Malaysia a high-income nation by 2020 – or stuck in middle-income trap?

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Figure 1: Malaysia labour productivity vs wage growth in manufacturing industry (Source: Department of Statistics, Malaysia)

Even if Malaysia’s GDP is growing, the wages of the majority of its people are trapped in the low-income range, points out Low Swee Heong.

Of late, our prime minister has been in the habit of denying multiple allegations of wrongdoings as well as being in self-denial over inconvenient facts.

His recent statement that Malaysia is on track to become a high-income nation by 2020 is just but one glaring example (Malaysian Insider, 29 September 2015).

Wage stagnation

After working with various multinational corporations (MNCs) in the Penang Free Trade Zone and in different technical management capacities, I retired on 1 November 2015.

Fifteen years ago, an MNC would pay a fresh graduate with an engineering degree around RM2,500 per month. Local small and medium-sized enterprises tend to pay less, in the range of RM1,600-2,000/moth.

Fifteen years ago, a roti canai costs RM0.80; today, the same roti canai costs RM1.50, a 100% jump in price. With the recent implementation of the GST, businesses have taken advantage to increase prices beyond the 6% GST.

So how much are MNCs in Penang paying fresh engineering graduates these days? The MNC where I worked in is paying RM2,600-2,800 per month. This is less than US$650/month at the current exchange rate. In the United States and Europe, one makes that in a week

A fresh graduate in Kuala Lumpur fares no better. The starting pay in the financial industry starts at M3,000/month. After deducting essential expenses such as accommodation, transport, utilities and food, one is left with very little. This is why it is not surprising to hear that parents today are paying to support their children even though the children are working!

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Real wages have lagged behind not only the rising cost of living but also productivity increases. Figure 1 shows that from 1990 to 2010, total labour productivity has been rising much faster than wages in Malaysia’s manufacturing industry.

What this means is that most of our GDP growth is captured by capital in the form of profits, rents, interest and dividends. The share of GDP going to labour in the form of wages and benefits has declined from 40% to a low 30% (see Figure 2).

Figure 2 (Source: Statistics Department, Malaysia)
Figure 2 Source: Statistics Department, Malaysia

To add insult to injury, a well-known MNC in Penang announced in October that there would be no pay increase in 2015! The devaluation of the ringgit makes exports cheaper and hence benefits exporters while local residents suffer due to higher import costs.

Yet, this MNC used the pretext of the global economic downturn to freeze employees’ wages. What is even more shocking is that local senior executives, including the general managers, of the MNC do not object to such unfair practices.

In short, even if Malaysia’s GDP is growing, the wages of the majority of its population are trapped in the low-income range.

Low Swee Heong, an engineer by training, has a soft spot for the poor and downtrodden and fervently believes in justice for all.

With additional input from Aliran member Dr Lim Mah Hui.

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