In recent years, the country's wage share ratio has fallen from 37% in 2020 to 32% in 2022, putting us at par with least developed countries like Cambodia, Bangladesh, Uganda and Ethiopia.
IT is one fact that Malaysians can no longer deny: Wages in this country are far too low.
Upon assuming office in November 2022, the first thing I had requested my ministry to do was to publish wage data on a quarterly basis. We often hear stories about low wages.
An office worker earning less (in real terms) than his parents’ generation, an engineer graduate earning only slightly above the minimum wage, or an analyst at a small and medium enterprise who hadn’t had an increment for five years.
We needed to put these stories into data and create a common benchmark so everyone knows the magnitude of the problem.
Last month, the Statistics Department released its inaugural quarterly wage report.
What it found was not surprising but nonetheless depressing. Over two million workers today earn less than RM2,000 per month, and this is also the median wage of nine out of 13 states.
The highest an average worker can earn is RM3,500 per month at the peak of his or her career at 40 to 49 years old.
In recent years, our wage share ratio has fallen from 37% in 2020 to 32% in 2022, putting us at par with least developed countries like Cambodia, Bangladesh, Uganda and Ethiopia.
Young people have it the worst.
The median wage of 20 to 24 year olds is only RM100 higher than the minimum wage.
The median salary of graduates has declined by more than 20% since Covid-19 and has not recovered.
It is no wonder that more youths are contemplating skipping university altogether, as a university degree does not bring a significantly higher salary than a SPM certificate.
More working adults are considering leaving their families here to work abroad or to take up a second job to make ends meet.
Young adults have to borrow and get into debt just to get married, and many can no longer support their ageing parents.
These are not features of a country transitioning into a high-income economy; they also present generational challenges that will impede our progress.
If this persists for a few more years, we will have a working population that is overburdened, unable to meet lifetime milestones of buying a house and car, getting married and starting a family.
They will also not be able to support their ageing parents whose low savings will not meet their post-retirement expenses.
The country would be squeezed at both ends, needing to continuously fork out money to support an ageing population, and not collecting enough from a young workforce that is poor, unproductive and ready to leave the country.
To fix the broken labour market, the government needs to step in.
In recent years, the implementation of the minimum wage was a necessary and important step. The intention was to lift the base pay of the lowest-skilled workers.
However, we did not expect its unintended consequence of dragging down the graduate median salary of skilled workers, as more employers used the minimum wage as a benchmark for the starting pay.
Instead of raising the salary for the rest of the workforce, we ended up with the opposite outcome.
That is why we need a dual policy lever in the labour market. The minimum wage to lift the base, and progressive wages to raise the ceiling.
After rounds of research and engagement with employers and workers, we found that a progressive wage policy that is voluntary, incentive-based and productivity-linked is most suitable.
Every year, the government will introduce a wage recommendation for every sector, occupation and levels with differentiated suggestions of wages and increments.
Companies that are able to pay on or above the guideline amount will be recognised as a progressive wage employer and be rewarded with government incentives; companies that do not will risk being uncompetitive in the market.
With this wage transparency, workers will be able to assess whether they are underpaid and have the option of joining a progressive wage employer; companies will also compete to pay higher so that they can attract and retain talent.
Through a mix of market pressure, wage transparency and government incentives, wages will increase systematically for the bulk of the population.
There is one catch: Companies are obliged to put the qualified staff under a relevant training programme to increase their skills and productivity.
This seems like a reasonable compromise. The employers we surveyed told us that they were ready to pay higher wages if there were productivity increases and incentives to ease the transition.
On the same note, workers we surveyed spoke of their eagerness to upskill through training programmes in return for higher wages.
The Malaysian Employers Federation’s strong support and the workers’ overwhelming acceptance of this policy come at a critical juncture in our nation’s history.
We have taken the first step. The National Economic Action Council, chaired by the Prime Minister, has endorsed this policy wholeheartedly, recognising the urgency of a comprehensive wage policy.
In the next few months, we shall put everything in place: White Paper to Parliament, budget allocation, system set-up, cooperation framework for agencies, and recruitment of pilot companies and workers.
Our efforts are in line with the ambition of the Madani Economic Framework that puts our wage share ratio (of gross domestic product) at 45%, higher than any previous target.
We have a lot of catching up to do – and the timing of the progressive wage policy could not come sooner.
I remember what I said on the final day of the campaigns in November 2022: If I were ever privileged to assume a Cabinet position, I will make it my number one mission to increase the wages of workers.
Now that we have a stable government, political will and a nationwide endorsement to push ahead, we shall make good on this promise.
Rafizi Ramli is Economy Minister. The views expressed here are the writer’s own.
