Living Wage, Minimum Wage and Aspirational Income

A living wage differs from a minimum wage (estimated at between RM920-RM1,000) for the following reasons:

·       Not statutory requirement;

·       It is the minimum acceptable standard of living; and

·       Primarily based on cost of living concerns

It is beyond the basic necessities of living. An aspirational income is achieving or trying to achieve a desired lifestyle – for example, having a 300-foot yacht parked off Bali. Bank Negara Malaysia writers Eilyn Chong and Farina Adam Khong, recently produced an excellent piece on “The Living Wage: Beyond Making Ends Meet”, March 2018.

In Kuala Lumpur, preliminary estimates suggest a living wage range between RM2,700 and RM6,500 per month (Table 1).

Table 1

The living wage estimates are below the median income in Kuala Lumpur of RM9,073. Up to 27% of households in Kuala Lumpur are earning below the living wage. And close to 70% consisted of just one employed household member. Many of who are school leavers with low to mid-skilled jobs. Tertiary graduates earned above the living wage with median salaries for managers and professionals at RM5,500 and RM4,450 respectively.

Productivity improvements and higher value-added output make paying a living wage more affordable for employers. Malaysia’s growth of GDP per person employed is only 1.7% compared to 3.8% for upper-middle income economies. Weak productivity growth means lower wage growth, hence the living wage could become an illusion.

The three key sectors that need an up-skilling are manufacturing, construction and agriculture. Malaysia was known for quality research in rubber (RRI) and palm oil (PORIM) which enhanced productivity. More needs to be done – with reducing labour intensity in the sectors mentioned. Otherwise, we will have the foreign labour force fully benefitting from job creation. There needs to be a coherent, concerted effort to train or re-train employees and incentives for both employers and employees in the pursuit of higher skills, automation and innovation.

Ref: “The Living Wage: Beyond Making Ends Meet”, Eilyn Chong and Farina Adam Khong, Monetary Policy Department, Bank Negara Malaysia, March 2018