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Advances in Social Sciences Research Journal – Vol. 11, No. 2.2
Publication Date: February 25, 2024
DOI:10.14738/assrj.112.2.16429.
Che-Yahya, N., Rosdi, N. E. A. S., Zaghlol, A. K., & Alyasa-Gan, S. S. (2024). Explaining Youth Unemployment in Malaysia: The Auto- Regressive Distributive Lag (ARDL) Approach. Advances in Social Sciences Research Journal, 11(2.2). 521-536.
Services for Science and Education – United Kingdom
Explaining Youth Unemployment in Malaysia: The Auto- Regressive Distributive Lag (ARDL) Approach
Norliza Che-Yahya
Corresponding author: norliza9911@uitm.edu.my
Faculty of Business and Management, Universiti
Teknologi MARA, Puncak Alam, Malaysia Selangor, Malaysia
Nur Ernisha Anis Suraya Mohd Rosdi
Faculty of Business and Management, Universiti
Teknologi MARA, Puncak Alam, Malaysia Selangor, Malaysia
Azlul Khalilah Zaghlol
Faculty of Business and Management, Universiti
Teknologi MARA, Puncak Alam, Malaysia Selangor, Malaysia
Siti Sarah Alyasa-Gan
Faculty of Business Management and Professional Studies,
Management and Science University, Selangor, Malaysia
ABSTRACT
This study examines the influence of macroeconomic factors, namely Gross
Domestic Product (GDP), Inflation, Population and Foreign Direct Investment (FDI)
on Youth Unemployment in Malaysia from 1991 to 2021 using time series analysis.
The data was obtained from World Bank Data and analyzed using EViews software.
The time series data was conducted using the Augmented Dickey-Fuller (ADF) test.
The Auto-Regressive Distributive Lag (ARDL) approach to cointegration was then
employed to determine the short- and long-term analysis of the series. The ARDL
bound test analysis indicates that there is a cointegration relationship between
macroeconomic factors and youth unemployment. The results suggest that
economic growth, inflation, and population have a negative and significant impact
on youth unemployment, while foreign direct investment has a positive but
insignificant effect on youth unemployment in the long term. Upon analyzing the
short-term outcome, it was observed that all factors exhibited a negative
correlation and exerted a substantial impact on youth unemployment’s rate.
Keywords: Youth Unemployment, Malaysia, Auto-Regressive Distributive Lag (ARDL)
Approach
INTRODUCTION
Unemployment, defined by the International Labor Organization (ILO), is the state of being of
working age and not employed while actively seeking employment. Many countries, especially
developing ones with large population including Malaysia, report high unemployment rate.
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Advances in Social Sciences Research Journal (ASSRJ) Vol. 11, Issue 2.2, February-2024
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Increased unemployment shows that labor resources are not being utilized in any positive way
(Mohd Azhar and Ibrahim, 2021). The unemployment is continuously discussed in previous
academic works, and policymakers used unemployment rates to understand a country’s well- being from the economic development to public satisfaction. If the unemployment issue is not
resolved, socio-economic and society threats are likely to develop (Ramli et al., 2018; Tan et al.,
2021). That is, the unemployment will result in high poverty rate, increase in crime rates
including robberies and theft.
In accordance with the rules that govern each country, the concept of youth varies from one to
the next. Indicated as a proportion of the youth labor force in a country, youth unemployment
refers to the population's aged between 15 to 24 claimed to be available for work but not having
a job (Institute of Labor Market Information and Analysis, 2023). Specifically, individuals within
the mentioned age range who have actively sought employment in the recent three to four
weeks were referred to be unemployed youth (Michael and Geetha, 2020). For a country to
foster economic development, youth is unquestionably one of its most valuable and significant
resources. In addition to being valuable and resourceful, youth are also enthusiastic,
courageous, and capable of coming up with novel ideas that, if well-organized and included in
a country’s economic operations, will help improve socioeconomic development.
The primary causes of youth unemployment are acknowledged to be lack of demand brought
on by a slow trend of economic growth, repeated economic recessions, minimum wage, an
unqualified young labor force, and a high rate of young population growth (Bayrak and Tatli,
2016; Balemba, 2022). Rising unemployment results in income losses for people and decreased
tax revenue for the state (Balemba, 2022). According to Balemba (2022), young people are also
supported by their families and/or married ladies whose husbands have jobs. Due to their lack
of responsibility, youth who are unemployed put off becoming adults, which negatively affects
national production, their income and ability to keep up with changes in their field. This is
because the educated workforce is excluded from the production process, which makes it
difficult for them to keep up with developments in their field. In addition, the lack of
employment opportunities, which can create psychological and family problems, is a source of
radical behavior exhibitions of people (Sever and Igdeli, 2018).
Malaysia has the highest rate of youth unemployment in 2018, at 10.9 percent (Michael and
Geetha, 2020). Although it is lower than the 12.2 percent regional average for Southeast Asia,
Malaysia was the ASEAN's third-highest percentage of youth unemployment, behind only
Philippines and Indonesia. Additionally, Malaysia's 3.1 percent unemployment rate in 2013
placed it as the 20th nation in the world (Mohd Azhar and Ibrahim, 2021). The unemployment
rate dropped to 2.85 percent in 2014, which was its lowest level. In addition, the Ministry of
Education reported that 57,000 of the 173,000 graduates from the 2018 academic year were
still without a job six months after their graduation. This circumstance arose primarily because
the graduate of young unemployment has a gap between their graduate qualifications and the
country's workforce qualifications.
The reported statistics could be caused by the Industrial Revolution (IR) 4.0 phase, in which
machines carry out tasks. Subsequently, less unskilled labor is needed, and a great demand is
made for skilled workers who can contribute value by running the equipment. Nonetheless, a
slowed economic growth will be experienced if the proper steps are not done to address the
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Che-Yahya, N., Rosdi, N. E. A. S., Zaghlol, A. K., & Alyasa-Gan, S. S. (2024). Explaining Youth Unemployment in Malaysia: The Auto-Regressive
Distributive Lag (ARDL) Approach. Advances in Social Sciences Research Journal, 11(2.2). 521-536.
URL: http://dx.doi.org/10.14738/assrj.112.2.16429
high rate of youth unemployment as future economic growth still needs to come from increases
in youth productivity. Additionally, the modernization of technology emphasizes the necessity
of educating the nation's children in order to meet future labor demands.
Young workers and recent graduates are now facing even more challenging circumstances as a
result of the Covid-19 recession of 2020 and the ongoing hardships of 2021. Prior to 2020,
Malaysia's youth experienced unemployment at a rate that was lower than the 13 percent
global average but higher than that of the adult working population (aged 25- 64), by a factor
of six that was high (compared to the global average of three) (Aun and Zhang, 2021). Over the
past ten years, young unemployment has increased relative to the national average, and
graduate unemployment has remained a major national concern. In 2020, youth
unemployment rose to 12.5 percent from 10.5 percent in 2019 and 10.7-10.9percent between
2015 to 2018 (Aun and Zhang, 2021).
Acknowledging the threats that youth unemployment poses to their income and well-being in
the long term, economic growth and a country's workforce's ability to accumulate human
capital, this study is developed to examine the influence of macroeconomic factors including
economic growth, foreign direct investment, inflation, population on youth unemployment in
Malaysia from 1991 to 2021. An autoregressive-distributed lag (ARDL) bounds testing
approach is used to understand influence of the macroeconomic factors on youth
unemployment. The remainder of this paper is organized as follows. Section 2 presents the
background of youth unemployment in Malaysia and factors associated to it. This is followed
by section research methodology. The last two sections report and discuss the findings and
finally the conclusion and implications on the results of this study.
LITERATURE REVIEW
Youth Unemployment in Malaysia
Unemployment is a significant issue in many countries, including Malaysia. Malaysia exhibits
higher levels of unemployment compared to the general population, especially among youth,
suggesting that this country is significantly vulnerable to the issue of youth unemployment
(Michael and Geetha, 2020). Malaysia, similar to other countries globally, encounters challenges
in educating and employing its youth population, which comprised 2.6 million individuals in
2020, accounting for 16.7 percent of the labour force (Aun and Zhang, 2021). According to the
Ministry of Finance, youth unemployment is primarily attributed to a dearth of work
experience, skills, education levels, and skill compatibility necessary for engaging in the labour
market. From the perspective of employers, communication is the most essential skill in the
hiring process apart from professional experience, interpersonal skills, passion, and
commitment. While the causes of youth unemployment are not novel and conclusive, they must
now be given significant attention.
The global economy's growth can be significantly hindered by the high rates of youth
unemployment, prompting governments worldwide to acknowledge this issue. Calvin and
Mohamad (2020) present substantial circumstantial evidence that engaging in employment
during one's youth, particularly for prolonged durations, has a detrimental impact on future
earnings and employment opportunities. This subsequently diminishes overall labour
productivity and hampers the accumulation of human capital in the labour force for several
decades. Youth are a nation's most precious asset as they possess the capability to rapidly