LINKING salaries to productivity levels and investment perks to high-skilled job creation are some of the measures the government needs to put in place if it is serious about tackling the problem of low wages, said a Bank Negara (BNM) senior official.

BNM assistant governor Marzunisham Omar said another important measure was a comprehensive plan on foreign labour that would sharply reduce the pool of cheap, unskilled foreign workers in the country.

“Labour market reform is urgently needed,” said Marzunisham in a forum to discuss BNM’s 2018 annual report and its supplementary study on Malaysian wages here in Kuala Lumpur today.

The study showed that the average Malaysian worker is paid below their productivity level as compared to peers in places such as Singapore, Germany, and the United States.

For every productivity output worth US$1,000 (RM4,075), Malaysians are paid US$340 as opposed to US$510 in the economies benchmarked by BNM.

The study found that workers across most sectors – mining, construction, retail, information technology, banking – were being paid at below their productivity levels.

It also found that the labour share in the national income, which is at 35.2% of gross domestic product (GDP), lagged behind that of advanced economies and some middle income countries. This means that for every ringgit that is made by the economy, only 35 sen goes to workers.

In Argentina, that figure is 44.2 sen, in Singapore and South Korea 44.8 sen, and in the United Kingdom, 56.5 sen.

This suggests that corporations and capital owners benefit more from the economy’s output than workers, said the BNM study.

Although the worker share in the national income has increased from 31.7% in 2010 to 35.2% in 2017, the rise was due to the fact that there were more jobs created in labour-intensive sectors rather than because salaries had gone up.

Jobs in construction, wholesale and retail trade, food and beverage, and accommodation industries expanded faster than most other sectors, but their workers are paid low wages, said the study.

In his presentation today, Marzunisham said the country’s inability to create enough high-skilled jobs has seen a decrease in starting salaries for fresh graduates.

Even though 170,000 graduates have entered the job market in the past seven to eight years, the amount of high-skilled jobs created in the same period was only about 97,000.

“The supply of graduates far outstrips demand, leading to depressed starting salaries and narrowing education premium,” said Marzunisham.

Besides reducing the supply of cheap foreign labour, he said the government needed to restructure the incentives such as tax breaks that it gives to companies and businesses who set up shop in Malaysia.

“Instead of blanket incentives for everyone, incentives need to be linked to what kinds of jobs a company creates,” said Marzunisham.

Another measure is productivity-linked wages for all types of jobs and across all industries, said economist Yeah Kim Leng.

This would ensure that wage increases are distributed fairly in any given company and that they do not disproportionately benefit top management.

“For instance, a company determines that there is a 5% increment across all levels. But a 5% raise for the CEO will be different from a 5% increase for it clerk. A productivity-linked wage system will deal with these issues,” said Yeah, who heads Sunway University’s business school. – March 28, 2019.