Does Financial Development and Corruption reduce the level of Income Inequality? Evidence from Malaysia

Income inequality is an enduring issue and an important one to address, especially in the new era of digital transformation, as it is a crucial element in promoting persistent income inequality. The theory is that while financial development promotes economic growth, the mixed explanations of previous studies show that this does not always help low-income people in emerging economies. Moreover, the effects of globalization may reinforce motives and increase opportunities for international corrupt practices. It is, therefore, crucial to explore how corruption can be motivated by ineffective rules governing cross-border crimes and how technology can open up new avenues for corrupt behavior, for example by making it easier to find victims, accomplices and money. Profound socio-economic changes can also provide incentives and opportunities for corruption. This study examines how corruption and financial development affect the wealth gap in a developing country like Malaysia over the period 1995 to 2021. The empirical results show that financial development has a positive impact on income inequality. Moreover, the result also shows that corruption control is an insignificant determinant of per capita income in Malaysia. Even though the growth of the financial sector has led to a variety of outcomes, it has only helped to reduce income inequality. Income inequality is negatively and significantly affected by the interaction between financial development and anti-corruption. It is therefore important to promote financial development, prevent corruption and increase government transparency as these factors can promote sustainable economic development and resilience

Skills and occupational mismatch in Malaysian labour market

Despite its low unemployment rate, Malaysian labour market is currently sending signals of mismatch: a misallocation between demand and supply in the labour market. The issue of mismatch should not be ignored as it indicates the incapability of economies to employ their existing stock of human capital, and impeding long-term productivity. Motivated by the above issue, this study attempts to measure the level of mismatch and its factors. Specifically, the aims of this study are threefold. The first objective is to measure skills mismatch and its contribution towards mismatch unemployment in Malaysia by using annual data 2006-2017 from the Department of Statistics Malaysia (DOSM), Ministry of Human Resource Malaysia (MOHR), and Bank Negara Malaysia (BNM). The result reveals that in 2007, the index was only 0.108, while in 2017, it surged up to 0.273, which indicates there is 27% of hires were lost due to misallocations in the labour market. Mismatch unemployment has contributed around 50% to the rise of the unemployment rate. This suggests that the formal education system in Malaysia is not responsive to the demands of the labour market and vice versa. The second objective measures occupational mismatch by quantifying the level of overeducated and undereducated workers in the labour market. It was measured using both Job Analysis and Realized Matches methods, employing 2010-2015 Labour Force Survey (LFS) data. The analysis suggests undereducated workers are more prevalent in the labour market. On average, the level of undereducation was 0.338, which means that 34% of the labour force were undereducated. However, the proportion of severely overeducated workers have been rising year by year. Among occupations, technicians and associate professionals, and clerical support workers are the ones in which there is the highest proportion of overeducated. Among sectors, agriculture, forestry and fishery, construction, and administrative and support service activities are the ones in which there is the highest proportion of mismatch. The third objective, survey fieldwork was carried out to identify supply-side factors of mismatch. A total of 402 questionnaires were gathered from a stratified random sample of unemployed graduates in career fairs. Using the Relative Importance Index (RII), the findings reveal that in general, job seekers believe that no jobs are available in the market. This circumstance at least indicates the disconnection between the demand and supply sides, as information on job vacancies of the former fails to reach the latter. This study makes a significant contribution to the study of unemployment in two ways. First, it proposes new tools to measure the mismatch, specifically skills mismatch index, mismatch unemployment, and occupational mismatch level in Malaysia. Although mismatch remains a challenge and a top policy concern, there has been no systematic mismatch measurement analysis. Another contribution is that by understanding the reason for unemployment, policy makers could enhance an active labour market policy to avoid human capital destruction

Are Jobs Available in the Market? A Perspective from the Supply Side

Graduate unemployment exhibits a clear increasing global trend, and Malaysia is no exception. The unemployment rate among graduates is witnessing a considerable upsurge, growing from 43,800 in 2000 (15% of total unemployed) to more than 175,500 in 2017 (35%). Numerous programmes have been implemented in order to secure jobs for the unemployed in the labour market; however, the number of unemployed graduates keeps on increasing. It is significant to recognise the main reason behind this issue to tackle the risk of long-term unemployment, specifically from the supply side. Using the Relative Importance Index (RII), this study investigated 402 respondents at selected job fairs to identify the cause of their difficulty in entering the labour market. The findings revealed that the unemployed people believe that the principal cause of their unemployment is the lack of suitable jobs for them in the market. This circumstance sends a signal of asymmetric information between demand and supply in the labour market, especially to young graduates

The incidence of overeducated and undereducated worker for manufacturing sector in Malaysia

This study measures educational mismatch – overeducated and undereducated by aggregating individual mismatch for each group of occupations for manufacturing sector in Malaysia. This is crucial as the incidence of mismatch in the labour market could affect the workers’ salaries and wages, and impede long-term country’s’ productivity. By employing Realised Matches method on Malaysia Labour Force Survey (LFS) data, the findings concluded that the population of undereducated workforce outweighed the population of overeducated workforce for manufacturing sector, with 36% of the workforce being undereducated compared to the latter at 14% of the workforce. However, a pattern was identified indicating an increase in the overeducated workforce throughout the year, implicating that those of the overeducated workforce (underemployed) were increasing

Are jobs available in the market? a perspective from the supply side

Graduate unemployment exhibits a clear increasing global trend, and Malaysia is no exception. The unemployment rate among graduates is witnessing a considerable upsurge, growing from 43,800 in 2000 (15% of total unemployed) to more than 175,500 in 2017 (35%). Numerous programmes have been implemented in order to secure jobs for the unemployed in the labour market; however, the number of unemployed graduates keeps on increasing. It is significant to recognise the main reason behind this issue to tackle the risk of long-term unemployment, specifically from the supply side. Using the Relative Importance Index (RII), this study investigated 402 respondents at selected job fairs to identify the cause of their difficulty in entering the labour market. The findings revealed that the unemployed people believe that the principal cause of their unemployment is the lack of suitable jobs for them in the market. This circumstance sends a signal of asymmetric information between demand and supply in the labour market, especially to young graduates

A Study on the Matching Efficiency of Malaysia's Labor Market during the Covid-19 Pandemic using the DEA-Malmquist Productivity Index

This paper analyses the matching efficiency of the Malaysian labor market during the COVID-19 pandemic. Employing Malmquist DEA, the results indicate that from January 2020 to December 2021, the average total factor productivity change is 0.967. TFPCH declined and had an average growth rate of -3.3% during the sample period. Decomposing TFPCH into technical change (TECHCH) and efficiency change (EFFCH), low TECHCH, with an average growth rate of -10.2%, is the main reason why TFPCH is far from the effective frontier. The TFPCH of the mining and quarrying industry is the highest, with an average growth of 18.7%. The TFPCH of both manufacturing and construction industries are the lowest with average annual growths of -1.7% and -7.6% respectively. Overall, it can be concluded that one of the main drivers to enhance the matching efficiency of the labor market is technical change or technological progress. One way is to strengthen online platforms that can help the firm or industry to match job vacancies to job seekers, even during economic shocks

Measuring mismatch unemployment in the Malaysia labour market

Despite its low unemployment rate, the Malaysia labour market is currently sending signals of mismatch, a misallocation between demand and supply that may occur in the form of educational, skills, geographical, occupational, and industrial mismatches. Failure to identify the right type of mismatches will lead to ineffective policies to solve the unemployment issue. Using matching function, this study aims to calculate the labour mismatch index and measure the contribution of mismatch unemployment to the rise of unemployment rate. Employing various sources of data from the Department of Statistics Malaysia, Ministry of Human Resource Malaysia and Bank Negara Malaysia, this study found the presence of skills mismatch in the Malaysia labour market, with the mismatch index gradually increased from 0.108 in 2007 to 0.273 in 2017. Mismatch unemployment explained at most half of the total observed increase in unemployment rate, signalling severe mismatch in the Malaysia labour market