MIER: Labour market faces structural issues

ED says it is not a healthy labour market as it pays very little in nominal income to workers


Malaysia’s labour market, which saw a reduction in unemployment to 3.3% in February from 3.4% in the previous month, is still considered “unhealthy” as various production issues have resulted in very low nominal income among employees.

Malaysian Institute of Economic Research (MIER) ED Emeritus professor Dr Zakariah Abdul Rashid said low wages, productivity and skills, along with the influx of foreign workers, are among the structural challenges that are affecting the industry today.

Zakariah said it is not a healthy labour market as it pays very little in nominal income to workers.

“The labour market has a lot of hidden issues, especially in terms of productivity which is growing at a slow pace and resulting in the inability to pay high salaries to workers,” he said during MIER’s 23rd economic briefing in Kuala Lumpur yesterday. He added that workers remain low-skilled and low value-added which is exacerbated by the country’s reliance on foreign labour.

In February this year, Malaysia’s labour force comprised 15.23 million people compared to the 14.92 million individuals that were recorded in the corresponding month in 2017.

According to Bank Negara Malaysia (BNM), foreign workers made up 12% of the total workforce over 2017, primarily concentrated in the manufacturing, construction and agricultural sectors.

BNM reported that low-skilled jobs also doubled to 16% over 2011 to 2017 against the 8% in 2002 to 2010, while high-skilled employment shrank to 37% from 45% over the same period.

Zakariah said Malaysia’s current production structure and reliance on low-skilled labour are impeding economic growth.

“In the manufacturing sector, companies are unable to transform the intermediate goods imported into higher value products because of the low level of skills available.

“If we can transform these goods into value-added products and sell them to other countries upon exporting, then we can capture a larger value of the economy,” he said.

Zakariah said a high-skilled workforce and capital-intensive investments in the country are needed to address the issues that are affecting today’s labour market.

According to MIER, Malaysia’s output growth for 2018 is expected at 4.8% — lower than its 2017 forecast of 5.4% and when compared to regional peers Indonesia, the Philippines and Vietnam.

Zakariah said the country’s minimum wage policy represents a significantly low pro- portion compared to other developed nations.

“When labour income’s share as a percentage of gross domestic product is low, it means the production sector is making money — but it is not being passed on to the workers,” he said.

Zakariah, however, cautioned that higher wages would also exert cost pressures on the numerous small and medium enterprises (SMEs) and micro-enterprises operating in the country.

He said while multinational corporations could manage the higher cost of doing business, SMEs — which make up 97% of the Malaysian economy — and micro-enterprises would struggle to cope.

According to MIER findings, Malaysia’s minimum wage relative to mean wage for fulltime workers in 2016 was below 0.15%, lower compared to most developed nations, as well as against Thailand and the Philippines.

Its minimum to median wage ratio over the same period stood at 0.19%, significantly lower than developed nations who averaged between 0.4% and 0.45%.

Presently, the minimum wage is set at RM1,000 for Peninsular Malaysia and at RM920 for East Malaysia.

According to BNM, a single adult living in Kuala Lumpur would require an average monthly salary of RM2,700 to make ends meet.

About two-thirds of household income is said to come from salary and wages alone. Median monthly household income for Malaysians was at RM5,228 in 2016.