KUALA LUMPUR (Aug 2): Employees' share of income generated in 2016 is almost 5% higher compared to 2010, pushing labour income share to gross domestic product (GDP) to 35.3% — its highest ever — while corporate earnings declined by 5.1 percentage points to 59.5% from 64.6% in the same period, said MIDF Research.

This means for every RM1 generated in 2013, 35.3 sen was paid to the employee, while 59.5 sen went to corporate earnings, and another 5 sen went to the government, it said in a note today.

It said a major factor pushing up Malaysia's labour income share was the implementation of the new minimum wage policy in 2016 — RM1,000 per month in Peninsular Malaysia and RM920 in Sabah and Sarawak.

While the services sector remains the biggest contributor to employee compensation in 2016, at 21.4%, both manufacturing and construction sectors have seen growth, thanks to rise in trade activities and the number of infrastructure projects here, said MIDF Research.

From 2010 to 2016, manufacturing sector income share increased 0.5 percentage point to 8% from 7.5%, while the construction sector grew 1.1 percentage point to 3.6% from 2.5%.

"Moving forward, the shift from labour-intensive to capital-intensive will lead to reduction of low-skilled labour, [to be] replace[d] with the expected rise of skilled-labour. Therefore, we could expect labour income share to GDP to reach 40% by 2020," it added.

Notably, it observed that between 2012 and 2014, the bottom 40% or B40 low income group has seen the fastest income growth, compared with the middle 40 (M40) and the top 20 (T20) household groups.

The B40 group — with monthly income of RM3,900 and below — posted a 17.2% year-on-year (y-o-y) growth compared to both the M40 and T20 household groups, which posted 11.3% and 8.2% increase y-o-y, respectively.

The trend, said MIDF Research, is thanks to policy reforms undertaken by the government to address the income inequalities gap.

"We foresee the momentum in income growth for all groups will sustain due to the increase in the share of labour income and government revenue in 2016," it added.

However, the research house said Malaysia's high household debt will continue to pose a challenge on domestic spending, with household debt-to-GDP ratio at 88.4% in 2016 — among the highest in Asia.

"The elevated level of household debt was due to a surge in mortgages as rising housing price led towards high value of loan and mortgages... Additionally, any shock in cost prices especially fuel price will have a negative effect on consumer spending," it said, but pointed out that the downside risks are "contained" at present.