In discussing the conundrum of low wages in Malaysia, one cannot help but delve into the intricacies of the Progressive Wage Policy (Dasar Gaji Progresif) White Paper unveiled recently.
Picture this; subsidies tied to a commitment to enhance worker productivity for selected groups of employers, primarily micro, small, and medium-sized enterprises (MSMEs).
For the record, participation in this pilot project is voluntary.
A foray into a realm where government intervention, demanding a fiscal allocation of an estimated RM2 to RM5 billion in the first year alone, proposes to address the issue of low wages paid to workers.
At the Macroeconomic level, in addition to increasing wages, it is expected to increase the compensation ratio for employees (CE) from 32% to 40% of GDP by 2025. The Madani Economic Plan targets a CE of 45% by 2030.
The highest CE rate (37.4%) was achieved in 2020, followed by a decline (attributed to the Covid-19 pandemic). Currently, the CE rate is 32%, which is approximately the same level as in 2011. We have about 2 years to increase it by 8%, which is certainly a commendable feat.
One of the main focus is the increase in productivity, which is a crucial element of wage subsidy provision in the DGP. We should ponder if the increase in productivity serenade a sustainable solution to the challenge of low wages. Bearing in mind that the solution ought to be sustainable and holistic.
Here is an excerpt from a 'box article' in the Bank Negara Malaysia's Annual Report 2018 (p. 36):
"….if a Malaysian worker produces output worth USD1,000, the worker will be paid USD340 for it. The corresponding wage received by a worker in benchmark economies for producing the same output worth USD1,000 is, however, higher at USD510.8…"
We are confronted with a stark reality.
In essence, compared to several benchmark countries, at the same level of productivity, Malaysian workers receive lower remuneration.
For example, for the same productivity to produce output worth USD1,000, workers in Malaysia are paid USD340, while in benchmark countries, workers are paid USD510.80.
This low remuneration for the same productivity occurs in almost all major employment sectors (see diagram below).
The emerging narrative is that this dissonance reverberates across diverse employment sectors and herein lies the crux of the matter.
The labor market in Malaysia does not adequately reward increased productivity. Wages do not commensurate with workers' productivity.
Wages, it appears, are caught in a lamentable disconnect from the rhythm of enhanced work output. The symphony of heightened work output and employee compensation seem not to be in harmonious melody.
In the pursuit of national progress, the intrinsic link between increased productivity and equitable compensation cannot be overstated.
Yet, the challenge lies in ensuring that employers duly recognize and value this link. If employers do not place a fair value on productivity, efforts to increase productivity may not yield the expected results.
Moreover, in the long run, increasing productivity may no longer be a priority in career development of employees.
As we grapple with the question of low wages in Malaysia, let us heed the call to address the roots of the issue rather than merely treating the symptoms.
To conclude. let's collectively orchestrate a harmonious solution that resonates with the aspirations of a thriving Malaysian workforce.
*The writer is a senior consultant with Global Asia Consulting and was a senior researcher with the Malaysian Institute of Economic Research. Opinions expressed are his own.