Page 186 - Contributed Paper Session (CPS) - Volume 8

CPS2232 Syafawati A. R. et al.
500,000 persons being officially unemployed with the Unemployment Rate at
3.4 per cent.
Malaysia aspires to achieve a high income nation by 2020, thus the human
capital development plays a pivotal role for driving and sustaining Malaysia’s
economic growth. Labour market plays a vital role in human capital
development particularly in determining socio-economic progress and is one
of the key factors that indicates the poverty level. An efficient and effective
labour market can act as an effective mechanism for contributing to economic
growth and makes the economy less susceptible to shocks and retain a high
1
standard of living. Malaysia’s labour market has reached full employment
since 1995 with an average annual unemployment rate of 3.2 per cent.
However, despite growth in employment and low unemployment rate, these
indicators cannot comprehensively cater the scenario of Malaysia’s labour
market. One of the underlying issues on labour forces that are not captured
2
by unemployment rate is labour underutilization or underemployment .
According to the 1966 International Conference of Labour Statisticians
(ICLS) resolution, underemployment “exists when a person’s employment is
inadequate in relations to specified norms or alternative employment, account
being taken of his occupational skill (training and working experience)”. In
general, underemployment or inadequate employment is defined as the
situation when the worker is employed, but not in the desired capacity,
whether in terms of compensation, hours or level of skill and experience and
is willing to seek other or additional work. According to Mehran, Bescond,
Hussmanns & Benes, 2008, underemployment is a broad concept reflecting
underutilization of the productive capacity of the employed population. As
defined in Surveys on Economically Active Population, Employment,
Unemployment and Underemployment: An ILO Manual on Concepts and
Method (ILO, 1990), two principle forms of underemployment are
distinguished: visible underemployment, reflecting an insufficiency on the
volume of employment; and invisible underemployment, characterised by low
income, underutilisation of skill, low productivity and other factors.
Underemployment is not a new phenomenon particularly in developing
countries. It has been appreciated since Gunnar Myrdal’s critique of
employment data in the Against the Stream: Critical Essays on the Economics

1 The Organisation for Economic Co-operation and Development (OECD) defines full
employment as unemployment rate below 4.0 per cent
2 A measure of employment and labour utilization in the economy that looks at how well the
labour force is being utilized in terms of skills, experience and availability to work. Labour that
falls under underemployment classification includes those workers that are highly skilled but
working in low paying jobs, workers that are highly skilled but work in low skill jobs and part-
time workers that would prefer to be full-time. This is different from unemployment in that
the individual is working but isn’t working at their full capability
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