What is causing Malaysia's fresh graduates' beginning salaries to be so low?

Malaysia’s graduate story is no longer about unemployment. It is about pay, match quality, and credibility. The share of degree holders who start below RM3,000 has become uncomfortably high, even as unemployment settles near cyclical lows. When a country produces more graduates yet delivers wages that barely clear urban living benchmarks, the market signal to families and students turns negative. Policymakers cannot treat this as a cohort-level disappointment. It is a structural issue that undermines human capital formation, industrial depth, and eventually fiscal capacity. Recent reporting and official data show the scale of the problem and why the response must move beyond exhortation.

Two facts are decisive. First, the graduate wage premium has eroded over a generation. In 1997, degree holders earned about 2.7 times SPM wages; by 2022 that ratio had compressed to roughly 1.7. That is not noise. It is the cumulative result of slow real wage growth for higher-educated entrants and faster gains at the floor following minimum wage adoption. Second, skill-related underemployment now captures more than a third of the tertiary-educated workforce, with roughly 1.95 million graduates working in semi-skilled or low-skilled roles as of late 2024. Neither trend is compatible with an economy that wants to climb value chains and finance better public goods.

Cost-of-living benchmarks confirm the pressure. EPF’s Belanjawanku guide puts a single person’s minimum monthly expenditure at about RM1,930 in the Klang Valley and lower in smaller cities. Pair that with the Finance Ministry’s observation that over the past decade more than half of fresh graduates started below RM2,000 and the gap between credentials and cashflow is plain. Even where the nominal starting pay has nudged higher, the real purchasing power of entry-level graduates has been diluted.

It is tempting to read this as a simple oversupply story. The data point in that direction, but the policy problem is more layered. Malaysia produces about 300,000 graduates a year and the creation of high-skilled jobs lags that flow. The New Industrial Master Plan 2030 sets ambitious targets, including a 20 percent rise in manufacturing employment and significant gains in value added by 2030. The plan should, over time, create more roles that can absorb and reward skills. Yet the wage premium has been weakening for decades, which means the bottleneck is not only in pipeline volume. It sits in how skills are formed, signaled, and priced during the transition from study to work.

Markets respond to signals and scaffolding. Singapore’s answer to a similar problem was not to hope for the perfect job mix. It built a wage architecture around sectoral ladders, skills standards, and employer co-funding that ties productivity to pay progression. Malaysia’s current toolkit is lighter on sectoral wage ladders and heavier on general upskilling rhetoric. That mismatch shows up in the compression of graduate premiums and in the persistence of underemployment even when headline joblessness falls. The lesson is that industry policy and wage-setting architecture must move together or the premium continues to leak away.

The evidence also suggests that the minimum wage, while important for equity, compressed relative returns at the bottom and middle without a corresponding productivity lift in graduate pipelines. PNBRI’s long-run series shows inflation-adjusted entry pay for master’s and bachelor’s entrants declined or stagnated, while PMR and SPM cohorts saw faster real gains after the minimum wage era began. This is a defensible distributional choice, but absent skill-biased productivity growth and transparent early-career wage ladders, it erodes incentives to invest in longer degrees and reduces the economy’s willingness to finance advanced human capital.

There is also a credibility problem. Families hear policymakers promise industrial upgrading and better jobs. Graduates then encounter a hiring market that prices them close to non-graduates and pushes many into semi-skilled roles. When expectations and outcomes diverge, the rational response is to delay household formation, raise savings for risk buffers, or exit to higher-wage jurisdictions. Brain drain is not merely a political talking point; it is a capital allocation issue. Every trained graduate who leaves represents foregone returns on public education outlays and a thinner tax base in the future.

What should a policy reset look like if the goal is to lift wages, reduce Malaysia graduate underemployment, and rebuild the wage premium without blowing out unit labor costs for firms that cannot pass them on? The first component is wage architecture, not pure wage control. Advisory guidelines can establish transparent entry bands by sector and role complexity in urban centers where costs are highest. The point is not to override markets, but to correct information asymmetry. Where firms consistently undercut realistic bands, hiring subsidies tied to verified training hours and demonstrated wage progression can close the gap. Where firms pay at or above bands and show measurable skill formation, tax credits can reduce the marginal cost of doing the right thing.

The second component is a hard pivot from generic internships to structured apprenticeships with completion standards recognized across employers. Paper internships that do not build genuine task competence depress wage offers because they do not de-risk the hire. Sector skills councils should certify curricula co-written with employers, while universities report placement quality, not just placement speed. A graduate who can present a signed-off competency record for tools, codebases, clinical protocols, or production systems commands a higher starting price and ramps faster.

The third component is a scale play on translational institutes inside NIMP 2030’s mission sectors. Semiconductor assembly is not the same as design, and clean energy operations are not the same as engineering. Institutes that sit between universities and firms can absorb graduates into one-year fellowships paid at a credible band, rotate them through live projects, and place them with employers who co-fund the intake. This is not a training grant in disguise. It is a temporary employer-of-record model that de-risks matching and sets a price anchor aligned to productivity.

The fourth component is targeted migration of critical mid-level skills to raise the ceiling under which local graduates can grow. Teams pay for capability density. When an ecosystem lacks experienced staff engineers, lab managers, or production leads, graduate tasks are limited and wage ladders stall. Temporary, capped migration tied to training responsibilities can lift productivity and justify higher local entry pay even before the domestic stock of mid-level talent is rebuilt.

The fifth component is a transparent scoreboard. Publish quarterly dashboards by metro and sector showing entry pay medians, progression after 12 and 24 months, and the share of graduates employed in high-skilled roles. Tie public procurement preferences to firms that meet or beat those benchmarks with verifiable apprenticeships and wage growth. Investors and sovereign allocators watch signals. When the state ties capital access and procurement to talent development quality, firms move.

None of this works if macro credibility frays. The former central bank governor’s recent reminder that graduate pay should be materially higher when indexed to multi-decade inflation is not a throwaway line. If the policy anchor is low and the wage message is muddled, households will discount future earnings and either opt down in costly education or opt out via migration. That is a slow leak in national balance sheets.

A caution on fiscal design is warranted. Wage subsidies that become permanent will either entrench low-productivity firms or shift costs into the budget without lifting productivity. The point of a subsidy is to bridge a competence gap, not to institutionalize it. That is why any hiring support should sunset against a skill verification clock, and why tax preferences should trail demonstrable wage progression for the same cohort rather than headline payroll growth.

There is also a communications task. Families do not need slogans. They need visible offers that connect study choices to plausible wages. Sectoral bands, certified apprenticeships, and honest dashboards do that work. Over time, the result is a restored premium for the right skills and a credible floor that reflects urban living costs. EPF’s reference budgets can be a neutral input to those bands, updated annually and cross-checked against transport and housing price indices.

Regional comparisons help keep expectations sober. Singapore’s model fused sectoral wage ladders with continuous skills funding and employer accountability. The Gulf’s approach has leaned more on public payroll and localization mandates, which can raise wages quickly but risk dual labor markets if not paired with productivity investments. Malaysia’s starting conditions are different. The NIMP 2030 ambitions are right, but the labor-market plumbing must be rebuilt so that wage signals, skills formation, and firm demand line up. Without that alignment, capital will continue to chase returns in sectors that do not need graduates, and graduates will continue to chase salaries in markets that value their skills more.

This reset is not about picking winners. It is about fixing the interfaces where signals are currently failing. A graduate premium cannot be legislated. It must be earned in systems that reward skill and make that reward visible. The policy posture may look incremental, but the signaling must be unmistakably serious.

What it signals: the headline unemployment rate will not tell the story. The wage premium and the share of graduates in genuinely high-skilled roles will. If those metrics rise, households will invest in education with confidence and firms will lift productivity to afford higher pay. If they do not, Malaysia graduate underemployment will remain the quiet macro problem that drags on growth and drains talent.