THERE is a consensus that the chronic problem of low wages for the low skilled workers needs government intervention.
The Minimum Wage Order (MWO), which was gazetted in 2012, was enforced on Jan 1, 2013. The year 2023 marks the fifth time of implementation as the minimum wage rate was reviewed at least twice once every two years.
On May 1, 2023, new minimum wage of RM1,500 per month was set, an increase of 5.2% per annum from RM900 per month for Peninsular Malaysia and 6.5% per annum from RM800 per month for Sabah and Sarawak on Jan 1, 2013. Over the same period 2013-2022, overall labour productivity increased by 2.3% per annum.
While the National Wages Technical Committee is currently having engagements with the employers and employees to obtain feedback about the review of the new minimum wage as stipulated under the MWO, the government is looking into the appropriateness of other wage models to benefit both employees and employers.
Whether the Progressive Wage Model (PWM) is the answer.
According to Minister of Human Resources, the wage model’s viability will be discussed at the National Economic Action Council before an in-depth study is decided upon or to find another alternative towards improving the existing wage system in the country.
PWM is a wage structure to uplift the low wages of workers through upgrading skills and improving productivity. It is a win-win wage model for both employees and employers.
It benefits workers by mapping out a clear career pathway for their wages to rise along with training and improvements in productivity and standards.
At the same time, higher employees’ productivity improves business profits for employers while the customers enjoy better service standards and quality.
Some have argued that PMW is better than a minimum wage. The goal of the PWM is mandated specified increases in the wages of low-skilled workers over a number of years.
Its emphasis is on increasing the salaries of workers through upgrading their skills and improving productivity. It requires employers to provide training to raise worker productivity.
A tripartite body (comprising the government, employers and employees) in the sector implementing PWM will review the wage levels and training for particular job clusters; to decide what would be the wage structure; how it should be increased, and the training needed to be given the wage increase.
How does the PMW differ from minimum wage? Will PWM cover a few sectors; and would not apply to all businesses across the board as in the case of minimum wage.
The most significant difference is that PWM will incentivise the employees a way to seek out a pay increase by improving their skillset. PWM is a minimum wage with a “ladder component”, a productivity-based wage ladder.
In essence, wages become tied to an employee’s efforts in upskilling to improve income and skill that goes beyond the flat minimum wage.
Perhaps the implementation of PWM would move towards a productivity-linked wage system (PLWS), a flexible and competitive wage system that establishes a closer link between wages and productivity/performance.
It allocates wealth creation based on employers’ and employees’ performance as well as productivity to enhance the firm’s shared prosperity and competitiveness.
Is the progressive wage model progressive enough? Compared to the minimum wage, PWM may be an appropriate and feasible substitute wage model to improve the income of low-skilled workers to have a living wage.
Theoretically, PWM lays the principle of “Working for what you want, you get what you work for”. Conceptually, what are some limitations of the PWM? The first limitation is the PWM does not deal with the root cause of low skilled workers, that is restrict the supply of unskilled workers.
The continuous supply of unskilled labour would result in low labour productivity, which in turn depresses the market wage of low-skilled workers.
A large presence of low-skilled workers and imbalance in bargaining power between employees and their employers without continuous improvement in productivity through reskilling and upskilling will continue to depress the wage level.
Secondly, the skill-linked component of PWM is relatively difficult for aged low-skilled workers to upskill themselves. Hence, a tailored made training programme for more aged workers is needed.
Thirdly, some low-skilled occupations such as cleaning, cleaning, security services, and landscape as well as gardeners, the productivity is not largely determined by the workers’ skills but more of the investment in equipment and machinery as well digitalised technology that can help to boost higher productivity.
Depending on the job specifications and workplace, some occupations require low skill and need to be augmented by the willingness of the employers to invest in productivity-enhancing technologies and work organisation for all workers in an entire job category.
Will the PWM discourage workers’ mobility in a particular sector or job? As the PWM benefits workers by mapping out a clear career pathway for their wages to rise along with training and improvements in productivity and standards, the employees may choose to stay within the same sector and employer and move to higher-value work within the sector and employer.
PWM may not be suitable for part-time workers or a flexi work schedule. In terms of administration and enforcement, the implementation of PWM is more bureaucratically complex and costly than the minimum wage.
It requires the tripartite mechanism, enforcing agencies and manpower to design, monitor and enforce the PWM.
The PWM must be implemented in synchronisation with the quotas and foreign worker levies to manage and regulate the supply of foreign workers.
As in the case of minimum wage, PWM must also covers foreign workers. If not, the employers can avoid paying PWM wage increases by hiring foreign workers not subject to all the PWM requirements.
The employers also discouraged from investing in productivity-enhancing technologies and work organisation for all workers in an entire job category.
There are valid concerns, grey areas and challenges for the implementation of PWM. It requires a thorough study and consideration to assess the viability of PWM so as to strike a balance between increasing the income of our low-skilled workers through productivity-linked performance and ensuring business profits due to the improvement in productivity.
Lee Heng Guie is Socio-Economic Research Centre executive director. The views expressed here are the writer’s own.
