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Book Title

Impediment to Efficient Job Matching Understanding Job Market Friction


This report addresses the issue of labour market friction which received little attention from academics and policy makers. Labour market friction refers to the barriers or impediments that prevent the efficient matching of job seekers with available job openings. These frictions can be caused by various factors, such as skill mismatches, geographic barriers, information asymmetries, or institutional factors such as minimum wage laws or employment regulations. A well-functioning labour market enables the necessary movement and placement of workers in industries and the existence of a reasonable size of labour market friction limits productivity and economic growth.

It is important for public employment agencies in particular, and governments in general, to understand the impact of factors that contribute to labour market friction in order to improve recruitment methods and strategies. This report focuses and limits itself to three main sources of labour market friction namely skills mismatch, demographic factors, and fragmentation of labour market information. It seeks to examine the empirical assessment of the factors and provide understanding to the policy makers on the influences of the factors on labour market friction.

This report serves as an initial effort toward reducing labour market friction. Further efforts are needed to measure the extent of labour market friction in Malaysia and to identify concrete interventions to improve the situation. It is important to note that well-functioning labour markets enable the movement of workers needed to support economic growth and transformation. When economic growth and transformation outpace the workforce, it can distort markets by failing to realize its full economic potential.

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