Urgency to raise minimum wage and upskill workforce

Better minimum wage complemented with increased demand for higher-skilled talents should be the way forward for Malaysia.


Published by Focus Malaysia, Astro Awani & The Sun Daily, image from Focus Malaysia.

THE unprecedented pandemic has served as a “wake-up call” for us in many aspects especially in matters related to social safety nets and the need to embrace digitalisation.

Many have lost their jobs or forced to undertake pay-cuts, leading to shift in jobs which require certain skillsets or else, would end up being unemployed or underpaid.

With these happening, there is a greater need to pay closer attention to increase the existing low minimum wage alongside the upskilling of the local talents.

The current monthly minimum wage in 56 city councils and municipal council areas has been increased to RM1,200 whereas the minimum wage in areas other than those mentioned was set at RM1,100, effective on Feb 1, 2020.

These were the revisions made by the former government as part of their manifesto promises to remove the disparity in minimum wages.

In comparison to other Asean countries, Malaysia’s monthly minimum wage performs better in US dollar terms (approximately US$270-US$295 using the current spot rate). Thailand’s minimum wage, assuming six-day work week with eight hours of working in a day, ranges around US$229 to US$245 across provinces.

Vietnam’s monthly minimum wage ranges lower between US$126 and US$181 whilst minimum wage in Philippines ranges between US$129 and US$245 across regions.

Despite our minimum wage being high among Asean peers, it is much lower compared with advanced economies such as South Korea and Japan.

Since Malaysia first adopted minimum wage system in 2013, the increment over the years has not been very significant.

Concerns about low minimum wage can indeed be reflected by ground reality, based on EMIR Research’s 3Q 2020 qualitative findings, with several discussants sharing their own experiences getting paid low wages although their qualification levels are high.

A young discussant said: “You see, even the salary scale starts from RM1,100 although the person has a degree. So, in my opinion, I don’t think it’s true when people say the young people nowadays are choosy in selecting jobs.”

Another young discussant said: “After I finish my degree, I work at a non-government school with a salary of RM1,000 a month. But a friend of mine who works as a cleaner at KLIA, are paid RM1,800 per month. And that’s really disturbing to me. We spent an extra four years of our life to get a degree and we end up being paid at RM1,000 once we get a job.”

Given the severe economic blow caused by the pandemic, people are searching for and trying all means to survive and some even to survive on day-to-day basis, especially parents who are trying to make ends meet and ensure the well-being of their children.

This explains public’s persistent request to draw down their savings from Employees Provident Fund (EPF) Account 1 as one channel to get access to immediate cash as emergency funds in the midst of the economic uncertainty.

Although this particular wish had been granted with expanded coverage, this relief measure should only be on temporary basis and not thought of as a sustainable and long-term solution.

In line with the notion of Equitable Shared Prosperity, the minimum wage levels that remain low by international standards needs to be improved.

Studies have shown that Malaysian workers are not paid appropriately based on the value of output that they produce and faster growth in labour-intensive industries have continued to provide low wages.

Based on a study done by Bank Negara on the relationship between wage levels and labour productivity across several countries including Malaysia, data has shown that the correlation between both tends to be positive – the higher the productivity, the higher the wage levels.

Unfortunately, that’s not the case for Malaysia as labour productivity and wage levels are below than some advanced economies. In fact, not only the wages are lower but the productivity of workers are as well.

Malaysia’s labour share of income lags behind at 35.7% of gross domestic product (GDP) in 2018 whilst for advanced countries such as Singapore, its labour compensation was higher at 39.7% of GDP and South Korea’s labour compensation registered even higher at 45.7% of GDP.

Low compensation for employees is significantly evident in sectors which tend to be highly labour-intensive, slow in technological advancements and reliant on low-skilled workers including foreign workers such as wholesale & retail trade, food & beverage (F&B) and accommodation, as well as manufacturing.

Therefore, these statistics call for improvements in labour skillsets and productivity which will help workers demand for higher wages.

Bank Negara highlighted the importance to create demand for high-skilled jobs and pointed the need to bring in new significant investments towards higher-value businesses.

On this matter, Bank Negara acknowledges the need to look into existing incentives, in order to attract investments in high innovation economy sectors instead of the traditional low-cost manufacturing industries.

Combining the need for high-skilled jobs, it’s clear that attracting investment isn’t enough to sustain an innovation-centric economy. Shifting to innovation and technology-driven economy requires mentality and capability change.

The most stable currency to form, sustain and grown an innovative economy is a critical mass of researchers, technology developers, innovators and start-up founders in relevant fields.

Therefore, this requires a revamp of the education system and an integration of innovative culture in government bodies and private sector.

Sofea Azahar and Ameen Kamal are part of the research team of EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.

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