The Malaysian Rating Corporation Bhd (MARC) has argued against pay policies including the minimum wage and the progressive wage model, pointing to the inherent uncertainties in their ability to support income distribution, boost productivity, and create jobs.
When the budget for 2024 is presented on Friday, it’s anticipated to include information about the progressive wage model policy. According to Economy Minister Rafizi Ramli, the system is anticipated to go into effect in April or May of next year.
The Gini coefficient, a gauge of income inequality, in Malaysia has remained constant at 0.40, according to MARC, despite four consecutive hikes in the minimum wage since its implementation in 2013. This comes after the Gini coefficient first improved by 7% between 2012 and 2014.
It was the second-highest increase ever recorded, with the biggest increase being between 1976 and 1979, a time period characterised by expanding external demand, private investments, capital allowances, export incentives, rising savings, and foreign capital inflows, with the largest increase occurring at 9.3%.
“These two periods of time represent scenarios that imply the success of previous growth-oriented strategies, over the recent wage regulation, in promoting income distribution,” MARC stated in a statement issued today. Consequently, despite short-term goals in promoting income equality, economic growth and development priorities ought to continue to be a central goal.
In order to limit potential negative externalities and societal costs, which had already been somewhat addressed by minimum wages to combat poverty, it is fundamentally the job of policy. “However, excessive wage advocacy may have the unintended consequence of demoting the narrative of productivity, which risks the creation of populist regulations that may stifle the private sector,” MARC stated.
Any wage-price rigidity or intervention, regardless of its form, creates difficulties that are likely to increase the costs of regulation for the government and compliance for firms. Additionally, if companies undertake corrective adjustments to retain profits, the corporate sector may experience a decline in employment prospects.
For those whose abilities and productivity levels have not increased over time, employment possibilities and job stability will also be further restricted. “Hence, minimum wages could have negative effects on marginalised segments of society that are poverty stricken with the least opportunities for education and advancement in the labour market, the group that the government intends to help the most,” it stated.
Therefore, it is urging the government to concentrate on measures that boost productivity and thus economic growth, which will lead to higher earnings, more job possibilities, and a stronger ringgit’s purchasing power. “In order to help balance the supply and demand of human capital, policy should also take into account labour market imbalances.
A vibrant and competitive labour market, aided by market-driven and international benchmarking practises in the management of human resources, may promote productivity increases, according to MARC.
