This article first appeared in The Edge Malaysia Weekly on March 4, 2019 - March 10, 2019

THE country achieved another first last month, with the release of the National Wage Index (NWI), a statistical indicator that measures the changes in remuneration of various jobs and occupations in the labour market.

The index is based on a study by the Institute of Labour Market Information and Analysis (ILMIA) that spanned eight quarters — from September 2016 to June 2018 — among 3,000 private sector organisations, including those from the plantation sector, mining and quarrying, manufacturing and the services sector, to name but a few. Some 169 types of jobs, representing 80% of the most common jobs, were surveyed, looking at the salaries of general workers to managers.

So what do the data tell stakeholders? For one, it is learnt that on a year-on-year basis, meaning from June 2017 up to June 2018, basic wages for the private sector grew 4.5% to 108.3, while total wages, which includes overtime and other allowances, grew by only 3.2%. This is understandable, given that economic growth had slowed to 4.5% in the second quarter of 2018 (2Q2018), from 5.8% in 2Q2017. Employers had likely cut some perks and allowances, given the tougher economic conditions.

“Right now, we have just eight observations, but in the future we will have a longer trend. How employers should use the data is to look at it on a sector basis and compare their own [wage growth] over the same time period. This will tell them whether they are on, above or below the trend,” ILMIA adviser Lee Chee Sung tells The Edge.

At the launch of the NWI, Human Resources Minister M Kulasegaran said it serves as a guide for employers in drawing up their wage structures, but is not a compulsory mechanism that they need to adhere to.

Monash University Malaysia senior lecturer and the deputy director of its Master of Business Administration programme, Dr Teh Chee Ghee, says making it compulsory to follow the NWI to set wages is premature at this point.

“It should be made compulsory only after it is widely accepted by all [stakeholders]. For employers, the problem arises from employee productivity. Those who exceed productivity levels may feel the increase in the NWI for their sector is low and they may resort to seeking employment overseas, for example. Those who are less productive would want to follow the index should wages in their sector grow.

“Then there are employees who have been enjoying double-digit growth in salary, but could have it slashed should the quantum of this growth not jive with the NWI, and vice versa. So, there are pros and cons to the NWI both for employers and employees,” Teh tells The Edge.

Employers generally hailed the NWI with the qualification that determining wages should be their prerogative.

“The NWI can be used as a reference for salaries and wages in the manufacturing sector. It is a good piece of well-researched and collected information, beneficial to employers and employees.

“However, remuneration, especially for the manufacturing sector, should remain the prerogative of the respective companies depending on business performance as well as the productivity of individual employees, with higher increments being given to more productive employees,” says Federation of Malaysian Manufacturers president Datuk Soh Thian Lai.

Malaysia’s labour productivity, as measured by hours worked, increased 3.4% last year compared with 3.5% in 2017, while labour productivity by employment saw a slower growth of 2.2%, compared with 3.8% in 2017.

“Productivity is critical, and there is no point in showing wage increases without linking it to productivity growth. Rather than relying on the Malaysia Productivity Corporation report to learn about productivity growth, it would be good if the NWI would carry a chapter on productivity, zooming deeper in it by sector and by region,” says Malaysian Employers Federation executive director Datuk Shamsuddin Bardan.

Malaysian Trades Union Congress secretary-general J Solomon says that an automatic wage indexation goes against the grain of collective bargaining between employers and union employees.

“Trade unions would prefer the determination of wages to be left to the process of collective bargaining between the employer and the union. It would not be appropriate for the government to set a benchmark for what the union should demand as far as wages are concerned. It is, however, appropriate for the government to set the minimum wage after consultation with all stakeholders,” he says.

However, Solomon agrees that it is useful to monitor wage trends, but that more information should be provided.

“It should be done in a manner showing all information — by industry, gender, region, multinationals, rural, plantation, workers in the informal economy and so on. This information should be presented side by side with the wage index, together with the profits made by companies [according to sector],” he says.

However, some quarters believe there is a disconnect between the statistical data and the situation on the ground. For example, the index shows that total wages for the plantation sector — those working in oil palm and rubber estates — declined 1.4% year on year, from March 2017 to March last year.

“Our wages are not connected to the price of crude palm oil, so we do not agree that lower commodity prices were the reason for the decline in wages. The way we see it, wages have been going up in the plantation sector.

“There is actually a shortage of plantation workers, so there is huge demand for them, hence, they can demand higher salaries. So, we cannot agree that wages in the plantation sector have been declining,” says an industry player.

From an economics standpoint, Sunway University Business School professor of economics Dr Yeah Kim Leng is of the view that the NWI is a useful index for national planning.

“We want to know the average increase in wages and the pervasiveness of the increase. With the information, a more efficient labour market can be created as it closes the information gap between employers and employees.

“The index would lead to greater bargaining power for employers and employees. Those who are underpaying their employees would need to raise their game in order to meet the industry level. However, we understand this would depend on the performance of each individual firm and profitability,” says Yeah.

Aside from complementing the index with productivity levels, Socio-Economic Research Centre executive director Lee Heng Guie says the NWI can be used along with other economic indicators, such as inflation and cost of living.

“The compilation of wage statistics and the index must be of good quality and consistent in terms of coverage, so it can provide a complete and inter-related data picture that meets the short and long-term needs of users.

“Accuracy and timeliness of data is an important aspect of database management, he says.

Simply put, wages should be enough to attract, retain and motivate good employees in order for them contribute to the profitability of the organisations they serve, and to avoid a brain drain where good talent is lost to neighbouring countries.

With the private sector now in the driver’s seat as the country’s engine of growth, it is hoped the NWI will contribute to a more transparent, efficient and effective labour market.

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