5 considerations to solve wage stagnation

The 1st edition of the World Bank’s Malaysia Economic Monitor reported that lower-income households and younger workers contribute to perceptions of Malaysians being "left behind." 67 % of Malaysians were unable to meet the minimum amount of RM240,000 in savings on retirement, and 42 % of them solely depend on Account 1 funds without any other form of savings or revenue. The report states that the wage growth for younger and less-educated workers has been persistently trailing the earnings of older and better-educated workers. Although economists have been pointing this out for many years already, nothing has changed so far. Paid employees’ National median salaries for the year 2019 was RM 2,308, up by 6.6% from 2018. The inflation rate in 2019 was around 1% , and people still complained of insufficient wages. According to the Modern economic theory, the wage growth should be proportional to productivity. 62.5% of workers, including graduates hired in 2020, received basic wages ranging from RM1,200 to RM1,499 a month.

The stagnating wages in Malaysia has always been an issue, considering that the cost of living is rising every year. One of the main reasons for slow wage growth is the lack of a skilled labor force and high-skilled jobs in the market. As a result, most of the population could end up with insufficient savings on retirement, which is concerning from a national social safety net perspective. Given the dire outlook and its repercussions if not address promptly, the following are some suggestions to address the issue.

1. Increasing the national minimum wage might solve the problem of wage stagnation. However, it is necessary to take into account all relevant stakeholders in this policy. Employees may benefit from this, but according to the economic theory, if companies cannot pay higher wages, the cost-cutting and shortage of workers is very possible. This way, Malaysia may solve the stagnation wage problem, but it may result in higher unemployment, affecting the welfare of some workers.

2. The minimum wage increase should be done in a way that creates a socially equitable outcome for all citizens. The country needs to create long term development strategies to retain its human capital, implement structural reforms to foster greater market competition and accelerate productivity. It needs to identify high-impact policies and make policy decisions to fight social inequality, which will improve the opportunities and lives of the poorest.

3. The government needs to provide upward mobility opportunities and good incentives to remain and work in Malaysia. In addition, it needs to invest greater resources in building high-quality human capital and ensure bigger economic and equal opportunities, especially for women.

4. Malaysia needs to promote self-employment–and start-ups merits policy support and provide credit and social protection. Besides, it needs to consider the place of youth in the economy, how well their jobs match their qualifications, why low wages persist. The continually low interest of youth in professional, technical and artisanal occupations and large shares in a production line and elementary jobs show a need for a dual approach of promoting skilled employment and increasing wages and work conditions.

5. One of the ways to move the retirement fund's strategy forward is to get the informal sectors and gig workers into the EPF scheme, which would allow them to start saving and plan for their retirement.

Solving the problems of stagnant wages will take a lot of effort, time, perseverance and openness to reimagine the future. That is why it is important to start heading in the right direction as soon as possible.

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* Rahman Hussin interests is in public affairs, politics and stakeholder managements. He runs his own firm that serves a wide range of clients focusing on strategy and government affairs.