RM2,500 starting pay makes little difference for graduates, say economists

 Geoffrey Williams says market already pays that amount while Yeah Kim Leng thinks it is inadequate for those living in urban centres.

For young graduates just entering the job market, a proposal to fix the minimum salary at RM2,500 will do little for them, given that most companies already pay that amount. (File pic)

PETALING JAYA:

A minimum starting salary of RM2,500 for graduates will do little to raise wages even as it seeks to address a longstanding structural weakness in Malaysia’s labour market, economists say.

Geoffrey Williams of Williams Business Consultancy Sdn Bhd pointed out that graduates already earn between RM2,500 and RM3,500 a month, while Yeah Kim Leng of Sunway University said the proposed rate was “reasonable as a legal floor” but still fell short of a living wage in major cities.

On the other hand, Barjoyai Bardai of the Malaysia University of Science and Technology said the proposal was pertinent given that academic qualifications and skills did not always translate into adequate remuneration.

Under Budget 2027, tabled by Prime Minister Anwar Ibrahim last Friday, the government proposed a starting salary of at least RM2,500 a month for graduates and semi-skilled workers.

Anwar, who is also finance minister, said the move would ensure that pay scales reflected workers’ academic qualifications rather than being based solely on the general national minimum wage, which has been raised from RM1,700 to RM2,000.

Geoffrey Williams.

Williams said graduates’ starting salaries were determined by market conditions, adding that employers could choose not to hire graduates at any wage level.

He said setting a minimum starting salary could also result in some graduates’ employment contracts not being renewed.

“So this (RM2,500 minimum salary) is a double-edged sword. It looks like a sharp policy to help graduates, but it also cuts their employability.”

Yeah said that while a RM2,500 minimum starting salary was “reasonable as a legal floor”, it fell short of a living wage in major cities.

Citing official data, he said single individuals in Kuala Lumpur needed RM2,403 a month to maintain a decent standard of living, while those in Klang needed RM2,161. The corresponding figure for those in Penang’s Timur Laut district was RM2,180.

Yeah Kim Leng.

Yeah said the minimum starting salary should be determined through a tripartite negotiation mechanism involving the government, employers and workers, rather than being dictated solely by market forces or rigidly fixed by the government. Neither extreme, he said, would be suitable for Malaysia’s circumstances.

He said market forces had already suppressed graduate wages, with 65% earning below RM3,000 a month. He added that inflation-adjusted median entry-level salaries for bachelor’s degree holders had fallen by 10% over 25 years.

A blanket national rate for graduates and semi-skilled workers, he said, would overlook significant regional differences in living costs and could have unintended negative consequences.

“The RM2,500 figure is defensible as a starting benchmark, but the actual rate should be calibrated to what employers can sustainably pay in different regions.”

Barjoyai said a monthly salary of RM2,500 or more could also help improve young workers’ purchasing power, particularly for those who needed to cover accommodation, transport, food, education loan repayments and other living expenses.

“It could also help narrow the gap between the cost of acquiring qualifications and the financial returns graduates receive upon entering employment,” he said when contacted.

However, Barjoyai cautioned against treating the RM2,500 figure “as an end in itself”, given the government’s aim of transitioning to a high-productivity, high-income economy.

Barjoyai Bardai.

“The RM2,500 starting salary can be one instrument towards that objective, provided it is accompanied by effective skills development, technological adoption and stronger demand for skilled labour.”

He warned that setting a minimum salary without considering differences in productivity, industry conditions and employers’ ability to pay could have unintended consequences.

These included reduced recruitment, delayed business expansion and a shift towards contractual arrangements that lower employment costs. - FMT