The government’s move to introduce a progressive wage policy is the right approach to boost labour productivity in Malaysia, according to a World Bank economist.

“Slower wage growth is one of the main issues affecting lower labour productivity,” said Dr Matthew Dornan, senior economist for social protection and jobs in the East Asia and Pacific region at the World Bank.

“We are waiting for the pilot project [for progressive wage policy] to see what impact it could have [on the labour productivity].  It is an important reform and the right approach,” he told The Edge on the sidelines of the launch of the World Bank’s 29th Malaysia Economic Monitor “Bending Bamboo Shoots: Strengthening Basic Skills”.

According to the World Bank, citing the Department of Statistics Malaysia (DOSM), growth in labour productivity declined to a pre-pandemic low of 0.5% in the fourth quarter of 2023, compared to 3.7% during the same period the previous year.

DOSM data showed that the manufacturing sector recorded negative labour productivity growth of -3.2%, compared to 1.6% in 4Q2022. Growth in the construction sector fell to 2.4% (from 10%) while growth in the services sector also plunged to 1.2% (from 4.1%).

The government’s white paper on the progressive wage policy, released last November, suggests that the policy will be applied to formal-sector workers earning a monthly income between RM1,500 and RM4,999 in its first year. This provision is projected to impact at least four million wage earners.

Economy Minister Rafizi Ramli in his speech on Thursday (April 25) said that the government will open registration for the pilot project next month, with 1,000 companies from various sectors expected to participate.

The pilot project is expected to be completed in September.

In addition to low labour productivity growth, Dornan highlighted other challenges in the labour market, which include the underemployment of tertiary-educated workers, who face a skills mismatch as the level of their expertise doesn’t match their job demands.

Time-related underemployment stood at 1.1%, while skill-related underemployment stood at 37.4% in 4Q2023, according to World Bank’s data. Higher skill-related underemployment suggests a mismatch between the demand and supply of tertiary-educated workers.

Dornan said although Malaysia has made some progress in increasing female participation in the labour force over the past decade, the gender gap between men and women remains wide, pointing to persistent challenges in achieving gender equality in the workforce.

The percentage of male participation in the labour force was 83% in 4Q2023, while that of the opposite sex stood at just 56.3%, he added. – The Edge Malaysia


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