Wages of Malaysians still ‘not up to par’

27 Mar 2019 / 21:39 H.

KUALA LUMPUR: Malaysian workers receive lower compensations relative to their contribution to national income from productivity and equity perspectives, according to a study “Are Malaysian Workers Paid Fairly?: An Assessment of Productivity and Equity” in Bank Negara Malaysia’s (BNM) Annual Report 2018.

Analysis of the wage to productivity ratio shows that Malaysian workers are still being paid less than workers in benchmark economies, even after accounting for the different productivity levels across countries. This suggests that Malaysia’s current wage productivity levels are misaligned.

To illustrate this point, if a Malaysian worker produces output worth US$1,000 (RM4,070), the worker will be paid US$340 (RM1,400) for it. The corresponding wage received by a worker in benchmark economies for producing the same output worth US$1,000 is, however, higher at US$510.

Further analysis reveals that most industries in Malaysia compensate workers less than those in the benchmark economies, even after adjusting for productivity (see chart). This is particularly evident in the wholesale and retail trade, food and beverage and accommodation industries that make up 19% of economic activity and 27% of total employment in Malaysia. These industries are generally more labour-intensive, and dependent on low-skilled workers.

However, employers surveys indicate that salary increments are expected to be sustained between 4.9% and 5.2% in 2019.

The labour share of income has been on the rise in Malaysia, from 31.7% in 2010 to 35.2% of GDP in 2017. This bucks the global trend where the labour income share has trended lower in recent years. However, Malaysia’s labour share of income still lags behind most advanced economies. This implies that a larger fraction of national income in Malaysia goes to capital owners rather than workers, that is capital owners benefit much more than workers in Malaysia.

Higher labour income share does not necessarily imply higher incomes for workers. Therefore, BNM said it is critical that the 11th Malaysia Plan target for a labour income share of 38% by 2020 be achieved through higher wages instead of the creation of more low paid, labour-intensive jobs. This would require a transition away from its labour-intensive structure through increased capital- and knowledge-based investments that will result in a much needed demand for highly educated and skilled workers who can command high wages.

Evidence suggests that the lack of high-skilled job creation could have played an integral role in this. Between 2010 and 2017, the number of diploma and degree holders in the labour force increased by an average of 173,457 persons per annum, much higher than the net employment gains in high-skilled jobs of 98,514 persons per annum. This suggests that the economy has not created sufficient high-skilled jobs to absorb the number of graduates entering the labour force. In addition, a study by Khazanah Research Institute also found that 95% of young workers in unskilled jobs and 50% of those in low-skilled manual jobs are overqualified for these occupations.

Malaysia has made significant progress in transforming the economy from that of a low income agrarian country to an upper-middle-income country. Significant reduction in poverty was achieved while big strides were made in improving living standards across the population.

The study suggests that more can be done to build on the progress made to ensure sustainable increases in income, including generating quality labour demand, reducing labour mismatches, reinforcing wage-productivity links and creating a conducive labour market through regulatory and legislative interventions.

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