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Working four and a half days a week is commendable. But we need to pause and examine its relevancy to our economic wellbeing.

Labour productivity — output per hour of work — is the determinant of competitiveness in and outside our borders. Productivity increases when output per hour of work is higher.

This measurement is simply the result of dividing output by hours of work in a specific period. Which one is more practical? I will get to that later.

Malaysia ranked 22nd in world competitiveness in 2018. We fell to the 25th spot last year and 32nd this year, probably due to Covid-19.

It's based on the score calculated from a set of questionnaires — always a complex exercise.

I must be clear. Higher labour productivity induces stronger competitiveness. However, it does not guarantee a higher competitiveness rankings.

What we should do is assess the relationship of employees and production in key sectors before drawing conclusions.

I use statistics from the Asian Development Bank and I assume, on average, a worker works five days a week and eight hours a day.

An hour of work produced RM18, RM33and RM45 in 2001, 2010, 2020, respectively. Labour productivity increased 4.6 per cent annually from 2001 to 2020.

This is a good result, but not sufficient. My calculation shows that the gross domestic product labour elasticity from 2001 to 2020 is 2.57, meaning we're a labour-intensive economy.

More precisely, one per cent rise in output induces 2.57 per cent of employed people. I want to caution that we must not feel rewarded yet.

Output elasticity of labour in manufacturing and information and communications is 6.81 and 6.73, respectively. Labour intensity is 2.5 times higher than the GDP's. Construction and wholesale and retail trade is 3.21 and 3.0, respectively, both conventionally labour intensive.

But construction equipment can substitute some workers. Similarly, information and communications technology can replace some manual business processes.

So the task ahead is to reduce working hours and substitute labour with capital. Both can mutually reinforce one another if the quality of labour is enhanced.

This must be the foundation of an equitable and just capital-intensive economy.

In reality, manufacturing, construction, retail trade and accommodation and hospitality services have, to a certain extent, been relying on documented and undocumented foreign workers since the mid-2010s. This does not need elaboration as it's already well reported.

Don't shut out foreign workers because we're a multiracial society. We can assimilate them in our endeavour to produce better value-added goods and services.

Strengthening the quality of labour or human capital is a big challenge. Without that, social wellbeing will not improve.

The transformative journey will initially be bumpy, but it is unavoidable. What must we do?

First, in a competitive market, a firm maximises profit by setting a worker's wage to the revenue created by a unit increase in worker. Simply put, higher revenue because of an increase in one worker means a higher wage.

As such, employers can generate higher revenue if they hire high-quality workers. We can require fewer workers — with higher quality skills — who can contribute to more revenue.

When more firms in industrial sectors hire high-quality workers, our economic pie will expand.

Second, we must strengthen the quality of human resources. Ask "what" is needed and "how" to thrive as technological progress accelerates.

In education, asking "what" knowledge, skills, attitudes and values are needed in students is crucial. This must be followed by asking "how" to develop teaching and learning environments in schools to achieve these goals.

Firms must also do this for their workers to achieve better mutual benefits.

Transformation in education is a long-term effort, whereas at the firm, it is an immediate and middle-term challenge. Neither is easy, but the trade-off between present satisfaction and future reward is worthwhile.

The prospects of labour-intensive and low value-added goods and services are bleak. The frontier for a capital-intensive econo-my is not only wide for the present generation, its sustainability will benefit future ones, too.

We must make tomorrow even better than today. Happy National Day.

Source: https://www.nst.com.my/opinion/columnists/2022/08/826479/working-towards-capital-intensive-economy-will-be-worthwhile