KUALA LUMPUR, Oct 13 ― Policy interventions are required and have been deemed crucial in the labour market to improve wage outcomes, raise wages of low-income workers and reduce wage inequality.

According to the Economic Outlook 2024 report released by the Ministry of Finance today, the introduction of the minimum wage in 2013 was a significant progressive step, but more needs to be done if the Madani Economy framework’s target to raise the wage share ratio to 45 per cent of Gross Domestic Product (GDP) is to be realised.

The report said the primary lesson of the minimum wage is that progressive, consultative and decisive measures are required to improve the equitability and inclusiveness of the economy.

"Therefore, the focus of current policy efforts needs to ensure significant improvements in the median wage level in the coming years. If the minimum wage is effective in raising wages at the lower end of the distribution, then additional measures should be targeted towards the middle wage earners,” it said.

According to the report, fresh graduates in Malaysia faced stagnant wage outcomes over the past decade when over 70 per cent of working graduates earned below RM2,000 per month, and concerningly, the percentage of those earning between RM1,000 and RM2,000 has increased from 43.7 per cent in 2010 to 54.6 per cent in 2020.

Similarly, between 2019 and 2020, there was a decline in graduates earning above RM2,000 by 2.3 per cent, while those earning below the minimum wage grew from 48.8 per cent to 51.1 per cent.

The labour market’s inability to pay the fresh graduates adequately is nested within a larger structural challenge of job creation, it said.

While structural challenges are a source of the wage conundrum, dismal wage levels are themselves at the root of trends that feed back into Malaysia’s structural problems.

Two prominent trends that are linked to the lack of well-paying employment are brain drain and the increasing levels of non-standard employment such as gig work, p-hailing and e-hailing.

Based on a study by the World Bank in 2010, about 54 per cent of Malaysia’s brain drain were in Singapore and higher salary is the predominant motivator in pulling Malaysians to work in the republic.

"An estimated 26 per cent of employed persons in Malaysia were involved in gig work in 2020, and preliminary estimates indicate that the gig sector can provide a monthly income that is competitive compared to the starting salaries of fresh graduates,” it said.

According to the report, if Malaysia aims to escape the low-wage, low-profit and low-productivity trap, a cheap labour model of business and economic growth must be counteracted through a concerted effort to raise wages.

Such efforts will require close collaboration between the government, employers and labour unions to ensure sustainability and effectiveness.

"The Madani Economy framework stresses the need for a whole-of-nation approach with a focus on empowering the rakyat in the hopes of ‘Building a Better Malaysia Together’.

"Therefore, employers and businesses, in particular, need to embrace wage growth as a source of business and economic transformation,” it added. ― Bernama