The State Of The Nation: Reforms key to uphill task of turning ‘brain drain’ into ‘brain gain’

The State Of The Nation: Reforms key to uphill task of turning ‘brain drain’ into ‘brain gain’

This article first appeared in The Edge Malaysia Weekly on June 3, 2024 - June 9, 2024

IN discussing recently the debt burden caused by student loans in Malaysia, Khazanah Research Institute (KRI) raised eyebrows when recommending that more graduates should be induced to work abroad. The logic is simple: Overseas employment expands opportunities for graduates caught by the limitations of a local job market that is struggling to fully accommodate a growing number of graduates with meaningful employment and paying wages that reflect their qualifications and skills.

Noting that the issue of skilled migration — more commonly known as “brain drain” — has been a subject of analysis and debate among economists, politicians, entrepreneurs and academics globally since the 1950s, KRI researchers said “skilled migration continues [to be] persistent due to globalisation” despite attempts to address it through short-term policies or taxation measures.

In short, there is no stopping the outflow, but there might be a silver lining.

“There has been a shift in perspective in recent years, with a growing recognition of the potential benefits of skilled diaspora networks. Instead of trying to prevent emigration, many governments are now exploring ways to leverage their diaspora communities for national development, reflecting a shift towards concepts of brain gain, brain exchange and brain circulation to better manage migration flows and serve their national interests,” says the 156-page report “The Financialization of Our Lives: Values and Trade-Offs”, written by KRI researchers Dr Suraya Ismail, Nithiyananthan Muthusamy, Shereen Hazirah Hishamudin, Dr Mohd Amirul Rafiq Abu Rahim, Theebalakshmi Kunasekaran, and Gregory Ho Wai Son.

Asked to elaborate, the authors of the report tell The Edge that their recommendation to encourage more graduates to work abroad “stems from a reasonable assessment of the economic and labour market landscape in Malaysia”, where data shows that, for over a decade, more than half the number of fresh graduates have been earning salaries below RM2,000 a month.

In the report, the researchers note how the salaries of fresh graduates “have remained stagnant for at least a decade”, with 59.6% still earning RM2,000 or less in their first job in 2021 — hardly improving from 60.8% in 2010 (see Chart 1).

The KRI researchers also noted how the gap in earnings between tertiary educated individuals has shown the slowest growth between 2010 and 2022, compared with cohorts with only primary or secondary education who had benefited from higher minimum wages (see table).

“And while the growth of ‘tertiary educated persons’ continues to rise, the growth of ‘skilled employed persons’ has plateaued since 2002 — making overqualification and underemployment issues of pressing concern. It is important to recognise that securing quality employment outcomes for graduates serves as a crucial stepping stone for their future career development. Our research highlights that commencing with a poor employment status, marked by underemployment and low starting pay, can significantly impact graduates’ long-term career trajectories, even after a decade in the labour market post-graduation,” the researchers write.

The Department of Statistics Malaysia (DoSM) defines tertiary education as the level of education attained beyond Form 5 or GCE ‘O’ Level.

While there are attempts at “institutional measures such as the progressive wage policy to counteract wage stagnation” and improve the relative position of low-wage earners, the researchers reckon that the creation of better-paying jobs and correcting structural flaws “requires substantial economic restructuring that may not yield immediate results”.

“The primary reasons for brain drain are the lack of competitive wages and quality job opportunities in Malaysia ... More investment in high-skill sectors such as technology, research and development, and advanced manufacturing is required to address the gap in the creation of high-skilled jobs in the country,” the researchers elaborate, noting a mismatch in the total number of new graduates and the availability of skilled jobs in the workforce, where graduate output has increased from four million in 2015 to 5.2 million in 2022, while the total number of skilled jobs rose only from two million in 2015 to 2.2 million in 2022.

“Facilitating opportunities for graduates to work abroad can be a strategic move to mitigate issues such as unemployment, wage stagnation and education debt, while also leveraging the potential benefits of brain gain. After all, it is not just about brain drain; it is about brain gain, exchange and circulation for the benefit of all,” the authors say, noting that high-skill migration can benefit not only migrants but also the knowledge-producing community and global economy.

Is there evidence that the benefits from brain gain can outweigh the losses from brain drain? The KRI researchers tell The Edge in an email reply: “The report emphasises the importance of implementing policies and programmes that encourage and facilitate the return of these graduates to Malaysia. This could include offering incentives such as tax benefits, grants and career support for returning professionals. The knowledge and skills acquired abroad can be transferred back to the home country, either through return migration or through international collaborations and networks.”

When calling for a revamp of the local labour market to foster, retain and attract Malaysian talent more effectively, chief statistician Datuk Seri Uzir Mahidin also turned heads in February this year when he said the country “must reframe the narrative around brain drain, transforming it into a positive concept known as brain circulation” that sees the Malaysian diaspora returning or contributing their acquired expertise and skills back to their home country.

At the time, concerns over “brain drain” were renewed, following the release of findings that 83% of Malaysians employed in neighbouring high-income countries such as Singapore and Brunei are either skilled or semi-skilled, where most respondents had said they intended to continue working abroad, citing the attractive Singapore and Brunei dollars (which are hovering around 3.50 to the ringgit currently).

It is not immediately known whether those working overseas are among those earning enough money to be among the 31% who have fully repaid and 18% who are consistently servicing debt from student loans taken from the National Higher Education Fund Corp (PTPTN), which is another political “hot potato” in Malaysia, where 2021 data shows that 22.2%, or 539,284, never repaid a single sen.

The Edge had previously written about how 86.2% of PTPTN loan defaulters say they do not earn enough to service repayments; 74% of PTPTN loan defaulters say they either have no regular income or earn less than RM2,000 a month; and 51.6% of graduates with PTPTN loans either have no regular income or earn less than RM2,000 a month. (Scan the QR code to read the article “Link broader talent, economic goals when recasting PTPTN loans, grants”, The Edge, Issue 1452.)

Citing the burden of PTPTN loans on the majority of graduates earning low wages — with only 1.5% of PTPTN borrowers earning more than RM8,000 (S$2,286) a month — KRI researchers say “tertiary education facilitates upward mobility, but perhaps not to the extent we expect”.

Without elaborating on the impact of the quality of education and skills training on the level of wages, the researchers note in the report that education loans — symbolic of an aspirational investment in the future — accounted for the second-highest debt portion held by individuals aged 20 to 39 (see Chart 2).

In other words, “debt meant to facilitate graduates’ financial growth had instead become a financial hindrance”, calling for policy intervention that can alleviate the burden of educational indebtedness.

“While policymakers may perceive [making higher education free] as a straightforward decision and a powerful political move, the implications of free tuition in higher education is complex, costly and not a guaranteed means to enhance access or success,” the KRI researchers write, noting government subsidies of, on average, 91.4% of tuition fees for medical programmes in the country and the challenges of extending the model to private institutions of higher learning.

The researchers are in favour of the adoption of an income-targeted free tuition approach, targeted at disadvantaged groups, to promote equitable access to education. They also recommended that families leverage the power of compounding interest by saving for their children’s education early on.

In any case, there is clearly a need for reforms to create more better-paying jobs in Malaysia to stem the brain drain. Low wages not only lead to low capacity to service student loans but also low savings for retirement or a rainy day. If not dealt with effectively, structural flaws will return to roost in the form of greater fiscal burden for social cash transfers.

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