KINIGUIDE | The govt's plan to upskill workers and raise wages

KINIGUIDE | For many years, economists, government think tanks, trade unions, employers, and even the average worker have sounded the alarm that things are not well in Malaysia’s job market.

Wages have been stagnant for years and only make a modest contribution to the gross domestic product. Few workers are union members, and fewer still have their wages negotiated through a collective agreement.

Many also argue that increases in productivity over the years were not accompanied by a commensurate increase in wages.

The minimum wage policy introduced in 2013 raised the earnings of many low-skilled workers, but fresh graduates now find their wages little better than their counterparts who have no tertiary education.

Malaysia is stuck deep in the middle-income trap. And then, the Covid-19 pandemic made everything worse.

In this instalment of KiniGuide, we explore the government’s plan to tackle the wage question by taking a page from Singapore’s playbook - progressive wages.

What is the progressive wage policy?

The government tabled its white paper on the progressive wage policy in Parliament on Nov 30, on which most of this KiniGuide is based.

Broadly speaking, the policy gives financial incentives for employers to send their workers for training and upskilling programmes, and to pay the workers more for the resulting increase in skills and productivity that they bring to their jobs.

The policy envisaged in the white paper, however, will start as a pilot programme involving up to 1,000 companies next year, who may opt into the programme if they are eligible.

This contrasts with Singapore’s implementation which is mandatory for certain sectors.

Economy Minister Rafizi Ramli said that, depending on the selection of companies, the pilot programme will cost taxpayers between RM20 million and RM30 million.

It is envisaged to complement the existing minimum wage policy and the Productivity-Linked Wage Scheme.

Who is eligible?

For employers, they must be a registered entity under the Companies Commission, Registrar of Societies, or a local government. Government-linked companies and multinational corporations are not eligible.

For participating employees, they need to be Malaysian citizens holding full-time positions with a contract period of more than three years, and have a monthly salary between RM1,500 and RM4,999 before their employers join the programme.

The Progressive Wage Policy Implementation Executive Committee will review the salary limit of RM1,500 to RM4,999 annually.

It should be noted that the whitepaper is silent on which economic sectors will be included in the pilot programme.

One factor that will be considered when deciding whether a particular sector will be included, according to Rafizi, is whether the sector is considered a critical industry aligned with Malaysia’s economic structuring that also requires a large number of talent.

What do they need to do?

Employees will need to attend and complete government-accredited training and upskilling courses, and their employers will need to furnish the government with documentation showing that this has been done.

These Progressive Wage Employers will also need to report wage data regarding employees involved in the scheme to the government.

Meanwhile, the government will produce annual guidelines on basic salary and annual increments for each economic sector and job category (as classified by the Malaysian Standard Classification of Occupations).

“The proposed annual wage increment is based on the average wage according to job category, plus an appropriate percentage considering several factors such as an industry’s labour intensity, industry wage trends, inflation rate, current policies, and economic impact,” the white paper states.

Employers will be paid a cash incentive if they meet or exceed those recommendations. The increment for 2024 has yet to be announced.

The documents they submit to prove they have carried out the required training and wage increments will be audited by the government.

The performance of Progressive Wage Employers will be graded and given recognition by being awarded “stars” to encourage them to outdo one another.

This evaluation will be based on five components.

The first three are core components: The percentage of employees who are paid the recommended wage or more, the percentage difference between the wages above the government-recommended rate, and how long they have held Progressive Wage Employer status.

Meanwhile, the two “bonus” components are the ratio between the highest wage rate versus the lowest in the company, and the percentage of female participation in the company’s middle and senior management.

If they fail to keep up, they may be dropped from the scheme.

What help will employers get?

Employers who fulfil the requirements will be given cash incentives for one year - on a first-come, first-served basis - which will be paid to them quarterly within six months after they file claims on the incentive.

The one-year period is to enable them to adjust their business plans accordingly to account for the increased cost of labour.

They will receive up to RM200 per month for their eligible employees who are in entry-level positions. With employees in non-entry-level positions (i.e. those with at least several years of experience), employers will be paid an incentive of up to RM300 per month.

When is all this happening?

The white paper includes a timeline for the implementation of the pilot programme.

For the first three months of 2024, the government will have another round of engagement sessions with stakeholders of the policy, as well as promotional work for the pilot programme.

Registration for the programme is expected in April. In May, companies will be selected for the programme, while a government committee publishes the recommended wage increases.

The pilot programme will start from June onwards, and its implementation will be evaluated in September.

The implementation will not require introducing new legislation in Parliament.

How will it affect the economy?

The white paper outlines economic projections for three different scenarios, in which the government spends RM2 billion, RM3.8 billion, or RM5 billion to implement the progressive wage policy in its first year.

For spending RM2 billion, the government predicts 1.05 million workers will benefit from the scheme, while the GDP grows by an additional 0.22 percentage points or RM3.3 billion.

It will gain 37,529 additional taxpayers and have RM1.8 billion added to income tax revenues, while the Employees Provident Fund (EPF) gets an additional RM1.8 billion. The unemployment rate will fall by 0.14 percentage points.

On the other hand, the extra purchasing power is expected to raise inflation rates by an additional 0.24 percentage points, but this is expected to be offset in the long run by increased economic growth.

The magnitude of the programme’s projected impact is more if the government spends more on the programme. However, Rafizi said it won’t be a matter of spending as much as possible on the programme, as the government will need to find a sweet spot between increasing wages and its impact on inflation.

It should also be noted that these projections are based on assumptions that won’t hold in the programme’s actual implementation.

For instance, Rafizi said the government will spend no more than RM30 million in its first year, rather than the billions simulated in the projection.

It also assumes the incentives for employers are fixed at RM300 per month, which is on the upper end of what will be implemented and does not account for circumstances where a lower incentive will be paid.

What happens behind the scenes?

Three levels of committees will be set up to oversee the implementation of the policy.

The first level consists of four working committees, each of them headed by the Human Resources Ministry and is separately tasked with policy development, system development, upskilling, and wage increment guidelines.

Its members are mostly drawn from various government agencies. However, industry representatives will be part of the upskilling committee, while research institutions and the National Wage Consultative Committee will be part of the wage increment guidelines committee.

The secretariat for the working committees will be based at the Economy Ministry for an interim period until the implementation of the progressive wage policy is transferred to the relevant ministries and agencies.

The working committees are tasked with supporting the Progressive Wage Policy Implementation Executive Committee, which is co-chaired by the secretaries-general of the Economy Ministry and the Human Resources Ministry.

Among the secretariat’s functions is to vet the proposed wage increment proposals produced by the working committees, before they are passed on to the Special Cabinet Committee on Progressive Wage Policy Implementation to be endorsed and ultimately submitted to the cabinet for approval.

The special cabinet committee will be headed by the second deputy prime minister.

What are people saying about the white paper?

Several media outlets quoted Malaysian Employers Federation president Syed Hussain Husman highlighting the uncertainty about the financial incentives continuing beyond the first year, as Rafizi said this is dependent on the government’s financial resources.

This was cited as a factor that would make employers reluctant to join.

The Edge quoted UOB Malaysia senior economist Julia Goh and Federation of Malaysian Manufacturers president Soh Thian Lai saying the project should last at least several years to have an impact.

SME Association of Malaysia president Ding Hong Sing reportedly expressed scepticism since the policy’s mechanism is linked to employees completing courses, and hopes the working committees would consider the extent of productivity gains as well.

Channel News Asia quoted Malaysian Trades Union Congress secretary-general Kamarul Bahrin Mansor complaining that the government never invited it for talks about the policy, while Bank Employee Union Malaysia general secretary J Solomon warned that the policy could turn out to be another wage subsidy scheme with no links to productivity.

“Malaysia’s wage structure was never tied to productivity. In fact, over the past decades, workers’ productivity in the manufacturing and services sectors has detached from wage growth. Productivity grows higher than wage growth,” Solomon was quoted as saying.

The Penang Institute said the white paper doesn’t present a clear case for implementing the progressive wage policy, thus calling its high cost into question in the presence of other alternatives like reducing the power disparity between employers and employees to encourage fair bargaining of wages.

Citing several clues in Malaysia’s economic data, it said the Human Resources Ministry should spearhead a study to explore the hypothesis that the root of the wage problem is that firms are able but unwilling to match wages to productivity and find out why.

What else is the government planning to do about wages?

According to the white paper, the government is studying a proposal to enact new legislation to regulate job advertisements, specifically how wages are advertised.

The document does not offer many details, other than it is aimed at promoting transparency between employers and employees and is a step towards resolving the issue of low wages.

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