Will May Day wage hikes raise your salary?

 

There is a famous story about Abdullah Ahmad Badawi asking Lee Kuan Yew why corruption among Singapore civil servants was so low. PM Lee replied “because we pay them well, they have no need to steal”.

So while the announcement of the highest ever increase in civil service pay will make many people angry, especially if they work in the private sector and are unlikely to get any increase at all, let alone 13%, there are wider considerations.

We have to remember who civil servants are. They are not just bureaucrats in Putrajaya, they are teachers, nurses, hospital staff, care workers, police officers, fire fighters, ambulance drivers, university staff, frontliners in so many areas all around the country. We rely on them and they do a good job.

Their salaries are generally low and have been for decades. Theirs have not kept up with private sector wages.

There are people who are even working below minimum wage in the public sector and many on wages below the poverty line.

Better salaries will attract and retain better staff, it will improve motivation and morale and will reward good work and help make sure reforms are actively implemented.

Productivity should improve but this will require better management which we expect to see in the forthcoming changes to civil service terms and conditions of employment.

The announcement of the pay hikes in advance of those changes might be a good tactic in ensuring acceptance from the civil servants.

Above all higher civil service pay will help to cut corruption, leakages and wastage common among people on low salaries who look for illicit ways of making money.

There is an economic impact. The extra RM12.4 billion is about 4% of government operational spending and will have to be funded in Budget 2025 that will be tabled in October.

It cannot be paid from borrowing and may require higher taxes.

However, it is a transfer which will increase spending and add to economic growth next year.

So there is a balance of funding costs against extra economic growth which will have a significant impact in the short-term but hopefully will improve civil service performance in the long-term.

The increase in civil servants’ minimum pay to over RM2,000 per month will have a small but meaningful effect on reducing inequality overall but will have a particularly big impact for civil servants on the lowest salaries.

The changes will not affect private sector pay because the labour market is very segmented and not interconnected. So it will not have any real effect.

Prime Minister Anwar Ibrahim has encouraged the private sector to emulate the government commitment to safeguard worker welfare with fair wages.

He emphasised that private companies, which often generate significant profits, should allocate a bigger portion of their earnings towards their employees to recognise hard work and higher productivity.

While some larger private companies can afford this, they are unlikely to adopt it voluntarily because their business models often rely on low salaries, hire-and-fire employment and poor terms and conditions.

Smaller companies will be less enthusiastic. Around 78% of companies are micro-enterprises with fewer than five people.

They are likely to pay whatever their revenue allows because their employees are close-knit but the salaries will still be low.

Half of private sector employees earn less than RM2,600 per month. This is one reason why people leave formal private sector contracts and prefer gig-economy work where they have greater flexibility and often higher salaries.

So while the government is setting a good example, unless workers are empowered, private sector employers are unlikely to follow suit and raise wages.

Their employees will simply leave and find better options in the gig-economy. - FMT

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