Dire degree of decline in real wages

A REPORT by Permodalan Nasional Bhd Research Institute (PNBRI) highlights a concerning trend: While entry-level wages have generally increased over the past 25 years, the growth for tertiary graduates has lagged significantly.

Adjusted for inflation, median entry-level salaries for masters graduates fell by 28%, and for bachelor’s degree holders by 10%, over the period.

In contrast, wages for lower- qualified workers, such as PMR holders, grew by 89%.

This disparity underscores the widening gap between the supply of degree holders and the demand for their skills, leading to stagnating or even declining real wages for graduates.

The report adds: “In 1997, degree holders earned 2.7 times more than SPM holders; by 2022, the gap had narrowed to 1.7 times.

PNBRI says a median fresh masters graduate in 2022 earned nearly one-third less than a counterpart in 1997, in real terms, before concluding: “The higher the qualification of an entry-level employee, the lower the salary has grown over the period.”

Is this surprising?

Does this mean youngsters should ease off on their pursuit of education certifications since the gap between degree holders and those with lower paper qualifications is narrowing?

The findings are worth deeper scrutiny, but it does not take a genius to realise that perhaps the steady growth in degree holders for the workforce since the mid-90s could have something to do with it.

There are several causes, especially if seen from the eyes of a degree holder.

First, an increase in university graduates without a proportional increase in demand can result in lower wage growth.

For example, 25 years ago, Malaysian students believed that a degree in actuarial studies would lead to a sky-high salary and financial independence.

Therefore, despite the avalanche of students gunning for an actuarial degree back then – which could have extended until today – it remains the case that most insurers would only require a few appointed actuaries (the majority require one or two), which allows us to draw our conclusions.

Asean economist at HSBC Yun Liu tells StarBiz 7 that this skills mismatch hinders a more appropriate wage growth rate for degree holders.

According to the Statistics Department, the number of graduates in Malaysia increased by 4.4% between 2019 and 2020, reaching 5.36 million, indicating an upward trend in degree holders.

The absence of a proportional increase in high-skilled job opportunities may have saturated the market, reducing graduates’ wage growth.

According to a cursory search on Google, fresh graduates today earn between RM2,000 and RM3,000 a month, well below the RM7,000 to RM8,000 suggested by former Bank Negara governor Tan Sri Muhammad Ibrahim, highlighting the disconnect between market demand and graduate supply.

Because of the oversupply of skilled workers, many graduates are forced into semi-skilled or low-skilled jobs, where their education is underutilised, further depressing wages.

According to research by think-tank Economist Impact, a persistent skills mismatch exacerbates slow wage growth because many graduates lack the practical, industry-specific skills employers require, particularly in high-demand fields such as technology, engineering, and digital services such as artificial intelligence, data analytics, and cybersecurity.

As an example, 68% of Malaysian businesses report difficulty finding skilled workers due to this mismatch, according to the Thornton International Business Report.

Concurrently, PNBRI says Technical and Vocational Education and Training (TVET) graduates, trained in hands-on, industry-aligned skills, saw stronger wage growth (14% for TVET diploma holders compared to 2% for academic diploma holders from 2012 to 2022), as their skills better match market needs.

Some studies show that about 70% of graduates work in semi- or low-skilled jobs, with more than 65% earning below RM3,000 monthly, reflecting underemployment due to skills misalignment.

This suggests that academic degrees may not equip graduates for the evolving digital and industrial economy, which prioritises specialised skills.

Minimum wages, currently at RM1,700, also directly benefit lower-skilled workers, often high school graduates, by ensuring their wages rise faster than those of degree holders.

As the Asia Pacific Career Development Association points out, government initiatives like MyFutureJobs and Penjana Kerjaya promote employability through training and incentives, particularly for TVET students and school leavers, further supporting wage growth.

Aside from wages, economists have also highlighted the much broader issue of cost of living inflation, a subtler aspect that often goes unnoticed, but which still represents the other side of the wage-expense dilemma.

They argue that with Malaysia becoming an increasingly debt-driven society, money supply is being created not solely from solid deposits, but much more so from banks extending loans to borrowers.

As such, the supply of liquid money, known in economics as M1, is generously being created in vast amounts to propel growth.

However, this will erode purchasing power, contributing to persistent inflationary pressure.

As HSBC’s Liu says, Malaysia must continue to move up the value chain collectively, as China has, in order to get out of this maze.

Malaysia’s youth must match their education and skills to market demands in order to better understand the country’s needs and supply accordingly.