REGIONAL CONFERENCE ON INVESTMENT CLIMATE AND COMPETITIVENESS IN EAST ASIA

1. REGIONAL CONFERENCE ON INVESTMENT CLIMATE AND COMPETITIVENESS IN EAST ASIA SESSION 3:SKILLS FOR COMPETITIVENESS ADDRESSING SKILLS GAP: MALAYSIAN CASE STUDY BY: K.YOGEESVARAN (yogees@epu.jpm.my) ECONOMIC PLANNING UNIT NOVEMBER 2005

2. ADDRESSING SKILLS GAP :MALAYSIAN CASE STUDY • OUTLINE • Background • Key Findings on Skills and Education • Measures Introduced and Their Impact

3. ADDRESSING SKILLS GAP :MALAYSIAN CASE STUDY • BACKGROUND • Productivity and Investment Climate Survey 2002/2003 was undertaken in collaboration with the World bnk • Objective - to identify key constraints to competitiveness • Total of 1,151 firms were surveyed including 902 firms in the manufacturing sector and 249 firms in the selected business support services sector

4. ADDRESSING SKILLS GAP :MALAYSIAN CASE STUDY • KEY FINDINGS • Shortages of skills was reported as a pervasive problem • Time taken to fill vacancies; • Market places a very high premium on tertiary education; • Higher education rates are lower than international norm.

5. ADDRESSING SKILLS GAP :MALAYSIAN CASE STUDY • KEY FINDINGS 2. Quality was of some concern • There was a preference for foreign trained professionals; • Main deficiencies were English Language proficiency, ICT skills & communication skills

6. ADDRESSING SKILLS GAP :MALAYSIAN CASE STUDY • KEY FINDINGS 3. Presence of skills/education mismatch especially at tertiary level • Qualifications of unemployed not relevant to manufacturing sector; • Results in productivity loss

7. ADDRESSING SKILLS GAP :MALAYSIAN CASE STUDY • KEY FINDINGS • Improvement in skills can result in substantial benefits • Number of firms using training facilities are low especially among SMEs

8. ADDRESSING SKILLS GAP :MALAYSIAN CASE STUDY • MEASURES AND IMPACT • Expanding the supply of educated and skilled human resource • Increase in capacity of institutions of higher education; • Introduction of double-shift training facilities; • Impact • Increase in labour force with tertiary education

9. ADDRESSING SKILLS GAP :MALAYSIAN CASE STUDY • MEASURES AND IMPACT • Improving the quality of education and training delivery system • Review of primary and secondary school curriculum including use English for Science and Math; • Increased collaboration between universities, industries and research institutions to address mismatch • Introduction of the National Dual Training System • Impact • Duration of unemployed

10. ADDRESSING SKILLS GAP :MALAYSIAN CASE STUDY • CONCLUSION • Inadequacy of skilled workforce and mismatch were identified as the main concerns. • A range of measures have been introduced to address these concerns and improvement are already emerging.

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12. Assessing Skills Shortages – Average Time to Fill In Vacancies Managers face acute shortages of skilled labour, especially professionals No. of Weeks to Fill in Vacancies No. of Weeks to Fill in Vacancies

13. Mean log hourly wage 2.75 2.50 35 2.25 Pakistan 30 Brazil 2.00 Saharan Africa - Sub 25 Europe/Middle East/North Africa* 1.75 Australia Panama 1.50 20 Latin America/Caribbean* India Singapore Asia* Korea MALAYSIA 2001 1.25 (PICS Manufacturing) 15 10 11 12 15 16 18 21 3 6 9 0 Canada Thailand New Zealand High - Income OECD - Philippines 10 10 12 14 16 0 2 4 6 8 Percentage of tertiary education completion in the total population 25 years old and over Years of formal education The Premium for Tertiary Education is High in Malaysia The premium is high for tertiary education in Malaysia… … this premium is even higher than that in OECD countries Annual rate of return to tertiary education (percent) Secondary Tertiary Primary Source : Psacharopolous and Patrinos (2002) and The World Development Indicators (April 2003, PICS Manufacturing Data for Malaysia Source : Malaysia PICS 2002, World Bank

14. Malaysia’s Higher Education Stocks Lag Behind Its Level Development Malaysia’s higher education rates are lower than the international norms % of Population > Age 25 with Higher Education Complete, 2000 20 Korea 18 16 Philippines 14 Canada 12 Thailand Chile 10 8 6 Malaysia 2000 4 India Malaysia 1990 China 2 Malaysia 1980 0 6 9 10 11 7 8 Log of Real Per Capita GDP in 2000

15. Benefit From Reducing Skill Shortages (% Sales) Industry • Food processing • Textiles • Garments • Chemicals • Rubber/Plastics • Machinery/Equipment • Electronics • Auto parts • Furniture/Others 4.0 14.3 9.6 10.9 9.0 17.7 5.4 16.0 10.9 Benefit from Addressing Skills Constraints • Econometric estimates suggest that addressing the skills constraints can provide large benefits to firms, raising the sales of most industries by 11 per cent of sales on average • The rate of return on training is also large, 10 per cent in terms of higher wages for manufacturing workers with any training

16. Investment climate – Skills GapUtilisation of Skills and Technology Development Institutions Number of firms that uses the skills development institutions is low, especially among the SMEs % Firms That Report Using The Institutions SMEs Large • Skills development • institutions • Technology support • institutions • Technology • incentives 14.7 14.5 1.2 39.1 17.4 11.4 % Firm Using Skills Development Institute

17. Output from higher education institutions, especially prublic institutions increased dramatically after 2002 Number of Persons (‘000)

18. Output from both public and private training institutions increased since 2000 Number of Persons (‘000)

19. The share of labour force with tertiary qualification has increased since 2000 % of Labour Force

20. The percentage of graduates who are unemployed for more than six months has declined since 2000 % of Unemployed Graduates