Progressive Wage White Paper Released!

The government released its Progressive Wage White Paper recently. It proposes to implement a pilot project between June and September in 2024. This involves a selected number of companies that register to participate voluntarily, with full implementation to be determined later.

The White Paper proposed that in the first year of implementation, a progressive wage system to involve those earning a monthly salary of between RM1,500 and RM4,999, covering some four million workers in formal sectors, will be limited only to Malaysian citizens. 

Businesses, especially small and medium enterprises, are encouraged to participate, but multinational and government-linked companies (MNCs and GLCs) are exempted from the project, as they are deemed paying competitive wages already.

The White Paper also proposed that the government make an annual allocation for cash incentives to encourage higher reception from the business sector to participate in progressive wages voluntarily.

Employees covered under the system will be categorised in two groups, namely entry levels and non-entry levels, and a Progressive Wage Policy Implementation Executive Committee will be established and provide guidelines for annual salary increment.

For entry-level posts, participating companies will be eligible to receive cash incentives of up to RM200 monthly for 12 months, while for non-entry level posts, the incentive rate is proposed to be up to RM300 monthly for 12 months. These cash incentives are proposed to be channelled to participating employers on a quarterly basis, within six months upon claim submissions.

The White Paper laid out three possible scenarios upon implementation of the progressive wage system, involving an annual Government allocation of RM2 billion, RM3.8 billion or RM5 billion.

Under these scenarios, the number of wage earners to be benefitted is expected to come in at 1.5 million to 2.62 million, adding 0.22 percentage point (ppt) to 0.56 ppt to real gross domestic product growth, followed by additional contributions of RM790 million to RM1.98 billion to the Employees Provident Fund (EPF), and an increase in income tax revenue by RM1.8 billion to RM4.4 billion.

However, inflation is expected to increase between 0.24 ppt and 0.61 ppt under these scenarios, as consumption and purchasing power rise, but the White Paper noted that the positive impact of progressive wages will help balance higher prices over the longer-term period.

It is expected that the number of taxpayers will increase by between 37,529 and 84,719 people, while the unemployment rate will be reduced by between 0.14 ppt and 0.35 ppt, depending on how much the government can spare to incentivise adoption of progressive wages.

Malaysia's wage landscape, influenced by factors like recent currency devaluation, escalating youth unemployment, and heavy reliance on foreign labour, primarily relies on the Minimum Wage Model.

Despite the recent increase to RM1,500 per month with annual rises of 5.24 percent for Peninsular Malaysia and 6.49 percent for Sabah and Sarawak since 2013 recorded, overall labour productivity only managed a 2.3 percent annual increase from 2013 to 2022.

This disparity between consistent minimum wage growth and slower productivity escalation poses indirect risks of potential job losses or underemployment in the long run.

Furthermore, what about part-time workers, those in the informal sector, foreign labour, undocumented workers and worker mobility? These are issues to be addressed. The Progressive Wage Model is a good start but it should remain a framework and not a rigid model. Otherwise, we may dis-incentivise hiring workers because of bottom-line considerations.

References:

Progressive wage to cover those with RM1,500-RM4,999 monthly salary, MNCs, GLCs exempted, White Paper proposes, Choy Nyen Yiau & Chester Tay, theedgemalaysia.com 

1 December 2023

Comment: Will progressive wage model to boost pay, productivity work? Edwin Oh Chun Kit, Malaysiakini, 29 November 2023