Additional mandatory wage floors needed for certain occupations
by AUFA MARDHIAH
WAGE growth trends in Malaysia are influenced by a complex mix of factors, as exemplified in its growth trajectory.
Historically, wage increases in Malaysia occurred during periods of economic expansion, aided by the country’s rapid economic development.
The implementation of a national minimum wage policy in 2013 established a minimum wage for all workers, subject to periodic review and change.
According to the Department of Statistics Malaysia’s (DoSM) latest report on Malaysia’s household income and expenditure in 2022, the median household income experienced a moderate annual decline of 2.5%, reaching RM6,338, while the mean household income
grew by 2.4% to RM8,479. Notably, six states surpassed the national median income of RM6,338 with Kuala Lumpur (KL) leading at RM10,234. However, it recorded a 1% decline in monthly gross median household income for the same period.
Four states exceeded the national monthly mean household income of RM8,479 with Putrajaya at the forefront, recording RM13,473.
DoSM’s analysis also considers disposable income, which increased by 1.7% to RM7,111, representing 83.9% of total gross household income.
The Gini coefficient, which measures income inequality, decreased to 0.404 in 2022 — indicating a 0.3% reduction in income inequality compared to 2019.
This trend was observed in both urban and rural areas and across different ethnicities.
The Poverty Line Income (PLI) for 2022 is RM2,589, while the absolute poverty incidence has reduced to 6.2%, affecting an estimated 487,576 households.
Relative poverty analysis, based on 50% of the median household income, resulted in a 16.6% relative poverty rate.
In 2020, DoSM said Malaysia’s mean and median salaries fell for the first time since 2010 due to the labour market experiencing uneven momentum during the year as a result of a health crisis and its economic ramifications.
As a result, the median monthly salary and compensation in 2020 fell by 15.6% to RM2,062.
The mean monthly salaries and wages in 2020 declined by 9% to RM2,933 for the first time since the series began in 2010.
On the other hand, Malaysians’ median monthly wages have increased gradually over the last decade from RM1,500 in 2010 and 2011 to RM2,442 in 2019. However, the decline in median monthly income to RM2,062 in 2020 brought it back to previous salary levels — RM2,000 in 2016 and RM2,160 in 2017.
Similarly, Malaysians’ mean monthly wages increased from RM1,936 in 2010 to RM3,224 in 2019, before decreasing to RM2,933 in 2020.
DoSM also said the drop in median and mean monthly salaries for Malaysians in 2020 was recorded across the board regardless of gender, age (except 40-44 years old), ethnicity, urban or rural locations, state, education levels or highest certificate obtained, skill level and in almost all industries.
In terms of skill levels, skilled employees saw a decline in median monthly wages from RM4,468 (2019) to RM4,011 (2020), followed by semi-skilled workers from RM1,900 (2019) to RM1,593 (2020) and low-skilled workers from RM1,422 (2019) to RM1,274 (2020).
Meanwhile, all 19 industry categories including other service activities had recorded a decline in median monthly income, except for public administration and defence.
Social security increased slightly from RM3,620 to RM3,761 year-on-year (YoY); education (RM4,868 in 2019 to RM5,058 in 2020); human health and social work activities (RM3,519 in 2019 to RM3,602 in 2020); and arts, entertainment and recreation (RM1,948 in 2019 to RM2,062 in 2020).
According to Khazanah Research Institute’s (KRI) research titled “The Returns to Malaysian Labour — (Part 2) Wage Gaps Within and between Subgroups from 2010 to 2019”, Malaysia’s evolving wage landscape calls for strategic adjustments in education, labour market policies and wage-setting mechanisms to ensure equitable and sustainable growth for all segments of society.
Evidence suggests a decline in the tertiary education premium and growing inequality among tertiary-educated individuals, warranting a shift towards skill-centric education and micro-credentialing through the Technical and Vocational Education and Training (TVET) ecosystem. TVET graduates have shown superior employment outcomes, highlighting the importance of rebalancing educational priorities.
Additionally, Malaysia’s labour market is adapting to an ageing demographic by raising the age at which workers reach peak monthly wages, necessitating innovative strategies for workforce productivity and well-being.
The wage disparities across sectors unveil structural challenges in the economy, with low-value services gaining prominence while manufacturing wanes.
A policy imperative emerges to stimulate robust median wage growth. Middle-wage earners, notably affected in the past decade, have grown increasingly reliant on manufacturing, emphasising the sector’s potential as an engine for wage growth with disciplined industrial policy implementation.
Furthermore, social services, including public administration, education and healthcare, exhibit attractiveness as sources of employment and wage growth.
The expansion of public health employment, supported by increased investment, could offer a solution to the declining employment share in social services.
Gender and citizenship disparities are also notable, with women earning 17.8% less than men for the same job.
Policy actions addressing care burdens, equitable labour market access, centralised wage-setting mechanisms and increased transparency are essential to reduce wage gaps.
The negligible adjusted citizenship pay gap (1%) signals the importance of equitable labour distribution.
Current Income Reality
The Malaysian Employers Federation (MEF) president Datuk Dr Syed Hussain Syed Husman stressed on stability and strategies for achieving high-income status.
He highlighted that private sector employees’ income remains stable, a testament to Malaysia’s resilient economy.
This stability coincided with an unemployment rate of 3.4% in July 2023, underpinned by a projected GDP growth of 4% to 5%.
Notably, July 2023 saw a decrease in the number of unemployed persons, improving labour force statistics and low employment loss, although job vacancies have surged, surpassing registered job seekers.
KRI deputy director of research Nithiyananthan Muthusamy said just over 60% of household income in Malaysia is salaries and wages, hence, it is crucial to improve wages in order to improve household incomes.
KRI’s recent study on Malaysia’s wage dynamics indicated that the labour market, when left to itself without any government intervention, performed poorly in ensuring wage growth for low- and middle-wage workers.
The market demonstrates higher rates of wage growth for higher-wage workers (a regressive pattern).
The report also said the government’s intervention with the minimum wage in 2012/2013 was essential in reversing the labour market’s regressive trend, and in ensuring higher rates of wage growth for low wage workers.
“Our study also suggests that the minimum wage increases of the 2010s improved the position of low-income households relative to high-income households. So, institutional and policy solutions are required to address the issue of low wages and low incomes.
“The market on its own, due to past policies of promoting wage suppression, does not ensure adequate and equitable wage growth,” said Nithiyananthan to The Malaysian Reserve (TMR).
Syed Hussain emphasised that education, skills and work experience, rather than race, are the key factors contributing to disparities in Malaysia.
The Gini coefficient, which has shown a declining trend since the 1970s, reflects the positive progress of Malaysia’s income inequality. Moreover, average income in the top 20% income bracket (T20) exceeded that of the bottom 40% income group (B40) in 1970.
“The T20 and middle 40% income group (M40) are able to save and invest part of their income which give them the opportunity to earn more income compared to B40 that are not able to do so,” said Syed Hussain.
Meanwhile, Nithiyananthan said the minimum wage has been beneficial for low-wage workers but less so for middle-wage workers.
“Middle-wage workers are getting left behind. Median wage growth has been very sluggish and has contributed to the widening wage gap between middle-wage workers and high-wage workers. The next policy challenge for Malaysia is to ensure robust median wage growth,” he added.
Recently, World Bank’s lead economist in Malaysia Dr Apurva Sanghi said the country’s poverty and income inequality is expected to decrease further on the back of inclusive policies.
However, the bank said Malaysia recorded a poverty rate of 6.2%, which is higher than 5.6% in pre-pandemic times, and this translates to almost half a million households remaining below the country’s poverty line.
To propel Malaysia towards a high-income economy, Syed Hussain highlighted government initiatives such as the Madani Economy Framework, supported by the 12 Malaysia Plan Midterm Review (12MP MTR) and the New Industrial Master Plan 2030 (NIMP 2030) which aim to enhance Malaysia’s global economic ranking and competitiveness.
The 12MP MTR introduces vital changes, including governance enhancements, policy shifts and innovative approaches which are aligned with the goal of making Malaysia one of the world’s top 30 GDP nations and among the top 12 in the World Competitiveness Index.
Of the same view, Nithiyananthan said the NIMP 2030 and the National Energy Transition Roadmap (NETR) are important policy initiatives for improving the productivity and sustainability of Malaysia’s economy, to help Malaysia head towards becoming a high-income country.
“We must invest in creating and supporting the firms and businesses of the future that will drive Malaysia’s next stage of growth. But we must also acknowledge that by suppressing wages over decades, we have contributed to an economic model that is reliant on cheap labour and low-value modes of production.
“Raising wages is critical to moving our economy away from a low-productivity model towards a more technology- and knowledge-intensive future.
“We must complement the minimum wage (a universal mandatory wage floor) with additional policy measures that set mandatory wage floors for certain occupations,” Nithiyananthan said, adding that these wage floors should be scaled upwards according to skills and experience, and could contribute towards improved median wage growth.
In August, Economic Minister Rafizi Ramli proposed the progressive wage policy to represent a turn towards reviving the labour market, which might be boosted more consistently with a more balanced wage distribution.
The policy, which was presented to the Malaysia National Economic Action Council (MTEN), was accepted and is seen to supplement the minimum wage structure.
Prime Minister Datuk Seri Anwar Ibrahim who also chaired the MTEN meeting said the policy will be voluntary, incentive-based and productivity-linked.
Escaping Middle Income Trap
In pursuit of high-income status, Malaysia aims for GDP growth to reach at least 5% annually and at least 25% during the 12MP.
This growth momentum is critical to achieving the target of a high-income economy by 2025 with a gross national income (GNI) per capita of more than US$13,200 (RM61,908), as defined by the World Bank (as of 2022, Malaysia had a GNI per capita of US$12,000).
Productivity enhancement through upskilling and reskilling is essential for achieving high-income status. Syed Hussain praised the Progressive Wage Model (PWM), designed to encourage certified upskilling and reskilling. PWM also targets increasing the percentage of certified skilled employees to 35% by 2025.
He emphasised that raising wages alone will not solve the issue of low wages. Tackling the rising cost of living and boosting productivity must go hand in hand. Employers should be motivated to raise employee compensation through improved productivity.
Addressing talent retention challenges faced by micro, small and medium enterprises (MSMEs) requires strengthening partnerships between the government and private sector. Attracting high-value investments necessitates creating a business-friendly environment, including streamlining approval processes.
NIMP 2030 focuses on sectors like aerospace, electronics, automotive, chemicals and pharmaceuticals to create 3.3 million new job opportunities.
Restructuring the labour market by promoting TVET is also crucial. It can accelerate the percentage of skilled workers from the current 28% to the desired 35%.
“The government is working hard to provide the structure and content of TVET courses that are more relevant for current and future needs,” Syed Hussain added.
This move is essential as Malaysia shifts towards high-tech industries and a services sector that demands high-skilled employees.
To elevate Malaysia to high-income status, businesses must transition to digitalisation, automation and mechanisation from labour-intensive sectors.
Preparing the labour force for the services sector, which plays a significant role in GDP, is essential.
High-income status can be achieved by effectively competing internationally in high-tech industries and high-skilled service sectors.
In summary, Malaysia’s journey towards high-income status involves multifaceted strategies, encompassing education, skills development, productivity enhancement and business-friendly policies, all aimed at fostering sustainable economic growth and prosperity for its citizens.
- This article first appeared in The Malaysian Reserve weekly print edition