KUALA LUMPUR (May 14): Wage growth in Malaysia since 2010 has lagged overall economic growth and fallen short of supporting the country’s high-income ambitions, despite a relatively healthy labour market and sustained gross domestic product (GDP) expansion, according to the World Bank’s latest Malaysia Economic Monitor report.

"Wage growth has also been uneven, with those in the middle of the income distribution seeing the slowest wage gains. At the state level, there is also considerable variation, with several states reporting median real wages that are only marginally above the national minimum wage. 

"Wage growth has been slower as a result of climate change, with flooding having a significant impact in certain regions and sectors," said the World Bank.

The report, titled "Raising the Ceiling, Raising the Floor: The Jobs Agenda as a Productivity Agenda", found that real wage growth had also been uneven across income groups and states, while productivity growth remained too slow to sustain stronger and broader-based income gains.

World Bank senior economist Dr Matthew Dornan said real median wages rose by around 43% between 2010 and 2024, but wage growth amounted to only about half the pace of GDP growth over the same period.

"The question is no longer whether Malaysians have jobs, it’s whether those jobs are productive enough, whether they are well matched enough to the skills or the capabilities of workers in the labour market, and, I think importantly, whether they pay well enough to deliver on Malaysia’s high-income aspirations," he said during a presentation of the report on Thursday.

Dornan said the labour market appeared strong based on conventional indicators, with unemployment at its lowest level since 2014, labour force participation at a record high of 70.9%, and the economy growing by more than 5% last year.

"So by the standard measures, the labour market is at its healthiest in over a decade. And yet, there’s really that tension between a labour market that looks healthy and one that feels inadequate,” he said.

The report found that wage growth had been weakest among middle-income earners and that median wages in several states remained only marginally above the national minimum wage.

For instance, Dornan said median monthly wages in Kelantan stood at around RM1,800, only slightly above the RM1,700 national minimum wage.

“And here’s the thing, that’s the amount that someone in the middle of the wage distribution can expect to earn. Not someone who is poor, but someone directly in the middle,” he said.

The World Bank also warned that productivity growth in Malaysia had lagged behind aspirational regional peers, with the productivity gap between Malaysia and Singapore widening over the past decade while China had caught up rapidly.

“In 2010, Chinese workers were about half as productive as Malaysian workers. By 2024, they had pulled up, they are roughly equal now. Meanwhile, if we compare with our neighbour Singapore, Singaporeans were 4.4 times more productive in 2010, [but] they are now 4.6 times more productive,” Dornan said.

He added that Malaysia’s most productive firms, referred to in the report as “frontier firms”, paid employees about three times more than the median firm, but their market share and labour absorption had declined over the last decade.

“The problem is these frontier firms are not scaling strongly enough,” Dornan said.

The economist also highlighted persistent skill-related underemployment, with about 36% of tertiary-educated workers employed in jobs below their qualification levels nationally, up from around 30% in 2015.

The issue was more pronounced in several states, including Kelantan, where 52.3% of tertiary graduates were underemployed, followed by Terengganu (45.8%), and Pahang (44.5%), compared with 18.6% in Kuala Lumpur.

"When a highly educated worker is employed in a lower-skilled role, that generates less economic value than it would if they were in a well-matched role. That limits wage growth, it limits productivity growth. And it fundamentally weakens that link between rising education levels and wage growth," he explained.  

The report estimated that tertiary graduates working in jobs below their qualification level faced a "wage penalty" of 49.3% compared with similarly educated workers in well-matched high-skilled roles.

"So in other words, those in high-skill, well-matched roles earn 49.3% more on average than their less fortunate peers.

“What we argue in the report is that the primary driver is a demand-side constraint. The economy is not creating enough high-productivity jobs to absorb what is an increasingly educated workforce,” Dornan said.