Why are wages stagnant?

 

Wages in Malaysia have stagnated because the labour market does not work properly, so much so that wages are only part of how many people make ends meet.

Around 60% of people in the labour force earn regular monthly wages with others in informal work, family business or are self-employed.

With the growth of the gig-economy an increasing number of people are no longer relying on wages or wage increases, instead they are finding side-hustles to supplement their income through other means.

More than 30% of working-age Malaysians are outside the labour force and do not rely on wages at all.

Adding the unemployed and underemployed and around two million legal foreign workers and we have 12 million people as a reserve labour force available to replace people who push for higher wages.

Possibly twice as many or more illegal foreign workers raises this further.

This leads to a “take it or leave it” attitude among employers who offer low pay because they can easily find people to do the work.

Bad employers habitually oppose reforms to improve wages of employees, often using unsubstantiated claims of job losses or company closures if wages rise.

On the other hand, there are also only 600,000 to 800,000 trade union members to push for collective agreements that would raise wages. So people are on their own when it comes to negotiating wages.

Often, two people in the same job with exactly the same qualifications will have different wages and terms of employment.

Structural issues also lead to stagnant wages. For example wages are not indexed with inflation in contracts, increments and bonuses are completely at the discretion of employers who often simply do not increase wages at all.

Wages in ringgit terms have been much the same for decades and spending power has fallen as prices have risen over the same period.

Minimum wages are not enforced even in government-linked contracts and minimum wage implementation has been repeatedly delayed.

The revision of the minimum wage is too bureaucratic and actually it should rise yearly in line with inflation or average wages. So wages in the low-paid sector actually fall in real terms.

In many instances wages are not linked to productivity and any improvements in business performance or profits are taken by employers and not shared with employees.

The share of compensation to employees in Malaysia is only around 35% compared to almost 50% in Singapore and 55% in the US so Malaysian employers are not sharing productivity improvements with workers.

Wages are often not linked to skills or qualifications, with very many highly qualified people such as teachers or doctors on low pay, especially in the public sector.

Graduates start on very low pay, barely in line with minimum wages. Interns or young lawyers are often not paid at all and shamefully the Bar Council continues to refuse to introduce guidelines to pay young lawyers.

Wages are also not linked to time spent working and some employers do not compensate people properly for the time they work or for example for the time taken to get to work and to get home in increasingly jammed roads.

Ultimately the fundamental problem in Malaysia is the crushing power imbalance between employers and employees with the rights of employees almost impossible to enforce because the labour law system and courts are slow and ineffective. Foreign workers have almost no chance of enforcing their rights.

This means there is effectively an absence of the rule of law in the labour market and so employees have no choice but to accept poor terms and conditions or to leave and look for equally poorly paid jobs.

The outcome is that wages and salaries are held down and do not even increase with inflation.

As a result, wage earners’ purchasing power is also eroded and living standards fall especially for those in lower income groups.

To fix this we need to improve systems to enforce labour rights and the rule of law in the labour market, stronger unions, enforcement of minimum wages and insisting on a salary for young lawyers and interns.

Above all employees must be stronger in refusing the “take it or leave it” attitude and simply refusing low pay.

Pressure on employers to pay decent wages must scale-up. Bad employers should be called out and good employers acknowledged. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.