KUALA LUMPUR, May 14 — Malaysia’s top frontier firms have either failed to scale up or not innovated enough, hampering competitiveness and the creation of high-paying jobs, leading to underemployment concerns, according to the World Bank.

The warning comes as the bank raised concerns about skills-related underemployment among graduates in Malaysia, which it noted has risen over the last decade.

“Firm-level evidence reinforces this diagnosis. Most productive firms in Malaysia are not yet scaling as strongly as intended. This is a challenge as they offer better-paying jobs,” the bank said in its latest Malaysian Economic Monitor released this morning.

Data indicating that national frontier firms are falling behind global productivity levels makes the challenge harder to overcome, it added.

While lagging firms have caught up domestically, the productivity gap between Malaysia’s best companies and global players has “widened”, according to the report.

“Technology generation and commercialisation have not improved, partly due to limited university-industry collaboration and technology transfer from foreign firms as well as brain drain of Malaysian investors,” it said.

“This performance constrains competitiveness and the creation of high-wage jobs.”

Job data masking underemployment  

Rising underemployment among the country’s educated young belies data that suggests positive labour market growth. 

While hiring and labour participation rate may be the highest from 2014 to 2024, data indicating rising underemployment over the last decade tell a slightly bleaker story — high-productivity job creation is not keeping pace with rising workforce capabilities.

Despite some improvement in recent years, more than one-third of tertiary-educated workers are now employed in jobs below their qualification level, weakening the translation of human capital into higher productivity and earnings, the bank noted.

“This primarily reflects demand-side constraints — firms are not creating enough high-skill, high-productivity jobs to absorb an increasingly educated workforce,” it said.

“Skills mismatches and capability gaps, however, compound the problem.”

Focus on ‘quality jobs’ creation

Malaysia ranks highly in the region in terms of upward mobility, according to data from the World Bank and the World Economic Forum (WEF), but it still faces challenges compared to global high-income leaders.

In the report, the bank said while Malaysia may have expanded education, employment, and incomes over two decades of steady growth, real wage gains have been modest relative to rising education, even if they broadly align with productivity.

Malaysia’s central challenge is no longer job creation per se, the bank added, since labour force participation is at historically high levels and unemployment remains low, with the economy demonstrating a strong capacity to generate jobs in aggregate.

“The more pressing challenge, rather, is the creation and scaling of high-quality, and well-matched roles which result in significant wage growth,” the report said.

As a policy recommendation, the bank emphasised going beyond raising the wage floor through labour market regulation and shifting the focus towards creating “quality opportunities” and the build-up of relevant capabilities for Malaysian workers.