This article first appeared in The Edge Malaysia Weekly on December 25, 2023 - January 7, 2024

The persistent crisis associated with the rising cost of living is placing a strain on workers in Malaysia. As prices of goods rise, salaries are not going as far as they once did.

The pain was particularly acute in the last few years, as workers lost their jobs because of the pandemic and had to cope with rising costs of goods and services. This was due to supply chain disruptions from the pandemic, wars and the post-pandemic economic recovery which spiked global energy and food prices.

Central banks around the world, including Bank Negara Malaysia in May, have been raising interest rates to curb rising inflation. This makes borrowing more expensive. As other central banks continue to stay hawkish, the position of the ringgit is threatened, falling to the lowest level since 1997 in October. This leads to higher prices for imported materials.

Any increase in the cost of living would, however, have a bigger impact on the lower- and middle-income groups. Those with higher incomes can rely on savings or returns from investments made independently of their monthly salary.

“If you are from a lower- or middle-income group, any changes in prices of selected products, especially essential goods, will affect your spending pattern when your pay is quite limited,” says Dr Juita Mohamad, director of research, economics and business at The Institute for Democracy and Economic Affairs (IDEAS). “And it goes back to if you’re the only breadwinner. Any type of increase in prices will impact spending patterns because they are highly sensitive to those changes.”

Almost 64% of Malaysians are either financially unstable or living from pay cheque to pay cheque as stated in a report by The Institute for Capital Market Research Malaysia published in April. According to the Department of Statistics Malaysia, almost 35% of formal employees earn less than RM2,000 a month, based on data from the first quarter of 2023.

Out of need, some have made it a habit to dip into their Employees Provident Fund (EPF) savings for day-to-day expenses. The EPF reported that on top of the withdrawals after the pandemic, currently more than 6.3 million members, or 48% of contributors, have less than RM10,000 in savings. That is obviously not enough for retirement.

“With already a very low propensity to save, I would say that this is a very worrying trend. Whether we like to see this or not, we are already an ageing society. This will impact productivity in the long run,” says Juita.

The government acknow­ledges the cost-of-living crisis. Prime Minister Datuk Seri Anwar Ibrahim, when launching his Madani Economy framework, talked about the need to “create more jobs with meaningful salaries for Malaysians” and to increase income in line with productivity to ensure a meaningful level of quality of life.

He pointed out that the wage or salary ratio compared to total income in Malaysia was 32.4% in 2022, and the government aims to increase this to 45%. The Progressive Wage Policy (PWP) was touted as a solution.

“Our PWP model is inspired by the Singapore model. When we look closely, it’s not only about increasing wages on a scheduled timeline; it is also about upskilling employees, retraining them and leading to an increase in productivity,” says Juita.

The PWP proposes that in the first year of implementation, a progressive wage system will be introduced for Malaysian citizens earning a monthly salary within the range of RM1,500 to RM4,999, covering about four million workers in formal sectors.

A proposed annual increment will be given to entry- and non-entry-level employees. Participating companies will be eligible to receive cash incentives of up to RM200 or RM300 monthly for up to 12 months for entry- and non-entry-level posts respectively. These sums are paid out only after employers submit documents related to employees’ wages and participation in skill-upgrading courses.

A pilot project for the PWP will be held between June and September next year, involving a selected number of companies that voluntarily participate. The final form of the policy is slated to be implemented in late 2024 at the earliest, upon the completion of the pilot project.

“Looking at the bigger picture, when speaking of the high cost of living, we immediately think of wages, but it involves more than wages. It goes back to reinforcing labour policies and strengthening our pension and insurance schemes as well. But, ultimately, wages do have the most impact,” says Juita.

“It has to be increased over time. Whether it is through the PWP, the existing wage policy or stronger labour trade unions, it must happen.”

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