Wages must rise faster for Malaysia to achieve high-income status

Whatever the statistics are, wage share to GDP has to rise faster.

STARTING today, 4.37 million Malaysians have reason to celebrate as the minimum wage increases to RM1,700 a month from RM1,500 previously.

This compares to the median salary of RM2,602 for employees in the country.

The jump in salary is a welcomed respite against cost increases that are permeating all walks of life as global inflation is rearing its ugly head once again.

The extra income should act as a buffer against forecast higher inflation due to the expected reduction in fuel subsidies mid-year.

However, the reality is that salaries are still on the lower end of what some would say is an important indicator of the country’s economic health, which is wage share to gross domestic product (GDP).

While our minimum wage might compare favourably against some other South-East Asian countries, the issue is that as Malaysia is said to be on the verge of becoming a high-income nation.

But the lower wage share to GDP presents real-life challenges that are not captured by the country’s pursuit of high-income status.

The sad fact is Malaysia has had a tough time lifting its wage share to GDP over the years.

Even though wages were forecast to have increased by 5% last year, the resistance towards higher salaries is evident as Malaysia’s wage share to GDP has been below 35% for the longest time.

This indicator, together with employment, are the two most important measurements for households as they directly impact one important aspect – the ability to make substantive purchases.

The younger generation now derides the fact they cannot afford what may be considered a luxury today, owning a home.

Increasingly, the younger generation, without the help of their parents, cannot afford to buy a decent-size house to start living independently.

Whatever the statistics are, wage share to GDP has to rise faster.

Until this happens in a substantive way, Malaysia will remain fighting with low-cost countries, although its ambition is on a different stratosphere.