This article first appeared in The Edge Malaysia Weekly on December 4, 2023 - December 10, 2023

WITH the unveiling of the Progressive Wage White Paper, the government has shed light on the eventual form of the policy slated to be implemented in late 2024 at the earliest, after the completion of a pilot project from June to September next year.

The 48-page document allocated 27 pages to lay out the background of wage reforms in the nation, presenting the necessity for the implementation of a Progressive Wage Policy (PWP) to complement the existing minimum wage and Productivity-Linked Wage System.

In the second half of the white paper, the government outlined the proposed mechanism, its impact on the economy, PWP governance structure and timeline of implementation up to the completion of the pilot project by September next year.

The following are details of what we know and the areas that require further clarification on the upcoming PWP, according to what The Edge has gleaned from speaking to business groups and economists about the voluntary opt-in policy.

The white paper proposes that in the first year of implementation, the PWP will cover formal sector workers with a monthly income of between RM1,500 and RM4,999, involving at least four million wage earners.

While the government has yet to decide in which sectors it will initially roll out the PWP, the white paper proposes to provide wage increment guidance based on cate­gories from the Malaysia Standard Classification of Occupations (Masco), a national benchmark by the Ministry of Human Resources for the classification of occupations in the employment structure of the country.

Masco divides jobs into 10 standardised main groups, which are broken down into 51 sub-major groups, 148 minor groups and 492 unit groups, covering nearly 7,000 types of occupations.

Federation of Malaysian Manufacturers (FMM) president Tan Sri Soh Thian Lai said in a statement that the government should consider rolling out the PWP in sectors that have a higher reliance on skilled workers first, in order for the PWP “to bring about the intended improvements and changes to the labour market landscape with a win-win situation for employers, employees and the nation”.

UOB Malaysia senior economist Julia Goh tells The Edge that the PWP should involve sectors that require industry-specific or technical skills, “particularly if it helps enhance productive capabilities or the sector”. After tabling the PWP in the Dewan Rakyat, Economy Minister Rafizi Ramli said a sector’s wage gap between large companies and micro, small and medium enterprises (MSMEs) is among a list of conditions that the government will consider when deciding the sectors in which to roll out the PWP.

“If the sector’s wage gap is too large, even if we choose that sector, it is likely that the number of employers who can [fulfil the wage rise] may be too small. [The decision will depend on the employer’s financial ability] and the wage gap, because the whole idea is to provide the lift-off [in wages],” Rafizi said.

The white paper proposes cash incentives of up to RM200 monthly over a 12-month period for an entry-level staff and up to RM300 monthly over a 12-month period for a non-entry level staff, as long as employers fulfil or are paying more than what is required by the PWP’s increment schedule.

The government has yet to indicate, however, whether it will extend the cash incentive beyond the first year of implementation.

While the amount of cash incentive is deemed attractive, Malaysian Employers Federation (MEF) president Datuk Syed Hussain Syed Husman says its members hope that the cash incentives will not be limited to the first year only.

“The subsidy should be extended for a longer period to attract more employers to join the PWP voluntarily. The ‘first come, first served basis’ policy may hinder the eagerness of some employers who want to be involved voluntarily in the PWP pilot project,” he tells The Edge via email.

The white paper proposes for the cash incentive to be drawn from a specific allocation from the government depending on Putrajaya’s fiscal position.

Citing Singapore as an example, FMM’s Soh said the city state started the PWP with an implementation period of four years. “FMM believes this is probably something that needs to be further evaluated during the pilot programme, as the attractiveness and comprehensiveness of the incentives are critical factors to support the companies that decide to embark and stay on course of the PWP implementation.”

For UOB’s Goh, a period of 12 to 24 months might be more realistic for the PWP to be effective. “It is sensible to park it at 12 months, however, then review its progress and effectiveness before deciding whether to extend.”

Lee Heng Guie, executive director at the Associated Chinese Chambers of Commerce and Industry of Malaysia’s Socio-Economic Research Centre, points out that the cash incentive is transitional in nature and meant to encourage industry best practices in nurturing talent. As such, it is not favourable for an economy to maintain such financial support for a long period.

“The wage incentive is to provide transitional support for businesses as a measure to boost the pay of lower income earners, subjecting to the improvement of productivity and skill enhancement,” he says.

Apart from the cash incentive for wage increment, the white paper did not propose other monetary aid under the PWP, prompting MEF’s Syed Hussain to call on the government to also provide funding for employees’ upskilling programmes.

“No allocation is specified for the payment of training that needs to be given to the workers involved. The government needs to finance the cost of the training,” he says.

“In the first year of the PWP [project], the financial impact borne by the government through subsidies is about RM2 billion for 1.05 million workers. The RM2 billion will be borne by employers that participate in the PWP for the following years unless the government extends the subsidy period for a longer period.

“This may make many MSMEs cautious in participating voluntarily in PWP,” he says.

An economist, who declined to be named, says this may place an added burden on the government’s tight fiscal position. Furthermore, employers are responsible for their staff’s continuous improvement to grow their businesses. “The wage incentive itself is already a lot of money; the government will also face pressure in justifying the spending of taxpayers’ money to help businesses.”

Syed Hussain says the timing in implementing the PWP is a key consideration as well, as a gloomy economic outlook for 2024 might mean a challenging time for employers to raise salary costs.

“After the first year of implementation, it is a major challenge and employers need to make a lot of careful considerations and decide whether they can afford to cover the costs after participating in the PWP voluntarily,” he says.

The timeline in the white paper provided for only up to September 2024, when the government will evaluate the pilot project before deciding on the actual implementation date.

Rafizi told the media last week that the government, through several new PWP committees, would release all necessary guidelines in the first quarter next year, before opening registration for the pilot project in April 2024.

The SME Association of Malaysia national president Ding Hong Sing says that while the business group, which has 16,000 members, welcomes PWP implementation, it is crucial that the working committees consider the actual productivity gain when designing the PWP mechanism, instead of just judging by the courses completed by workers.

“Completing courses may not necessarily translate into productivity gains; a worker can complete a certain training and yet maintain a poor working attitude,” Ding tells The Edge. “Feedback from our members is quite positive, but it is normal. When there is money to be claimed, of course, everyone will be on it, but would it solve the ultimate issue of poor productivity? We don’t know yet; let’s hope the government puts in place a proper mechanism.”

According to the white paper, the PWP will result in higher inflation as well; based on its simulation, the policy may raise prices by 0.24 to 0.61 percentage points, based on the government allocation of RM2 billion to RM5 billion.

“To counter the inflationary effects, productivity and supply need to rise in tandem; that is where it helps balance the effect of higher wages on inflation. So, in the end, it comes down to execution,” says UOB’s Goh. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.