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INTERACTIVE: Will Malaysian salaries rise under a progressive wage model?

Dec 15, 2023


PETALING JAYA: Workers can earn higher salaries through upskilling under a Progressive Wage Model (PWM), but their productivity growth should be higher than the increase in wages, says the Malaysian Employers Federation (MEF).

Commenting on the PWM which the government is proposing, MEF president Datuk Dr Syed Hussain Syed Husman said workers who acquire certified skills and improve their job performance and productivity will be eligible for higher wages.

“It also ensures that employers improve productivity and profits while consumers get better products and services at affordable prices,” he said.

Syed Hussain said a PWM must prioritise productivity growth over salary hikes to ensure that Malaysia remains competitive.

"A study on productivity and wage growth during the period of 2011 to 2019 indicated that wages grew at an average of 1.7% yearly higher than productivity.

“Such a situation eroded the competitiveness of employers and the nation," he said.

MEF president Datuk Dr Syed Hussain Syed Husman

On Aug 8, Prime Minister Datuk Seri Anwar Ibrahim said that the PWM, which will be voluntary in nature, is an initiative to reform Malaysia’s labour market.

He had said that the PWM aims to ensure that workers will not be burdened with the cost of living and will benefit from employment that comes with decent wages.

ALSO READ> The economic case for a progressive wage model

Syed Hussain said that under PWM, employees will need to undergo certified upskilling training to improve performance, skills and experience.

He said the MEF hopes that the cost of upskilling can be borne by the government.

Syed Hussain said employers will be inclined to adopt the PWM, which will help narrow the gap of wages between the lowest category and median wages, as well as address the rising cost of living.

According to the Statistics Department’s Quarterly Employees Wages Statistics (Formal Sector) Report, 75.7% of the 6.45 million formal employees in Malaysia earned less than RM5,000, with more than a quarter or 34.8% receiving less than RM2,000.

The data, which came from the Employees Provident Fund (EPF) and Social Security Organisation (Socso), showed that the median monthly wage for Malaysian formal employees increased by 8.3% to RM2,600 from RM2,400 in March 2022.

Female employees earned RM2,545, 4.5% less than their male counterparts at RM2,664.

The under-20 age group had the lowest median wage of RM1,500, while the highest average salary of up to RM3,500 was received by those aged between 40-49.

The industry earning the highest average salary were mining and quarrying at RM7,500, followed by the services subsector of finance and insurance at RM6,100 and information and communication at RM5,200.

The transportation and storage sector received the lowest median salary of RM1,782, followed by manufacturing subsector of textiles, wearing apparel and leather products at RM1,945 and agriculture at RM1,900.

Although Kuala Lumpur, Selangor and Putrajaya had the largest median salary compared with other states, they were among those that recorded the smallest or negative salary hike in March 2023, compared with a year ago.

Putrajaya recorded a 3.9% drop in median salary from RM2,564 in March 2022 to RM2,464 in March 2023, while Kuala Lumpur recorded a 6.1% growth from RM3,700 to RM3,927 and Selangor 9.8% from RM2,700 to RM2,964.

Perlis recorded the highest salary growth in March 2023, at 16.2%, with a salary of RM1,627, compared to RM1,400 in the same month a year ago.

This was followed by Kelantan and Johor, with a growth of 14.3% each.

Syed Hussain said low wages cannot solely be resolved by paying higher salaries.

“Increasing wages without effective efforts to control the cost of living will just keep pushing prices to higher levels.

“In such a situation, higher wages will eventually result in employers passing on the increase in cost to consumers.

“This will result in further increases in the prices of goods and services,” he said.

ALSO READ > INTERACTIVE: Salaries in Malaysia are healing from pandemic, but at different rates

Syed Hussain said the government needs to put in place policies that will help control the spiralling cost of living instead of merely pressuring employers to keep raising wages.

To implement a PWM, Syed Hussain said that proper planning and understanding of the PWM will help employers to better adopt the policy as getting the participation of both employers and employees will be a challenge.

“A detailed white paper on the cost and benefits is expected to be presented in Cabinet by the Economy Minister for approval.

“Stakeholders should be consulted and a tripartite committees made up of unions, employers and the government needs to be formed to formulate and implement the PWM for certain selected sectors as it will shape the future of the economy,” he said.

He said this will help map out clear career pathways of employees, where wages are linked to training, upskilling and reskilling and improvement in productivity and standards.

He added that employers, especially micro, small and medium enterprises (MSMEs), will also need incentives to voluntarily adopt PWM.

“Most of them are still trying to recover their businesses and are facing a challenging business environment.

“Without the necessary subsidies, MSMEs may not be in a financial position to implement a PWM.”

He said companies need help to adopt digitalisation, new technologies including artificial intelligence, mechanisation and automation to enable employees to increase their productivity.

“Outdated processes and operations will drag down productivity and competitiveness,” he said.

He said if the implementation of the PWM is successful, payment of higher wages based on increases in productivity will make employers more competitive and make Malaysia more attractive to investors.

Malaysia University of Science and Technology (MUST) economics professor Geoffrey Williams said that the best way to increase wages is to reform the labour market to help employees get better terms and conditions of employment and to enforce employment law more effectively.

Malaysia University of Science and Technology (MUST) economics professor Geoffrey Williams

“The reason the government intervenes with a PWM or minimum wage is because the labour market does not work properly.

“The minimum wage has increased income for low-paid groups and the PWM can do the same for a wider group of people.

“But it will raise costs and cause potentially big changes in the labour market,” he said, adding that details are needed to understand the policy better.

Prof Williams said that the voluntary scheme needs incentives to succeed.

They include pull factors such as preferential access to government contracts for PWM companies or push factors of excluding opt-out companies from tax breaks and subsidies.

“There is also a market push which would make PWM companies more attractive to good quality employees and opt-out companies would have progressively lower salaries and would be less attractive in the long-term,” he said.

He said the implementation must include helping employers understand how to adopt a PWM with guidelines.

“There could also be a license scheme with marketing collateral for PWM companies to show they have adopted the scheme.

“The PWM is often linked to training so improving the training and TVET (Technical and Vocational Education and Training) system would be good.

“These are already in place and require changes in access. It does not require extra spending. Training resources are already in place,” he said.

He said the limitation of the PWM is that more informal employment could be created by companies to avoid the PWM.

University Malaya’s Professor of Economics Distinguished Professor Datuk Dr Rajah Rasiah said the PWM can improve workers' compensation by matching the wage rise with their productivity improvements, and workers can plan their skilling processes.

University Malaya's Distinguished Professor Datuk Rajah Rasiah

“In addition to building cooperation with workers, such an approach also offers workers a say in both their skills upgrading process, as well as seeking wages that are commensurate with their productivity,” he said.

He said employers should see such a management-labour cooperation approach as beneficial to the company’s performance, which should then be carefully delivered to the workers and their representatives in the company.

“The approach should start from getting workers to recognise that they are the greatest assets of the firm.

“Workers councils are used in Germany to define the approach and to determine the rewards from workers' performance, including if any of the workers generates productivity enhancing innovations.

“Such social corporatists' approaches must bring management and workers together,” he said.

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