5 Reasons Why Malaysians Are Underpaid

It’s no secret that many Malaysians are underpaid.

This is not an opinion, this is data. As of May 2022, the minimum wage in Malaysia was increased… to a measly RM1500 per month (from RM1200). According to the Department of Statistics Malaysia, the median salary for Malaysians in 2021 was just RM2,250.

(Note: median salary is a better data point as the average salary in Malaysia differs based on age, education level, industry, gender, geographical location and more. Learn more in the Salaries & Wages Statistics page)

Which is funny (in a sad way), considering that amount is not even enough for a single car owner in Klang Valley to live a meaningful life. They would need to earn at least RM2570.

Note: You can check the Belanjawanku budget guideline to find out how much other household breakdowns approximately needs at the minimum, from singles to couples with children to single parents to elderly.

But… why are Malaysians underpaid? Why Malaysia salary so low?

This part is a bit harder to answer, and I don’t want to fall into the knee-jerk reaction and just say many Malaysian employers are stingy (although they are – see point #4).

Here are 5 reasons why Malaysians are underpaid. Points #1-3 are taken from Bank Negara Malaysia’s Policy & Outlook 2021 document titled Getting the Great Reset Right: Structural Labour Market Issues in the Post-COVID-19 World, while the rest taken from news sources.

Reason #1 – Prevalence of the low-cost production model and high dependence on low-skilled foreign workers

Reason no 1 as laid out in the BNM document is absolutely out of your control. It stated: ‘..the prevalence of the low-cost production model and high dependence on low-skilled foreign workers discourages productivity enhancements, depresses wages, and encourages the creation of low-skilled jobs.’

In short, the more Malaysian industries *needs* foreign workers, the lower the salaries will be, especially for low-skilled workers.

(P/s- I don’t like the term low-skilled. This is just a capitalistic term to underpay manual labourers. They can do things the rest can’t)

Side note: DO NOT BLAME FOREIGN WORKERS FOR YOUR LOW PAY

Blame the people who capitalise on their labour, instead – these are the same people who say locals don’t want to do these types of work, when in actuality, locals are just more willing to quit jobs where they are abused for low pay, while the migrant workers *had* to stay because they are stuck.

According to migrant workers advocacy group Tenaganita and as reported in The Rakyat Post, ‘the abuse faced by these migrant workers included passport retention, unexplained and illegal wage reductions, heavy indebtedness to labour brokers and excessive overtime work.’

Not to mention the foreign workers paid A LOT for the ‘privilege’ of getting work here. According to Malaysiakini article, about 500,000 (!!!) migrant workers were cheated in ‘government-sponsored scam’:

“..each applying migrant had paid an average of RM6,000 to the vendors,” said Tenaganita’s director Joseph Paul Malaimauv. “Those who did not obtain the work permit lost all the money that they had paid and in most cases they also lost their passports which they had handed over”

Reason #2 – Low creation of high-skilled jobs

Reason no 2 is also kind of out of your control. I’ll just share this whole part from the Getting the Great Reset Right: Structural Labour Market Issues in the Post-COVID-19 World document, which quotes multiple data sources:

Malaysia’s share of high-skilled job creation declined to an average of 27% in the period 2010-2019, from approximately 51% in the previous decade. This corresponds to 86,200 employment gains per annum between 2010-2019, while the number of graduates in Malaysia has increased by an average of 151,000 persons per annum over the same period.

These figures complement findings from a Khazanah Research Institute study, which showed that 95% of young workers in unskilled jobs and 50% in low-skilled non-manual jobs were over-qualified for the occupations they were in.

The most recent Graduate Tracer Study by the Ministry of Higher Education (MOHE) suggests a similar story, revealing that approximately one-third of graduates end up in mid-skilled and low-skilled occupations.

Ultimately, this suggests that the economy has not been creating sufficient high-skilled jobs to absorb the number of graduates entering the labour force, leading to skill-related underemployment.

You don’t need me to tell you that the lower the salary you start with, the slower your income progression tends to be throughout life.

Reason #3 – Significant mismatches between skills required by industry and those that workers possess

Reason number 3 is the ‘simple’ case of people having skillsets that many companies don’t particularly need… and thus won’t pay for.

As per the same BNM document,

According to an Organisation for Economic Co-operation and Development (OECD) study on skills imbalances in Malaysia, employers reported shortages in communication skills (e.g. oral expression and writing), social skills (e.g. social perceptiveness and social orientation), and physical abilities (e.g. static strength and stamina).

In this case, there are *some* things a person can do. It is very common nowadays to switch specialisations and industries – easier said than done, but there are many courses one can take where they can get qualified in a different field altogether, where work opportunities are more abundant.

If you are early enough, you could also avoid or switch your major and avoid the skillsets that are lower in demand. In the Graduate Tracer Study as conducted by the Ministry of Higher Education, and summarised by Dr Muhammad Hisham, he stated:

Out of eight field of studies surveyed by MOHE, the top three register the highest number of unemployed graduates are social sciences, business and law (14,665 or 15.6%); engineering, manufacturing and construction (8,950 or 11.4%); and sciences, mathematics and computing (4,113 or 12.8%) 

If you want more information on Reasons #1-3, I invite you to read BNM’s Getting the Great Reset Right: Structural Labour Market Issues in the Post-COVID-19 World document. Now let’s explore other reasons why Malaysians are underpaid.

Reason #4 – Malaysian employers are stingy

I didn’t say this, BNM did. In a nicer way of course.

According to Bank Negara Malaysia’s 2018 Annual Report and as reported in NST,

Malaysia’s current wage productivity levels are misaligned… if a Malaysian worker produces output worth US$1,000, he would be paid US$340. The corresponding wage received by a worker in benchmark economies for producing the same output worth US$1,000 was higher at US$510.

Further analysis reveals that most industries in Malaysia compensate workers less than those in the benchmark economies, even after adjusting for productivity.

That report came out years ago, but the situation didn’t get better. In February 2022, Utusan reported the President of Malaysia’s Trades Union Congress (MTUC) claiming Malaysian employers only contribute 25% of GDP as wages to employees, compared to Singapore (40%), the Philippines (76%) and Indonesia (84%).

EDIT: Thanks reader syzvvn for sharing a more updated data. According to Bernama and media release, ‘Compensation of employees contributes 34.8 pct to the nominal GDP’ in 2021.

Look, I’m not saying companies should give ALL their profits to employees, I understand that business is business, not a charity. But at least compensate workers as per their productivity output – how about earmarking 50% of company profits towards employees wages and benefits?

If SMEs I can understand (especially those barely making a profit), but it’s not like the bigger companies can’t afford the wage increase. Malaysian GLCs’ CEOs make 300 times the employee minimum wage. And the average Malaysian CEO makes 148x the average worker’s salary.

No matter how you twist it, Malaysian employees salaries are so laughably low. But why isn’t it increasing?

Probably because…

Reason #5 – The Malaysian Employers Federation is very vocal

I mean, I get why Malaysian Employers Federation would be pro-employers. It’s in the name. I’m not shocked by that.

But I am shocked by how actively anti-employees they are. Everyone (most of all, them) should know how productivity is tied to employee wellbeing. Employees can’t produce their best results if they are worried sick about living costs.

Proof? Sure. In a meta-analysis of independent studies covering the wellbeing and productivity of nearly 2 million employees and the performance of over 80,000 business units, originating from 230 independent organisations across 49 industries in 73 countries, the results suggest a strong positive correlation between employee wellbeing, productivity, and firm performance.

Again, employers *should* know this. Yet look at how hard they fought against raising the minimum wage from RM1200 to RM1500 in 2021:

Malaysian Employers Federation is really vocal about not raising minimum wage. Why is that? pic.twitter.com/DIILPvEmrV

— Suraya: bestselling Bergaji & Pokai book (@surayaror) November 2, 2021

I don’t know why Malaysian Employers Federation is so hell-bent on being anti-employees. Look at these other headlines:

• 21 March 2022 in The Edge – MEF urges govt to delay minimum wage hike implementation
• 12 August 2022 in NST – MEF urges govt to defer reduction in weekly working hours
• 17 August 2022 in The Edge – MEF urges govt to delay enforcing Employment Act amendments, estimated to cost RM111 bil per year

All I can say is, you reap what you sow. High-skilled people with savings (or people who just had enough) will continue to refuse low salaries and find better opportunities, either online or abroad. Thank you globalisation and the internet.

While we’re at it, here’s your regular reminder that employee loyalty is only reserved to companies with fair financial compensation, benefits and thriving work culture. If not, no need to be loyal, you don’t owe them anything, find somewhere else.

In the end – What YOU can do to get paid more

Honestly, you can make noise (and you should, or they’ll think we’re fine with this), you can do advocacy, but ultimately only strong political willpower can change all the systemic issues that impact workers’ salaries, from direct (move towards living wage etc) to indirect (lower/free childcare costs, lower living costs, etc).

And even if things do change for the better, you have to remember these changes will be gradual, not immediate. It’ll take time. You won’t get living wage overnight. You won’t get social protection overnight. Your living costs won’t be drastically reduced overnight.

As such, the responsibility to earn higher salaries – for the sake of your own futures – will still fall onto your own good self.

Some employers will take it upon themselves to offer better salaries and benefits so they get better hires, but other employers will continue to offer low salaries (because it’s legal, plus all the other reasons above), so you have no other choice but to be employable, you just don’t.

(The good thing is, it’s not hard to be employable? Just look at what good employers offering high pay and good benefits complain about – critical thinking, problem-solving skills – then work on that and you’ll be better than 90% of others competing for the same high paid jobs)

Sorry to end it on this note, but you know what? You’ll be fine – lots of things you can do. Upskilling. Job-hopping. All those things.

For those who feel kinda hopeless and perhaps lacking savings and desperate to take any jobs, even low-paid ones, I can only point you to this article: Resources for the Financially Struggling in Malaysia

All the best everyone. Let’s continue to push the government to do better.