An increase in investments leads to an increase in labour demands, increase in income and higher purchasing power. — 123rf
LIVING paycheque to paycheque has become common for young graduate workers as the cost of living rises.
The recent report that the minimum wage in Malaysia could be raised up to RM2,000 per month in Budget 2025 is good news for many.
According to Emir Research, many employers still frequently use the minimum wage as the beginning salary for fresh graduates; the current minimum wage is RM1,500 per month.
This is compounded by stagnant wage growth. It has been reported that in 2021, 65.6% of fresh graduates earned less than RM2,000 per month, a figure that has remained relatively unchanged over the past decade.
However, experts say that instead of relying on artificial salary increases, supply and demand for skilled workers can pave the way to higher wages.
Sunway University’s Jeffrey Cheah Institute on South-East Asia economic studies director Prof Dr Yeah Kim Leng says a higher demand for skilled personnel will lead to the tightening of the labour market, which will in turn lead to higher wages that can spur the economy.
“Your wage increase will then be driven by high-value investments as well as high productivity. This (type of wage increase) is sustainable, without forcing artificial levels of wages.
“It is a market-driven wage increase, triggered by the fact that we are attracting more investments,” Yeah says.
He stresses the need to have the labour market flexible and efficient in terms of information transparency.
“We need to know what are jobs available, what are the salaries being offered, among others. That will be in line with what we are seeing in the current trend of investments, which drives the demands for high-skilled jobs.”
Yeah, who is also a member of the Policy Advisory Committee to the Prime Minister, notes that students studying the fields of technology will find more opportunities to take up the future requirement of manpower.
“I think our graduates in engineering or the STEM subjects, data science, or other technology-driven courses, will be part and parcel of the new skilled manpower requirement.”
He says the advantages of having a market-driven wage ecosystem are its sustainability and potential growth through a “virtuous cycle”.
“It is beneficial to both employers and employees, both parties will know that they have a more secure financial future. This is what we call sustainable growth (based on investments and market-driven force). This is also what we call the virtuous cycle, whereby an increase in investments leads to an increase in labour demands, increase in income and purchasing power.
“That purchasing power will increase consumption and economy, leading to accelerated economic growth, which will attract more investments. And now we are in a positive feedback loop.”
Centre for Market Education CEO and Universitas Prasetiya Mulya faculty member, Carmelo Ferlito, agrees that salary is a matter of supply and demand.
“In an economy like Malaysia’s, where around 78% of firms are microbusinesses, it is not realistic to think about big salary jumps.
“Only an economy which favours economic concentration can create better job opportunities and opportunities for social mobility.”
On the other hand, think tank Bait Al Amanah research assistant Olivia Fernandez commends the government’s Progressive Wage Policy (PWP), which is currently being tested in a pilot programme, which she describes as a crucial initiative.
PWP is aimed at improving the livelihoods of Malaysian workers earning above the legal minimum but whose wage growth has stagnated by bolstering their wages through productivity-linked incentives.
She says the voluntary nature of the PWP also provides flexibility for companies, which can mitigate the negative economic consequences of imposing higher wages through legislation.
“This approach encourages companies to negotiate wages based on skills and qualifications,” she says.
As such, Fernandez believes the PWP has significant potential to improve the current salary scale in Malaysia and promoting these fair wages will eventually reduce income equality, encourage continued productivity growth and contribute to a more equitable and prosperous labour market.
“However, it is essential that the implementation of the PWP is monitored and adjustments be made as needed to ensure its effectiveness.
“This can be done through regular evaluations and feedback from employers whereas workers can help identify areas for improvement to ensure that this policy genuinely achieves its intended intentions”.
Prof Dr Geoffrey Williams of Malaysia University of Science and Technology believes the only way to improve salaries is to raise the minimum wage and introduce the progressive wage model for the whole economy.
And instead of the PWP which links salary increases to productivity, he says there should be a simple wage subsidy applied for all those below a universal basic income threshold.
“Employers should be allowed to pay whatever they can afford above the minimum wage and the balance topped up by an income tax credit or reverse income tax,” he suggests.
