Improving economic structure for higher wages

ADUN SPEAKS | Why is our currency depreciating? Why are our wages relatively low? Why can't we mandate higher salaries?

These questions resonate with many, especially concerning how currency depreciation further affects livelihoods.

Employees are concerned about their salaries, so let's first briefly discuss from an economic perspective. Productivity ratio refers to the ratio of output value to input value, that is, output/input.

Output typically represents the value of products, while input refers to wages. For instance, does an employee earning RM3,000 bring at least RM3,000 worth of productivity output?

Therefore, if we simply demand higher wages without increasing output value or productivity, it would lead to a decrease in productivity ratio, directly causing currency depreciation.

For example, if an employee earning RM3,000 brings that much worth of output value, the productivity ratio is 1. If their salary is increased to RM6,000 without increasing output value, the productivity ratio naturally decreases to 0.5.

With other factors remaining constant, a decrease in the productivity ratio means the input funds lose their original value, thus leading to currency depreciation.

Of course, the recent depreciation of the ringgit is also influenced by international risks, such as the escalation of tensions between Israel and Iran.

Under normal market operations, as long as there is potential for increased returns, every business would naturally want to hire more people until the productivity ratio reaches one because falling below one means operating at a loss unless it brings long-term gains.

In normal circumstances, employers are also willing to hire more people and offer higher wages because it would result in greater returns.

High-value investments

Next, let's look at value. If we aim to increase the ratio of wages of RM3,000 to output value of RM3,000, to RM5,000 wage to RM5,000 output value, we need to attract high-value investments.

High-value investments typically yield high-value products or services. Taking China as an example, their policies aim to avoid low-value foreign investments.

In the case of high-wage, high-value products, we can see that the balanced productivity ratio remains at one.

Therefore, the issue of low wages and currency depreciation lies in Malaysia's economic industrial structure.

The solution lies in optimising the economic industrial structure, rather than being a matter of political or capitalist ideologies.

Solid foundation

For a country to progress, it requires clear-headed political leadership that understands economics and identifies the root of the problem to administer appropriate remedies.

Theoretical and imaginative policies, divorced from reality, may risk harming the nation and its people.

For instance, the Higher Education Ministry must ensure that universities focus on teaching quality and prohibit unnecessary regulation of students' attire, to ensure that students' employability and productivity value are enhanced, thus naturally increasing wages.

When Abdullah Ahmad Badawi took office as prime minister in 2003, he once boasted about significantly increasing citizens’ income, prompting former premier Dr Mahathir Mohamad to sarcastically suggest doubling the salaries of all civil servants.

Of course, this high-wage plan never materialised.

Without a solid foundation, blindly mandating wage increases would not only backfire but also force companies to lay off employees or even close down, dragging down the country's currency and damaging the economy.

However, we should strive for healthy, meaningful wage increases based on improvements in economic structure, ensuring that all citizens can lead good lives.

The government can adjust the economic industrial structure and encourage companies to raise wages, but mandating minimum wages in a top-down manner before improving the economic structure would be putting the cart before the horse. - Mkini

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CHEW CHONG SIN is the Mengkibol assemblyperson.

The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.