KUALA LUMPUR -- Malaysia's government will introduce a new program to raise wages for low-income workers, as the Southeast Asian country grapples with rising living costs and growing inequality.
The Progressive Wage Policy, under which employers would gradually increase pay for their workers based on their skills, experience and performance, will start in June 2024 and involve 1,000 companies in a pilot project.
Unveiling the plan last week, Economy Minister Rafizi Ramli told parliament that Malaysia's salary statistics showed 47% of the country's workers earned less than the poverty line of 2,589 ringgit ($550) a month in the first quarter of 2023.
"Low wages have serious implications for the livelihood of workers in the country, with a major portion of their salary spent on basic needs and little savings," said Rafizi.
The wage policy, which is targeted at the small and midsize businesses that account for the vast majority of Malaysia's workforce, will be implemented in stages and is meant to complement the existing minimum wage policy.
Malaysia introduced the minimum wage in 2012 and has since increased the floor on pay for workers in the lowest category. The current minimum wage is 1,500 ringgit per month. But Rafizi said the policy has also led to wage compression over the years, causing pay among skilled and semi-skilled workers to stagnate.
Compensation for graduates from tertiary education entering the labor market has languished, dropping 21.4% from 2,066 ringgit a month in 2019, before the COVID-19 pandemic, to 1,624 ringgit in 2022.
The World Bank's Malaysia Economic Monitor report in October pointed out that the wage gap between low-skill and high-skill workers has widened over time, rising 37.4% from a gap of 1,800 ringgit per month in 2010 to 2,474 ringgit in 2021. Annual real wage growth in Malaysia between 2011 and 2021 was 2.4%, compared with 3.1% in Thailand and 4.0% in Vietnam.
In response to the announcement, Soh Thian Lai, president of the Federation of Malaysian Manufacturers, welcomed the government's approach, which the industry group believes will boost small and medium size companies' wage growth. But he added that employers "are constrained by their resource limitations" if their labor costs rise.
The government has said the program will begin on a voluntary basis, and that it will provide financial assistance to companies to help them comply with the rules. Rafizi told parliament that the government will spend 2 billion ringgit to implement the new policy, which he said will benefit 1.05 million workers.
Juita Mohamad, director of economics and business at the Institute for Democracy and Economic Affairs (IDEAS), told Nikkei Asia that the effect of the policy may be limited because it is voluntary.
"Without the sectors and occupations identified, coupled with the fact that it is voluntary, change in terms of increases of wages beyond the minimum wage set would be very minimal in the short term," she said.
If the wage policy becomes mandatory, and is targeted by sector and occupation, it will help lift wages and productivity in the medium to long term, she said, assuming training is also tailored to the needs of workers.
The impact of the program on foreign companies in Malaysia will likely be limited. Juita pointed out that foreign companies generally offer higher wages and compensation than their local counterparts.
"As the progressive wage policy is not mandatory, foreign companies, as well as local companies, may opt out if their resources are constrained. Nevertheless, the policy can be used by firms to attract and retain certain types of talent that is scarce in the labor market, as it incorporates wage growth with training opportunities that may not be available sectorwide," Juita said.
Source: https://asia.nikkei.com/Economy/Malaysia-plans-new-wage-scheme-for-low-income-workers