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The issue of stagnating wages in Malaysia has always been a plague that we cannot get rid of, considering that the cost of living is rising every year. Economists have been pointing this out since decades ago, yet it seems that nothing has changed. National median salaries of paid employees for the year 2018 was RM 2,308, up by 6.6% from 2017 (DOSM, 2019). Inflation rate for 2018 stood at around 1% (World Bank, 2019), yet people still complain of inadequate wages. Modern economic theory suggests that wage growth should be proportional to productivity. However, based on a study in 2018, for every output of USD 1000, Malaysians are getting paid USD 340, much lower compared to benchmark economies like Singapore and Australia which stood at USD 510 (BNM, 2019). This is not an optimal situation as workers in these benchmark economies are being paid more for the same productivity as workers in Malaysia. Why is this happening?

Firstly, the main reason for slow wage growth is the lack of skilled labour and the lack of high-skilled jobs in the market. A possible cause for this is that there is a mismatch between the supply and demand of labour in firms. As more firms adopt more complex technologies to advance themselves, more high skilled jobs are in demand but the country is not producing graduates with the necessary skill set for these jobs. When firms notice this, they end up not adopting these technologies because it would be very difficult to hire local workers for the sophisticated jobs. When firms or SMEs (Small and medium-sized enterprises, who generally has 250 employees or less) encounter this, they are unable to move up the value chain as they find it difficult to embrace the fourth industrial revolution (IR 4.0) that is taking the world at large as we speak.

An underlying facet of the problem of the lack of skilled labour stems from the education landscape in Malaysia. Digital or computer literacy classes in schools do not have the desired depth in content. Taking an example, throughout the duration of the five years in secondary school, students are only taught the basics from Microsoft Word to Publisher, and other computer applications that are more specialised than Microsoft Office are left out of the syllabus, which may prove to be more useful in this age of digitalization. Teaching students everything from the basic until they are digitally competent will result in a difference in the quality of labour. This is easier said than done as we just do not have adequate, qualified teachers who are adept in these programmes at the moment. Importantly, not every student in Malaysia is given access to computers, especially in rural and under-developed areas.

One can easily say, “Just increase minimum wage and everything will be solved!” Increasing the national minimum wage might sound like a very obvious solution to tackle wage stagnation. However, we have to look at all relevant stakeholders in this policy. Employees may benefit from this, but if firms are not able to pay the higher wages, the retrenchment of workers is very possible according to economic theory. We end up solving the wage problem, but now unemployment is higher, impacting the welfare of some workers negatively. Hence, increasing minimum wage has to be done in a way that creates a socially equitable outcome for everyone. 

Since its introduction in 2015, the Productivity-linked Wage System (PLWS) could be an avenue where we can leverage on to bridge the gap between productivity and wages, as it should have been from the get-go. In essence, PLWS is a scheme where employees are paid according to their productivity, reflected in the company’s profits. The key element here is that PLWS relates directly to the variable component of wages, where additional incentives will be paid commensurate to the employees’ performances (Ministry of Human Resources Malaysia, 2011). To further enhance its adoption rate nationwide which is now at 85,000 companies this year according to the Malay Mail (2019), the government should address the issue of the lack of awareness on the benefits of PLWS amongst SMEs and trade unions.

As we approach 2020, are we really on track to become a high income nation, considering the pressing issue of stagnant wages? Most would answer otherwise, looking at how fresh graduates (and the general employee) now earn wages below RM 2,700, the living wage estimated by Bank Negara Malaysia (BNM, 2018). This will push Malaysia’s best talents to leave the country for better pay if we do nothing about it. People would only want to stay and work in Malaysia if they are getting higher pay. We want to be able to retain our human capital and doing so requires long term strategies for the development of the country. We may not solve the problem of stagnant wages today but efforts must be made so that we are heading towards the right direction.