Addressing the longstanding issue of low-income workers

AS Malaysia aspires to become a high income nation, various measures have been undertaken to accelerate the shift to a high technology and knowledge intensive economy.

The initiatives have borne fruit as evidenced by the encouraging economic growth trend recorded over the past few decades.

Nonetheless, the absolute benefit of the growth has yet to be translated into fair income distribution, including the need to address the longstanding low labour income issue.

Malaysians are finding it increasingly difficult to cope with the rising costs due to structural wage stagnation, thereby placing an added burden on the government to provide subsidies and cash transfers to alleviate pressures on the rakyat.

The introduction of the minimum wage in 2013 was a significant progressive step, but more needs to be done if the Madani Economy framework’s target of raising compensation of employees to 45% of gross domestic product is to be realised.

A study by Khazanah Research Institute in 2023 on wage growth from 2010 to 2019 produced three key findings.

First, the Malaysian labour market is dependent on policy interventions such as minimum wage to ensure equitable and inclusive wage growth.

The study also finds that wage growth is suppressed and broadly regressive without policy measures.

Second, the effects of the minimum wage are limited to the lowest wage earners, with the middle wage earners experiencing the lowest growth during the period.

In ringgit terms, the wage growth of the middle wage earners is even lower than the growth of the lowest 30% wage earner group.

Third, wage stagnation is found to be a central feature of the Malaysian labour market despite the effects of minimum wage.

The bottom 50% of workers only experienced an increase of the real monthly wage by approximately RM500 during the 2010-2019 period, which translates to a rough increase of RM65 per year.

These findings provide a basis to comprehend the vulnerability of Malaysian households when confronted with the rising costs, as their wage increments have arguably been insufficient to provide a buffer against future shocks.

While structural challenges are a source of the wage conundrum, dismal wage levels are themselves at the root of trends that feed back to Malaysia’s structural problems.

Two prominent trends that are linked to the lack of well-paying employment are brain drain and the increasing levels of non-standard employment such as gig work.

Brain drain, though not rare from a global perspecive, severely inhibits the economic and social potential of developing countries.

Based on a study by the World Bank in 2010, about 54% of Malaysians’ brain drain were in Singapore.

Higher salary is the predominant motivator in pulling Malaysians to work in Singapore.

Findings from interview sessions highlighted that Malaysians were offered higher salaries and compensation for the same job.

Meanwhile, the Malaysian Employers Federation’s Salary Survey For 2022 showed that a manager in the manufacturing industry received a basic monthly salary of RM10,304, while a similar role in Singapore offered S$7,532, which is equivalent to RM24,695.

Likewise, a clerk in the administration and support services would earn a monthly wage of RM2,065, as compared to S$2,000 in Singapore.

Meanwhile, the accommodation and food and beverages sub-sector pays nearly five times more in Singapore.

The wage discrepancies between Malaysia and Singapore is applicable to a wide range of occupations and industries.