Urgency to raise minimum wage and upskill workforce

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 1 February 2020.

These were the revisions made by the former government as part of their manifesto promises to remove the disparity in minimum wages previously between the Peninsular and East Malaysia – RM1,000 and RM920 respectively.

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.

Monthly minimum wage in South Korea (in US dollars) is close to 5 times higher than minimum wage in Malaysia whereas Japan’s is around 6 times higher than Malaysia’s.

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 3Q20 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, for me… and then when people say the young ones nowadays are choosy in selecting jobs, I don’t think so…”

Another young discussant said: “After I finish my degree, I work at the non-government school alright. And I was paid only RM1,000 a month. So, when I asked my friend who work as a cleaner at KLIA, they are paid RM1,800 per month. So, it’s really, really, I mean it’s really disturbing. We spent our life 4 years of our life for degree and we are paid with RM1,000 only.”

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 need to improve.

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.

In realising the “high income” status, Malaysians should be at the level whereby citizens should attain at least sufficient minimum wage to be able to eventually achieve the minimum acceptable living standard which takes into account beyond basic necessities, i.e. the ability to keep emergency funds and to spend on child’s health and development.

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. For example, South Korea is far better in terms of wage levels and productivity due to its continuous efforts in technological development since the 1970s – average monthly wages surpassed labour productivity whereas for Malaysia, not only the wages are lower but also the productivity of workers.

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

An article by author Brendan Duke in the Center for American Progress mentioned a way to raise investment through increasing ‘aggregate demand’ and pointed to studies that suggest increased spending in infrastructure and fiscal incentives (such as low interest rates) can help attract investments.

Duke pointed that an underperforming economy may be boosted through raising demand, which is a relevant point for a depressed economy in light of the pandemic.

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.

In an innovation-driven economy, the education system supplies talents (push-factor) while the increased demand by innovative businesses (pull-factor) drives the production of more talents from the education system.

This is one example where the talent supply chain can be made more sustainable. An example of such strong supply and demand system between industry and education system can also be observed in South Korea whereby it has been ranked as one of the most innovative economies in the world, with high doctorate degree holder’s per capita.

---

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.

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