to be seriously addressed.
- Enhancing accessibility to higher education and skills training is essential for the nation to have a more competitive workforce. Malaysia was ranked 35th in terms of high education achievement compared to Denmark (23rd) and Switzerland (16th).
- It is compelling for Malaysia to plan and execute lifelong learning programmes required for supporting the ongoing up-skilling of the workforce. This can be accelerated through collaboration between academic institutions and industries to reduce fragmentation and skill mismatches.