YOUR income is up and so are your expenses, economists said as they explained how purchasing power is shrinking despite the government boasting that the gap between the richest and poorest Malaysians has narrowed in recent years.

Prime Minister Najib Razak noted in Budget 2018 that the country’s Gini coefficient, a measure of income distribution among a population, improved from 0.441 in 2009, when he assumed power, to 0.399 in 2016.

But food and services prices have gone up due to a combination of ringgit value, inflation, and the goods and services tax (GST) in 2015, dampening the real purchasing power of households, said economists.

“(The rise in prices) has caused consumers to dig deeper into their pockets. Consumers’ changing lifestyle habits and consumption patterns can also influence the cost of living,” said economist Lee Heng Guie of the Socio Economic Research Centre (SERC).

Although incomes for the bottom 40% of Malaysians (B40) are going up, the increase is only partly to do with a rise in their wages, said another economist Dr Lee Hwok Aun.

The minimum wage rate of RM1,000 per month helped boost salaries but overall household incomes grew from other sources, said Hwok Aun, a senior fellow at Singapore’s Institute of Southeast Asian Studies.

“(The) share of wages and salaries in gross household income has declined, while the share of property and investment income and transfers have increased,” said Hwok Aun.

Wages trail inflation

The median wages for Malaysians only went up by 3% between 2015 and 2016, according to the Statistics Department’s Salaries and Wages 2016 report. 

The median wage is classified as the “wage in the middle”, meaning half of Malaysians either earn wages above or below this level. Median as opposed to average wage is considered a more accurate measurement of how much the population earns.

In 2016, the median wage was RM2,000 per month, up 3% from RM1,942 in 2015, government data showed.

Given the 2.1% inflation rate in 2016, real wages in 2015-2016 might have only increased by 0.9% to RM1,959, or RM17 per month.

The DOS report also showed that wages for foreign workers grew by 3.3%. Indian Malaysians experienced negative wage growth of 1% when adjusted for inflation while wage growth for Chinese Malaysian workers was 0.1%.

Wages for those with low educational qualifications grew at a higher rate compared with the wages of more educated workers.

Meanwhile the consumer price index (CPI), a gauge of inflation, rose 4.3% last September compared with last year. Malaysia’s (CPI) reached 5.1% in March, an eight-year high.

“(Wage growth) barely catches up with inflation and explains the disparity between salaries and cost of living,” said Jarren Tam, senior policy analyst at the Centre for Public Policy Studies (CPPS).

“Based on this, the government has historically chosen to employ policies which favour owners of capital to encourage business and economic activities. However, it has come at the expense of neglecting the other input of economic growth: the labour force,” he added.

Focus on workers instead of bosses

National Wages Consultative Council (MGPN) announced last month that it would review the minimum wage rate for the next year. The rate was last raised in Peninsular Malaysia last July, from RM900 to RM1,000.

Critics have said the increase is too little and does not address stagnant wage growth among higher educated workers.

This disparity in incomes is also apparent in retirement savings.

The Edge, citing data from from the Employee’s Provident Fund (EPF)‘s 2016 annual report, said 0.4% of contributors have more wealth than the bottom 51.9% of its members.

A total of 28,727 EPF members have RM47.2 billion worth of savings.

In comparison, 3.6 million other contributors collectively own RM43.9 billion in the fund.

EPF data also showed that two-thirds of its members aged 54 have less than RM50,000 in their EPF account while two in 10 have less than RM8,000.

“To strike a better balance, policies should be aimed at uplifting salaries and improving the remuneration of employees,” Tan said.

“This would include raising the minimum wage to exert upward pressure on the median wage and encouraging financial responsibility among people through financial education programmes,” he said

Rising living costs can also be curbed with better consumer awareness and transparent market information, Tan added.

Independent researcher and political economist Dr Andrew Aeria said: “Our government is not interested in ensuring wages keep up with rising costs.”

“Instead, government policy that allows in so many foreign workers is designed to depress wages of local workers and help businesses reap unusually large profits.

“The local workforce are then forced to accept lower wages or go unemployed because businesses can always hire foreign workers easily.”

However, Heng Guie of SERC said that wage hikes that are not matched by productivity increases will in the end affect the consumers.

“This happens when businesses are unable to absorb higher labour costs and lower unit cost of production. The increased cost is passed on to consumers in the form of higher prices,” said Heng Guie.

“Besides paying decent wages to reward productivity increases, the government must continue to put in place good policies that alleviate the costs of basic necessities such as food, transport, healthcare and housing.”

Businesses are encouraged to keep the costs of daily necessities and groceries affordable.”

Economist and CPPS chairman Ramon Navaratnam also called for wages to be increased, but only for those who show higher productivity.

“It rewards those who have worked hard and encourages others to be more productive,” he said. – November 11, 2017.