Paying more to avert the labour crunch in Malaysia

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LABOUR crunch seems to feature prominently in the conversation among employers, even after the government has relaxed restrictions on hiring foreign labour. Employer organisations are even talking about prisoners and refugees as potential workers.

The most interesting development is when some employers are willing to talk about raising wages as a solution.

There are at least three factors that contribute to the labour crunch.

First, shortage of foreign workers.

In the last three decades, Malaysia has been heavily dependent on unskilled foreign labour, particularly those from Indonesia, Bangladesh, and Nepal. However, things are changing in those countries.

As Indonesia’s economy takes off, very few workers from there are willing to work here. In Indonesia, minimum wages vary by region. Notably, Jakarta’s minimum wage is on par with Malaysia’s, which means if a worker in Sulawesi wishes to work as a migrant worker, he or she would rather head to Jakarta instead of Malaysia.

As for Bangladesh, among 13 million of its people working abroad, Malaysia is not their first choice. Eight million of them are in the Middle East, and when they choose Southeast Asia, many prefer Singapore.

Second, post-Covid-19 labour crunch.

A harsh reality that many still refuse to grasp is that people died or became very ill during Covid-19 pandemic. Such a trauma made many people change their attitude towards work and life.

Nowadays, less people are willing to work for jobs that pay less than what they deem fair.

This is not unique to Malaysia or this region. The United States’ Federal Reserve has raised interest rates 10 times in 14 months, which could result in higher unemployment rate. Yet the US unemployment rate is at a 50-year low and hovering at 3.4%. Many other countries face a similar labour crunch.

Third, increased investment into the region.

Due to the US-China power competition, many firms have diversified their manufacturing operations and other economic activities from China to Southeast Asia in the last few years. The diversion is not just from European and American firms, there are also relocation of China’s firms. Singapore, Malaysia and Vietnam benefit the most from such diversions.

Increased investments into the region in such a short span of time tightens further the labour market, resulting in even more demand for workers in Singapore and Malaysia.

Yet many Malaysian employers don’t realise that the Malaysian and Singaporean labour market is essentially one single entity. When the Singapore labour market is tight, wages will rise and Malaysian workers will be attracted to work there.

Whenever I have discussions with Malaysian employers, the issue of shortage of talent would be raised. I would explain that it is not a question of talent but the issue of pay. Malaysian engineers, technicians or chefs, or even unskilled workers, would take up jobs the moment there is an opening in Singapore.

I also told the employers that when I asked those workers how much pay would make them stay in Malaysia, the answer is usually, if they are paid two-thirds of Singapore’s salary.

It’s time for all of us to confront the low pay situation in Malaysia, and take the opportunity of the current tight labour market to improve the situation.

Here are some statistics to explain the real current situation.

1. The median wage

Median wage in 2021 is RM2,250. In simple terms, it just means half of the nine million wage earners in Malaysia are earning less than RM2,250 per month.

2. The underpaid well-educated workers

It used to be that a higher education equals a good salary and a decent life. The current chronic low pay however has left higher educated people with low wages. According to an internal survey by the National Higher Education Fund (PTPTN), 68% of the fund borrowers — university and college-educated adults — are only earning less than RM4,000 per month, even after working for more than a decade.

3. The youth are giving up on tertiary education

A Department of Statistics survey in 2019 showed that 72.1% or 390,000 SPM holders did not pursue tertiary education. The reasons cited include an immediate interest in either taking up a gig job or attempting to be a social media influencer. And importantly, many of them realised that tertiary education does not guarantee a job, not to mention a fairly and decently paid job.

4. The large contingent of gig workers

In another Department of Statistics’ studies, 35% of youth aged 18 and 35 are working in the gig sector, with 60% of them having the gig work as their primary source of income.

5. The unemployment rate is improving due to labour crunch

The unemployment rate during the first quarter of 2023 continued its downward trend, slightly decline to 3.5% compared to 3.6% in the previous quarter. Comparing with one year earlier, the number of employed persons increased by 3.1%.

In conclusion, chronic low pay is detrimental to our economy and our people as a whole. When industries are stuck in low pay, inevitably they are also stuck with low technological take-up rate, low productivity, and a lack of sophistication in their product offerings.

As a society, low pay means low domestic consumption (and in the case of Malaysia, most consumption is done through incurring debts), lack of savings for old age and emergencies, and generally, an unhappy population which could mean a political tinderbox.

For nation building, employers need to ensure that workers are well compensated. This will result in a good employer-employee relationship that can create a stable and trouble-free middle class society, which is the bedrock of any society.

Liew Chin Tong is the deputy minister of investment, trade and industry. This is his speech delivered at the Youth Employment dialogue with National Career Development Association of Malaysia (NACDA) and employers.

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