Practice and policy keeping salaries low

 

A policy to deny workers the right to form unions and steps to reduce payroll have kept salaries low in Malaysia. (Freepik pic)

PETALING JAYA: Salaries are low in Malaysia and it all boils down to a model of economic growth that suppresses wage increases.

This model, according to an expert, has been enabled by policy and the institutional environment.

Khazanah Research Institute (KRI) deputy director Nithiyananthan Muthusamy said there is “a longstanding pursuit of a wage suppressing model of economic growth”.

He cited the steps to de-unionise the labour force, reduce collective bargaining coverage rate and allow the use of migrant labour to shrink the payroll as features of this economic model.

A recently completed study by KRI shows that more than 70% of new graduates in Malaysia now earn less than RM2,000 a month, a sum barely enough for one to survive on if he lives in the Klang Valley.

The proportion of those entering the job market at below the living wage has also risen.

The KRI study highlighted several key points, one of which is that equitable wage is dependent on labour policy interventions such as the minimum wage.

However, it also argued that wage stagnation continues to be a central feature of the labour market.

Nithiyananthan said that Malaysia’s labour market exhibits a generally suppressed and “broadly regressive wage growth pattern”.

“So, our young workers are starting with low pay, and their wage increments have been falling over time,” he told FMT Business.

Job market needs intervention

Nithiyananthan said wages have not been allowed to rise even as the labour surplus was depleted and as industries grew.

He said policy and the institutional environment have not only enabled but also made it an incentive for businesses to suppress wages to generate profit.

“Our businesses must realise that to attract and retain talent, they must shift their business models towards higher wage and higher value-added activities,” he said.

“Rising wages were an important part of the industrial transitions of Asia’s most advanced economies (Japan, South Korea, Taiwan, Singapore), so there is no escaping the productivity trap without raising wage levels,” he added.

Nithiyananthan said critics’ arguments that interventions could raise prices and reduce job opportunities had proven inaccurate.

Instead, he said, the minimum wage policy has ensured that income growth for low-wage workers far exceeded inflation, overall wage inequality was reduced and unemployment rates remained low.

However, CEO of libertarian think tank Center for Market Education Carmelo Ferlito offers a contrarian view.

He said raising wages for low-income earners will keep them out of the market and, therefore, they never have the opportunity to start a career.

“Too many people look at the starting wage but the real question should be on social mobility. If I start with low wages and I am competent, can I progress in my career and wage?” he told FMT Business.

He said the government should strive to keep the job market open regionally so that young graduates can look for opportunities elsewhere.

“Higher competition among young talents will become a push for consolidation and improve wages,” he added.

Address structural issues

Economist Nungsari Radhi offers a different perspective. He said the low-wage reality is caused by structural issues that require not only policy intervention but also greater competence before they can be resolved.

“The economy is not creating jobs that require skilled workers. Over 60% of jobs the economy creates just requires semi-skilled workers,” he told FMT Business.

“Only about one in four jobs created requires some skills. Most of the new jobs are in the services sector, which does not pay much,” he said.

“We must have more businesses doing things that require greater skills so that they need people with higher specific skills and therefore pay more. That means we need companies to be more competitive, especially in the external market,” he added.

Under the Madani economy framework, the government aims to increase the proportion of employee compensation in the gross domestic product (GDP) to 45%.

As of 2022, the national labour income in the form of wages and salaries accounted for only 32.4% of total income or GDP. - FMT