Malaysia: Benchmarking Income and Productivity (Part 1)

This is an extract of a BNM article on “Are Malaysian workers paid fairly?” It is a comparison where Malaysian wages stand relative to productivity (Chart 1).

Analysis of the wage to productivity ratio shows that Malaysian workers are still being paid less than workers in benchmark economies, even after accounting for the different productivity levels across countries (Chart 2). This suggests that Malaysia’s current wage productivity levels are misaligned. To illustrate this point, if a Malaysian worker produces output worth USD1,000, the worker will be paid USD340 for it. The corresponding wage received by a worker in benchmark economies for producing the same output worth USD1,000 is higher at USD510.

Further analysis reveals that most industries in Malaysia compensate workers less than those in the benchmark economies, even after adjusting for productivity (Chart 3). This is particularly evident in the wholesale and retail trade, food and beverage and accommodation industries that make up 19% of economic activity and 27% of total employment in Malaysia. These industries are generally more labour-intensive, and dependent on low-skilled workers. Several factors could explain this. The workforce in these industries typically lacks bargaining power, particularly due to the abundance of low-skilled workers, including foreign workers. As a result, the mean wage in these industries, at RM1,727 in 2016, was nearly 30% below the national average of RM2,463. On the other hand, the disparity against benchmark economies is considerably lower for the information and communication and utilities industries that typically hire more high-skilled workers who are able to command a wage premium due to their specialised skill sets and expertise. The average wage level in these industries was RM3,556 in 2016, more than 40% higher than the national average.

More could be done by way of automation or AI. There needs to be incentives to turn the labour-intensive sectors to become more capital intensive. R&D in Malaysia is miniscule. Others allocate up to 5% of GDP, we are happy with 1%! 

Reference:

Are Malaysian Workers Paid Fairly? An Assessment of Productivity and Equity

By Athreya Murugasu, Mohamad Ishaq Hakim and Yeam Shin Yau