M'sia's wage policy falling behind economic realities

The Sun

14-05-2025

PETALING JAYA: Malaysia's approach to minimum wage revisions remains largely reactive, despite the rising costs of housing, healthcare and education.
The result is a diminished purchasing power that disproportionately affects low- and middle-income households, said Universiti Teknologi Mara Academy of SME and Entrepreneurship Development coordinator Dr Mohamad Idham
Md Razak.
He stressed that the country's emphasis on capital-intensive growth, coupled with limited investment in research and development, which stands at just 1.4% of the GDP, has slowed progress towards a high-skilled, high-wage economy.
'Government policies have not kept pace with the changing workforce.
'Outdated labour laws, such as the Employment Act 1955, and weak protections for gig workers, who now account for 26% of the labour force, reflect institutional inertia.'
Mohamad Idham said although nominal wages have risen from 3% to 4% annually since 2000, real wage growth averaged only 1.1% from 2010 to 2020.
This, he said, lags behind the annual productivity improvement rate of 3.5% over the same period.
'Manufacturing productivity saw a 60% increase between 2005 and 2019, while real wages only experienced a 25% growth.
'The current situation demonstrates fundamental unfairness in how profits and capital-focused economic strategies distribute wealth.'
Mohamad Idham attributed the wage stagnation to Malaysia's economic structure over the past 40 years, citing dependence on low-skilled industries, slow productivity in non-tradeable sectors and a mismatch between workers' skills and market needs.
He also said the 1980s shift to manufacturing, which focused on attracting foreign investment in low-value-added sectors, reinforced a cheap labour model.
'The influx of low-cost migrant workers has driven wages down, made automation less attractive, and treated workers more like commodities.
'With weak unions (only 6% of workers are unionised) and unchanged minimum wage rates, the issue worsens, causing wages to lag behind countries like South Korea and Singapore.'
He said low-cost foreign labour, comprising 15% to 20% of the workforce, plays a major role in holding down wages, especially in plantation, construction and manufacturing sectors.
'The preference for migrant workers stems from their lower wage expectations and lesser benefits requirements.
'For example, the palm oil industry depends on foreign workers, which results in wages remaining constant between RM1,500 and RM2,000 per month even as global demand soars, thereby continuing low-value economic practices.'
He warned that this stagnation risks locking Malaysia in the middle-income trap and limiting domestic consumption, which accounts for 60% of GDP.
'The outflow of skilled talent is accelerating, with 1.7 million Malaysians now working abroad. Many professionals, especially in Singapore, cite higher wages as the main reason for leaving.
'Low salaries at home reduce the motivation to upskill, which in turn holds back productivity and keeps the GDP per capita stuck at USD12,487 (RM56,191) in 2022, still below high-income levels.'
He recommended urgent reforms such as linking wages to productivity, strengthening technical and vocational education and training programmes and promoting automation.
He also urged the government to introduce sector-based minimum wages, provide R&D tax incentives and empower unions.
'Without reforms, M'sia risks deepening its middle-income trap and losing more skilled workers to neighbouring economies,' Mohamad Idham added.
Former Bank Negara governor Tan Sri Muhammad Ibrahim previously said graduate salaries today should be between RM7,000 and RM8,000 per month if they had kept up with the 5% annual inflation.