By Murray Hunter

TODAY, Malaysia’s official unemployment rate is enviably low, sitting at 2.9% as of December 2025/January 2026.

This is the lowest official unemployment figure in over a decade.

However, these headline figures mask deep structural problems that economists and labour experts have been flagging for years.

The “hidden unemployment” story is really about underemployment, skills mismatching in education, and precarious work opportunities, resulting in discouraged workers who follow other paths.

This is often ignored in discussions about general unemployment.

Many associate low unemployment rates with being a very healthy situation in the labour market.

General economists would consider any unemployment figure under three percent and being optimal and indicate a buoyant economy, without any further investigation.

However, this approach hides many issues. The official rate of unemployment of 2.9 per cent means around 510,000 people are still actually unemployed.

In addition, the figure does not indicate that there are also around two million people who are underemployed, who are not included in the figure.

Some of these two million people are tertiary educated and are working in either low or semi-skilled jobs, i.e., jobs they were not trained for.  

For more than a decade, many fresh graduates have been facing the problem of not being able to find jobs they are trained for and take other jobs, or they just disappear into the informal economy.

Consequently, they end up earning far below what their salary expectations were during their studies before graduation.

Many of these people enter the gig market working as Grab drivers or become retail staff.

Today, 1 in 4 Malaysians have undertaken gig or informal work with no minimum wage protection, no SOSCO/EPF, and many in a very volatile work environment.

The youth of today are becoming the lost generation. Ministry of Higher Education data shows that 232,000 new graduates enter a job market where there are only 127,000 available.

Skills mismatch has been a long-term issue that has never been corrected by the Ministry of Higher Education and universities.

This must become a priority in education planning.

This is part of a bigger problem where approximately 300,000 youths are unemployed.

The unemployment rate for 15–24-year-olds is between 10 and 10.3 per cent, much higher than the national average.

In addition, many of these people are working far fewer hours than they want, which is underemployment.

These people go into the informal sector, which is responsible for generating 55 per cent of GDP.

These people likely become self-employed in sole proprietorship businesses that are maybe only part-time and non-sustainable both in the medium and long-term.

These ventures are poorly capitalised, run on a ‘hand to mouth’ financial basis and have no access to capital for investment.

As a result, these businesses cannot grow and keep people on a subsistence income.

Looking at the corporate sector, we see it is now being heavily influenced by rapidly evolving artificial intelligence or AI, which is a massive threat to the reservoir of traditional jobs.

The banking sector is just one example of an industry quickly forging ahead with AI taking over the jobs of thousands of employees who once had full careers within a single bank.

Other industries are also following. People are being shredded in the corporate sector without the opportunity to retrain for other jobs or even enter other vocations, such as starting a small enterprise.

Industry 4.0, accompanied by AI are taking away skilled jobs in the manufacturing sector.

Gen “Z” is being pushed into the service industry.

However, they are now competing against foreign workers who are filling up available positions in tourism, nursing, and retail.

This pressure is continuous as the demographics of Malaysia are changing.

The fertility rate in 2024 was only 1.6, well under the replacement level of 2.1.

This has been occurring since 2013, which has made foreign workers the easiest solution for service sector employers. Malaysians have tended to be averse to low pay and long hours in places far away from their homes.

This brings up the issue of what possible remedies we have for the problems above. We must also consider the possibility that the current war in the Middle East may exacerbate the problem even more.

It is important that an entrepreneurship option is given to everyone as an alternative to employment.

This is particularly important in Malaysia, where the informal sector is 55 per cent of the aggregate economy.

This must take priority in both economic and education policies.

This is a very important scenario that will be taken up in the next article. – March 30, 2026