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While such mismatches are a global issue, Malaysia’s low wage baseline intensifies the challenge, signalling a need for targeted reforms to improve job matching, wage growth, and the overall value of tertiary education.
Over the past decade, Malaysia has seen a steady rise in the number of graduates entering the labour market. According to the Ministry of Higher Education, around 80% of graduates transition into employment, while the remaining 20% pursue further studies.
However, these high-level indicators may conceal deeper structural challenges. While the overall employability rate appears strong, it doesn’t necessarily reflect the quality or relevance of employment. A significant amount of graduates are taking on roles that are misaligned with their field of study or level of qualification, therefore suggesting that while the labour market is absorbing graduates, it may not be doing so in a way that fully leverages their skills.
A report by the Centre for Future Labour Market Studies (EU-ERA), titled The 'Gaji Cukup Makan' Economy, revealed that the challenge lies not in whether graduates are employed, but whether they are meaningfully employed in roles that reflect their skills and qualifications.
In 2023, 70% of employed graduates were in semi-skilled or low-skilled roles, with only 30% in skilled positions. This mismatch suggests that higher education credentials are not translating into commensurate occupational outcomes, however, it reflects both an oversupply of graduates in certain fields and a shortage of high-skill job creation; both of which are structural concerns.
This situation leads to underemployment, where graduates work in roles below their qualification level — often for lower wages and with limited career progression. It also signals a misallocation of human capital and public investment in education, as the system produces more graduates than the labour market can effectively absorb.
As a result, the opportunity cost of education rises, and the private return on tertiary education diminishes, especially for those trapped in mismatched roles. This, in turn, creates a ripple effect across the economy — dampening productivity, weakening wage growth, and fuelling dissatisfaction among the educated workforce.
The report also revealed that skill-related mismatch among graduates has worsened from 22.9% in 2016 to 32.4% in 2023, pointing to a systemic failure in aligning education with labour market demands. This persistent issue stems from both academic programme design and insufficient high-quality job creation.
The consequences are evident in wage outcomes, with 95.2% of diploma holders and 65.3% of degree holders only earning less than RM3,000 — an amount barely enough for a decent urban standard of living, and therefore reinforcing the notion of “gaji cukup makan” reality, where qualifications no longer guarantee economic mobility.
This growing disconnect between credentials and compensation not only undermines the value of higher education but also discourages future investment in human capital, especially among lower-income groups.
In addition to the findings above, while skill mismatch is a common occurrence globally and often mitigated by higher wages, Malaysia’s
comparatively lower graduate wages may contribute to the issue becoming an emerging area of policy focus.
Declining purchasing power amid nominal wage growth
The report also indicated a stand-still — or even a decline — in real earnings for Malaysian fresh graduates, despite continuous growth in nominal wages. From 2015 to 2019, nominal wages rose by an average of 3.8% annually, but real wages adjusted for inflation only increased by 1.9%.
This disparity became more severe during and after the COVID-19 pandemic, with nominal wages recorded as 1.23 times higher than real wages in 2021. The inflationary gap is eroding graduate income, particularly in the early stages of employment, making it harder for them to afford basic living costs.
While wages may appear to increase on paper, rising living expenses quickly outpace these gains, leaving many graduates no better off in real terms. This stagnation in real wages challenges the long-held belief that higher education guarantees upward mobility and underscores the urgent need for wage policies that are responsive to inflation and cost-of-living pressures.
The report also found that in 2021, fresh graduates earned an average monthly salary of RM1,564 — only slightly more than school leavers, who earned RM1,283. While this narrow wage gap was partly attributed to pandemic-related labour market disruptions, it also raises questions about the economic value of pursuing tertiary education, particularly when weighed against rising education costs and student debt.
Compounding the issue, 88.7% of fresh graduates were absorbed into semi- and low-skilled jobs, with just 11.3% entering highly skilled roles. This widespread underemployment highlights not only a mismatch between qualifications and job requirements but also a broader underutilisation of the country’s human capital.
Most fresh graduates are employed in services and manufacturing, particularly in sub-sectors such as retail trade, accommodation, and food services, which offer lower-than-average starting wages. This has created a national wage floor effect, dragging down average wage figures. While high-paying sectors like mining exist, graduate absorption into these areas is limited, reflecting a need to diversify employment pipelines and improve sectoral wage conditions.
For more details from the report, feel free to click here.
READ MORE: Malaysia’s labour market shows steady growth: 16.73mn employed as of February 2025
Infographics and lead image / The 'Gaji Cukup Makan' Economy
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