Will the new wage model work for workers?

At last, it has been recognised that the producers of wealth in this country are grossly underpaid.

The government’s first Employee Wage Statistics (Formal Sector) Report provides figures that reflect the increasing burden of workers, many of whom struggle to cope with ever-rising costs.

According to Economy Minister Rafizi Ramli, today’s workers are poorer than their parents, with workers’ wages as a share of gross domestic product (GDP) falling from 37.2% in 2020 to 32.4% in 2022.

The highest the minimum wage rose over its 10 years of implementation was RM1,500. This is way below Bank Negara’s 2017 living wage prescription of RM2,700 a month for an urban single worker relying on public transport, and RM6,500 for a household of four.

The government has decided that the minimum wage model, introduced in 2013, will be replaced by a progressive wage model with certain adaptations.

Rafizi says it will be a mix of the minimum wage salary structure for certain sectors, and a progressive wage model that is differentiated by sector. The government will then recommend yearly wage increment amounts for each sector.

There will be no compulsion on the part of employers, so it will be up to them to decide if they want to adopt this model. Those who do will be rewarded with government incentives.

The logic of the progressive wage model is that productivity will rise as workers undergo continual training to upskill themselves. Higher productivity would mean higher profits – and higher wages.

No doubt, the decision to raise workers’ wages is driven by how low wages over a long period have shrunk the economy through falling domestic consumption.

This decision to move towards a progressive wage model is in line with the aspiration to become a high-income economy.

The owners of capital imagine they can keep increasing their profit margins by endlessly squeezing wages, little thinking of how profits (which are tied to market demand) eventually depend on the level of workers’ wages.

Challenges

Will the new wage model lift workers out of hardship and lead to a stronger economy? Implementation is key, and the government will face many challenges on this front.

The minimum wage policy was no doubt a much-needed intervention by the government during a time when unskilled and low-skill workers were being paid ridiculously low wages that were decided by individual bosses.

However, the ‘progressive wage model-plus’ looks much more complex to administer and enforce that the more straightforward minimum wage system. Singapore, we are told, has successfully done an adaptation of the progressive model since 2012. But that’s Singapore.

Labour environment

Over the decades, Malaysia’s labour environment has become almost hostile to workers. The rate of unionisatio¹.n has slid to just 5.8% of the Malaysian workforce, with fewer than 2% of workers covered by collective agreements.

Restrictive trade union laws make it difficult to form unions. Regular labour law amendments have chipped away at workers’ rights and entitlements.

This suppression of labour’s bargaining power is part of the initiative to provide a business-friendly image. The idea is to maintain a low-wage economy to vie for foreign direct investments (FDI). But this is a regional race to the bottom.

What’s more, the labour market is flooded with migrant workers, both documented and undocumented. The number is over double the requirement set out in the country’s Malaysia plans.

Labour migration remains unregulated, contributing to some 3.5 million undocumented migrant workers. They are not part of the formal workforce, but that does not mean they are idle.

This ‘phantom workforce’ doesn’t feature in official statistics. But their labour output is included in the GDP through the total contribution of small and medium-sized enterprises (SMEs). SMEs readily absorb these workers as they are cheaper and more pliable.

But this situation sets a low benchmark for all. Malaysian workers are criticized for having higher expectations (in a land of plenty) than migrant workers. They are deemed “choosy” and “demanding”, and regularly told to leave if they are not happy.

In such a setting, where workers are in a vulnerable position, enforcement should be a high priority to ensure compliance with policy and to prevent workers from being exploited and bullied.

But the reality is that enforcement is grossly underfunded and remains ineffective or absent.

For example, with less than a year left for the last minimum wage order to expire, hundreds of thousands of workers have not yet been paid the RM1,500 minimum wage. For many workers, both in urban and rural areas, the much-awaited salary of RM1,500 has turned out to be just a dream.

There is no labour inspection by labour agencies, and no union to represent workers in many places. Workers who embolden themselves to lodge labour complaints run a high risk of being dismissed.

This is the environment that has, over time, shaped employers and workers.

Bosses often enjoy impunity and frequently get away with labour law violations.

Malaysian workers, meanwhile, have become a disempowered and demoralised lot. There is no incentive to work harder. Even with a 12-hours workday, they are unable to earn enough to raise living standards for their families. Instead, they find themselves perenially in debt.

Employers frequently gripe about the work ethics of Malaysian workers. But then again, can they really expect greater enthusiasm from lowly paid workers?

Affordability, training capacity

When the RM1,500 minimum wage was announced, many employers said they could not afford it.

But the fact is, many companies that were legally required to pay the new minimum wage from May 2022 have not yet done so.

Part of this non-compliance may be because a portion of micro, small and medium enterprises are unable to do so. Without financial support, these firms, which employ 48% of the workforce, may not be able to afford a higher wage bill.

Another element of the progressive wage model is the periodic training of workers to upgrade themselves. But who will provide the training? Do we have the capacity to train them? Are bosses prepared to facilitate such training?

We need a new way of thinking among the stakeholders involved, if the country is to implement the proposed salary model successfully. Workers need to be empowered, bosses need to value workers’ input, and the government has to be vigilant.

The views expressed in Aliran's media statements and the NGO statements we have endorsed reflect Aliran's official stand. Views and opinions expressed in other pieces published here do not necessarily reflect Aliran's official position.

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