[COLUMNIST] Right move to introduce Progressive Wage Model

Evidence shows that wage is one of the key antidotes for economic structural changes in Malaysia. Yesterday, the Minister of Economy said the government is looking in principle at the policy for a progressive wage model (PWM) or also known as the progressive wage system in Malaysia. I welcome the government's commitment to changing the wage structure in Malaysia as a part of the progress toward changing the economic structure.

In this short article, I attempt to explain the concept and benefits of the implementation of PWM.

The progressive wage system is called "progressive" because it emphasizes the concept of progression or advancement in wages based on certain controlling parameters. Unlike the traditional minimum wage model, which sets a standard wage floor for all workers regardless of their skills or experience, the progressive wage system recognizes and rewards individuals who make progress in their careers and enhance their productivity. As workers acquire more skills, gain experience, and demonstrate improved job performance, they become eligible for higher wages, progressing along a wage scale.

The PWM is a fair wage system that offers a market equilibrium between workers and employers. Workers are paid according to their skill progression which translates into productivity growth. Productivity growth means an increase in outputs and revenues that will compensate for the increase in labor costs. Thus, both workers and employers are well off.

The PWM should not be static and it can be customized to specific sectors or industries, taking into account their unique characteristics and requirements. This flexibility allows for targeted wage adjustments based on the skills demanded by different sectors, ensuring a more accurate reflection of their respective wage structures.

In the case of Malaysia, PWM should be focused on low-wage workers, particularly for semi-skilled and low-skilled occupations. Singapore applied PWM to overcome the wage growth for the low-wage group. The PWM was developed by tripartite committees consisting of unions, employers and the government. PWM sectors have raised wages at a sustainable and meaningful pace without hurting the livelihoods of the lower-wage workers.

The PWM benefits workers by mapping out a clear career pathway for their wages to rise along with training and improvements in productivity and standards. At the same time, higher labor productivity could improve the business profits for employers.

Figure 1 shows an example of the adaptability of PWM in Singapore.

PWM is considered an alternative approach to setting wages that offer several potential benefits over the traditional minimum wage model. Here are some advantages of the progressive wage model.

Wage progression

The progressive wage model emphasizes wage progression based on skills, productivity, and experience. It allows workers to receive higher wages as they gain more experience and develop their skills. This provides an incentive for workers to upgrade their skills and improve their productivity, leading to better job performance and increased earning potential.

Reduced income gaps

By linking wages to skills and productivity, the progressive wage model helps address income gaps. It ensures that workers who enhance their skills and contribute more to their jobs are rewarded with higher wages. This approach promotes fairness and reduces wage disparities between workers at different skill levels, helping to narrow the income gap.

Skills development

The progressive wage model encourages workers to invest in skills development and training. With the prospect of higher wages as they acquire new skills, employees are motivated to participate in training programs and upgrade their capabilities. This benefits both workers and employers by enhancing overall workforce skills and productivity.

Improved job quality

The progressive wage model incentivizes employers to enhance job quality to justify higher wage levels. To justify the higher wages associated with skills and productivity, employers may improve working conditions, provide additional benefits, and offer opportunities for career advancement. This can lead to better job satisfaction, increased employee loyalty, and reduced turnover rates.

Productivity gains

By linking wages to productivity, the progressive wage model encourages workers to be more productive. When employees realize that their efforts directly impact their earnings, they have a greater incentive to work efficiently and effectively. This can lead to productivity gains for businesses, contributing to economic growth and competitiveness.

The PWM is one part of the solution for the overall shifting in labor compensation. In my view, there are two aspects that are needed to support the overall shift in labor compensation. First, we need to develop guidelines for better adoption of the profit-sharing model. Second, we need to have a holistic governance body to monitor the whole wage structure from pre-employment to post-employment.

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*Assoc. Prof. Dr. Mohd Yusof Saari is the Chief Executive Officer of THE FUTURE.

** The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the position of Astro AWANI.