Talent Corp, the agency set up by the government to tackle the brain drain problem, estimated that at least 1.86 million Malaysians have left the country in the last 50 years.
That is an average of 37,200 mostly well qualified and highly skilled persons leaving annually, evidence of a big leak in the local talent pool.
The math is simple. In Malaysia a nurse takes home an average of RM2,471 per month. In Singapore, she can earn up to S$3,300 for the same work. At the prevailing exchange rate, that is equivalent to RM10,908 — 4.4 times more than in Malaysia.
To stem the tide, the government has outlined a multi-pronged strategy under Budget 2025.
New deal
From February this year, the minimum wage will be bumped up from RM1,500 per month currently to RM1,700.
This is not a starting salary but a legally mandated minimum sum a Malaysian worker must be paid — excluding EPF and other mandatory contributions — as long as they are employed in Malaysia.
A RM1,700-a-month salary may not seem much.
But for the 600,000 Malaysians — roughly 10% of all formal employees in the country — who now earn RM1,500 or less, the additional RM200 per month can make a difference.
At the very least, it helps to meet the increase in cost of living resulting from rising inflation.
The last time the minimum wage was adjusted upwards was in 2022 when it rose from RM1,200 to RM1,500 per month.
The rationale of raising it to RM1,700 is to ensure that households can not only afford their needs and wants but also have enough left over to enable them to engage in activities that will make them an integral part of Malaysian society.
In Malaysia, wages now account for about 32% of the country’s GDP, according to Lee Hwok Aun, senior fellow at the ISEAS-Yusof Ishak Institute’s Malaysia Study Programme in Singapore.
That means that for every RM100 generated in the economy, RM32 goes back to the worker. The government hopes to raise it to 45% by 2035.
In South Korea and Japan, the rate was about 50% in 2023, according to Lee in his paper on “Malaysia’s Progressive Wage Policy: Looming Questions for the Pilot Project”.
Challenges
Raising wages helps to uplift the lowest income earners, but it also adds to production cost, and without a corresponding increase in productivity, prices rise and with it inflation.
Higher productivity makes businesses more profitable, enabling them to pay higher costs, such as wages, without passing additional costs to consumers by raising prices.
In the near term, salary increments will be tied to productivity under the Progressive Wage Policy (PWP), giving employers the incentive to pay higher wages in exchange for greater worker output.
Under Budget 2025, RM200 million has been allocated to help businesses pay the higher salaries. This will benefit about 50,000 Malaysian workers.
To improve productivity and hence wages, the government has allocated billions to upgrade technology and upskill workers.
For instance, the RM400 million SME Technology Transformation Fund will finance Malaysia’s technological advancement.
Another RM7.5 billion earmarked for technical and vocational education and training (TVET) can help to boost starting salaries to the RM2,500-to-RM4,000 range set by the National TVET Council.
Malaysia is also on an aggressive drive to attract investments in the high growth and high value (HGHV) sectors as part of a move to boost productivity and create more high-paying jobs.
To this end, the government is offering tax incentives and matching funds of up to RM100 million to develop local vendors in HGHV sectors such as electrical and electronics.
Room for improvement
Economists have, by and large, welcomed the plan but they are also quick to point out some gaps.
For instance, government policies play a huge role in determining wages but the wage policies expressly cover only formal employees.
That leaves a big question mark over the fate of informal and gig workers.
Government policies aside, employers must also step up to the plate while Malaysians in general must dispell the many misperceptions they carry.
Malaysia has been pushing for productivity-linked wages for more than 25 years now under the Productivity-Linked Wage System, but while worker productivity has risen in certain sectors, salaries have not risen nearly as fast.
According to a 2018 Bank Negara Malaysia report, the average Malaysian worker is paid the equivalent of US$340 compared with US$510.80 in other countries.
Khazanah Nasional was recently lauded for offering a minimum wage of RM3,000 but that is just one in a million.
Malaysians, in general, also errorneously perceive certain jobs, such as those for TVET graduates, as good enough only for lower-skilled and less academically inclined workers.
They fail to see that technical and problem solving skills are honed at TVET courses and up to 94.5% of these graduates easily found employment in 2023.
This offers youth from low-income communities and those with special needs a ladder up to higher wages and socioeconomic mobility.
Ticking time bomb
About half of Malaysians in formal employment now earn RM2,745 or less. That includes the 600,000 who earn below RM1,500 a month.
Malaysia must raise wages to bring social progress but along with that, productivity must also increase to maintain economic competitiveness.
Otherwise, the country will lose more talent, leading to lower productivity and stunted economic growth that will engender greater cost of living crises.
The stakes are high — for the government, business and people.
Can the plan under Budget 2025 yield the desired result?