WHETHER or not Vision 2020 is too ambitious to attain within the next five years, there is no doubt a quality workforce — properly skilled and compensated — is essential for Malaysia’s transformation into an advanced, high-income economy, experts say.

Malaysia has acknowledged this in the 11th Malaysia Plan (11MP), which detailed several measures to raise the share of compensation of employees to gross domestic product (GDP) from 33.6% in 2013 to 40% in 2020. According to the 11MP, employees’ compensation is “expected to increase following greater compliance to minimum wage”, which has been set at RM900 per month (RM4.33 per hour) for Peninsular Malaysia and RM800 per month (RM3.85 per hour) for Sabah, Sarawak and the Federal Territory of Labuan since January 2013.

A biennial review of the rate is due this year.

If the Malaysian Trades Union Congress’ calls are heeded, the country will soon see a new minimum wage of RM1,200 per month — a level that MTUC says commensurates with the rise in the cost of living in the past 2½ years.

“In fact, RM1,200 was recommended by the World Bank during a Wage Council meeting in 2012,” MTUC secretary-general N Gopal Kishnam says, adding that the new minimum wage should be effective Jan 1 this year, given that the Minimum Wage Act 2012 requires the government to review the minimum wage every two years.

The current minimum wage, which is hoped will reduce income inequality and incentivise employers to invest in productivity enhancement measures, is above the extreme poverty level but below the poverty line.

Malaysia’s overall poverty line income is RM950 per month — RM930 for Peninsular Malaysia, RM990 for Sarawak and RM1,170 for Sabah — Minister in the Prime Minister’s Department and head of the Economic Planning Unit Datuk Seri Abdul Wahid Omar said at a recent briefing, citing data from the 2014 Household Income Survey.

The extreme poverty level is RM460 per month for Peninsular Malaysia, RM590 for Sarawak and RM630 for Sabah, according to Minister in the Prime Minister’s Department and Performance Management and Delivery Unit CEO Datuk Seri Idris Jala. Households with average monthly incomes of less than RM760 in Peninsular Malaysia, less than RM910 in Sarawak and less than RM1,050 in Sabah are deemed poor, he wrote in a May 18 blogpost.

On May 25, Human Resources Minister Datuk Seri Richard Riot Jaem said his ministry will soon submit proposals in conjunction with the review of the minimum wage conducted by the National Wages Consultative Council once every two years. As detailed in the 11MP, his ministry is also collecting data for the National Wage Index, which will serve as a guide for employers to determine the right wage levels for their workers, based on their qualifications, skills and productivity, he was quoted as saying by Bernama.

Observers, however, note that it would be “very hard” for the government to raise the minimum wage by a significant quantum, given that there is still a sizeable number of employees not being paid the current minimum wage today. “Many small businesses are still reliant on cheap, unskilled labour, and because there is ample of them around, there is a chance these unskilled workers will accept a lower wage rather than lose their jobs,” an economist says.

Some 1.9 million people in Malaysia benefit from the minimum wage policy but the beneficiaries are those earning below RM900 a month.

The government, which placed added emphasis on the “bottom 40%” (B40) of the population in the 11MP, admitted in its labour market review that “there are currently no specific policy intervention to improve the wage structure” of 55% or more than half of Malaysia’s wage earners who currently receive between RM1,000 and RM3,000 a month. Together, 77% of workers still earn less than RM3,000 a month.

Data from the Employees Provident Fund (EPF), which receives mandatory contributions from private-sector wage earners and their employers, shows 5.9 million or 89% of active EPF members earn less than RM5,000 a month last year. More worryingly, 76% of active members earn less than RM3,000 a month and 30% (nearly two million people) earn less than RM900 a month.

“The pervasive dependence on low-wage, low-skill employment — predominantly foreign workers — ripples throughout the economy, affecting Malaysian workers as well,” says Dr Lee Hwok Aun, senior lecturer of the Department of Development Studies, Universiti Malaya.

To move up the developed nation ladder, Lee says Malaysia should place “utmost priority” on increasing wages and lifting Malaysia out of the low wage and long hours “trap”.

“It is a trap in the sense that the market gravitates towards long hours, instead of raising hourly productivity, because it is still privately profitable — but economically detrimental in the long run. The focus should be on compelling hourly wages to rise and to steadily lower the definition of full-time work from 48 hours to 40 hours. Based on 48 hours a week, the hourly minimum wage is a paltry RM4.33,” says Lee, who co-authored the United Nations Development Programme Malaysia Human Development Report 2013 released last November.

Heavy reliance on low-skilled foreign workers, particularly in labour-intensive activities will be address holistically, according to the 11MP.

“The proportion of foreigners in the workforce is capped at 15% in 2020. Capital-intensive activities and migration to knowledge-intensive activities will be encouraged in all sectors of the economy, particularly in agriculture, manufacturing and construction, which currently employ more than 30% of foreign workers,” states the 11MP document released on May 21. Severe penalties will be imposed on employers found guilty of hiring illegal foreign workers and the levy system will be improved to better regulate the entry of low-skilled foreign workers, it adds.

According to the document, low-skilled foreign workers increased 152% between 2000 and 2013. In 2013, there were two million registered foreign workers or 17% of total employment — mainly employed in the manufacturing (36%), construction (20%) and agricultural (23%) sectors.

The share of foreign workers is estimated to be higher at 27% of total employment if illegal immigrants were taken into account. In 2012, it was estimated that there were 0.8 illegal workers for every registered foreign worker in Malaysia, and it is challenging to reduce their numbers as some smaller industries are still dependent on low-skilled foreign workers. Also, the ease of getting foreign workers is a disincentive for industries to invest in automation and upgrading of machinery and technology.

Measures meant to contain the adverse effects of foreign labour on Malaysian wages need to kick in fast as the number of foreign workers have since grown. “In late last year, Malaysia’s human resources minister disclosed that there were actually 6.7 million foreigners working in the country, of which 2.1 million were documented and the rest, undocumented,” Lee tells The Edge.

But for Malaysia to attain the coveted high-income, developed nation status, a lot more work needs to be done to raise productivity, which is targeted to grow at 3.7% per annum during the 11MP (2016-2020), compared with 2.6% in the 10MP (2011-2015).

Higher productivity will be achieved through continuous acquisition of skills and knowledge, which contributes to an increase in wages. In addition, upskilling and reskilling of the workforce will be undertaken to improve productivity. In this respect, the government will promote more workplace training and life-long learning programmes.

All those are hoped to boost the composition of skilled jobs — managers, professionals and technical and associate professionals — to 35% or 5.35 million jobs by 2020. This is 1.5 million jobs or 38.7% more than the 3.86 million (28% of total workforce) achieved this year.

With less than five years to go before 2020, there is no time to lose. The announcement on the minimum wage review will likely be one measure the government will be judged on follow-through.

This article first appeared in The Edge Malaysia Weekly, on June 1 - 7, 2015.

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