Malaysia’s New Economic Policy: Distortions in Higher Education and the Labor Market

Malaysia’s New Economic Policy (NEP) is an affirmative action program implemented in 1971 aimed at reducing the socioeconomic disparity between ethnic Malays—who represent the majority in Malaysia—and other ethnic groups, in particular the Chinese. The enforcement of quotas in public university admission and the labor market was carried out in order to reduce income inequality between groups and to restructure employment. This study investigates the implications of affirmative action on income inequality, educational attainment, and employment outcomes across different ethnic groups. Inequality for all ethnic groups, and therefore the whole country, rose dramatically from 1957 to 1976. However, from 1976 onwards, there appears to be a consistent movement towards a more equal distribution and NEP had clearly achieved its objective of narrowing income gaps between ethnic groups, especially between the Malays and Chinese. Educational attainment among Malays, especially at the tertiary level, has increased substantially under NEP but graduates are found to be heavily dependent on public sector employment, resulting in a growing concern over the quality of these graduates. While the government has been determined to abolish the identification of race with economic function, ironically, the end result is a perpetuation of identification of ethnicity. The issue of racial identification has now manifested itself in the overrepresentation of Bumiputera in public sector employment and the concentration of non-Bumiputera in the private sector labor market