To enjoy the same success in the future as in the past, Malaysia will need to ensure that more people develop the right skills and use them effectively in the workplace. Special attention needs to be devoted to supporting disadvantaged students and adults in developing critical skills and reducing the skills imbalances in the labour market, which can contribute to higher productivity and growth.

In light of the importance of skills for fostering labour productivity, this paper examines evidence of skills imbalances in Malaysia and assesses Malaysia’s performance in a number of key policy areas that can help reduce imbalances. The first section provides an overview of skill imbalances in the Malaysian labour market and presents new evidence from the OECD Skills for Jobs database. The subsequent sections discuss how Malaysia performs in four policies areas that are important for minimising imbalances: i) improving teacher quality and practices, ii) strengthening the connection between education institutions and employment, iii) providing training opportunities during working life, and iv) making better use of women’s skills. The final section focuses on demand side policies that can support Malaysia to move towards a high-skill equilibrium and discusses areas of action to improve the conditions that promote the development of a more innovative and dynamic economy.