Salary Increase / Increment & its Background

Salary Increase / Increment & its Background


I would like to talk about 'Salary increase / Increment' following last time, but before explaining 'How should we respond to wage rises', I would like to break down the Malaysian economy with a viewpoint of labor.

There are various factors to raise salary / increase salary (Increment), but I think that the following points are distinctive in explaining Malaysia.

Increase of minimum wages:
 Although there was a minimum wage order introduced in January 2013, it was initially started from RM900 in Malay Peninsula / RM800 in East Malaysia, and it is said to revised once every two years, the first time revised was in July 2016 became RM1,000 (11.1% UP) / RM920 (15.0% UP). Then, the second revised is expected in 2018 this year. I will not say that this rise is intact, but I think that it has no doubt that it will affects the overall pay raise. However, this figure is a little unusual as seen from other Asian countries. Malaysia GDP per capita is USD 9,374 and the minimum wage (monthly) is USD 246. This value is 38.1 times. On the other hand, how about Indonesia? Indonesian GDP per capita is USD 3,604, minimum wage (monthly) is USD 248, about 14.6 times. Vietnam GDP per capita is USD 2, 172, minimum wage (monthly) USD 165, about 13.2 times. There is a big difference between minimum wage and income per capita. The reason for this is that we accept a large number of foreign workers, but in reality there are many Malaysians that work at the same level of wages. As for the appropriate level, there is a great chance that the minimum wage will continue to rise in the future.

Changes in industrial structure:
 In the last 30 years, the industrial structure of Malaysia has changed significantly. In 1991, Malaysia industry divided to primary industry 26.4%, the secondary industry 27.4%, and the tertiary industry was divided by 46.2% and 50% of the total. However, in 2016, after 25 years the primary industry decreased to 12.1%, the secondary industry remained flat at 27.5%, while the tertiary industry grew to 60.4%. (Approximately 75% of Japan's tertiary industry) It is a rise in salary due to growth of service industries including high value-added services, intellectual industries, etc., as well as a change and shortage of required manpower because of salary increase.

As a result, labor productivity also markedly improved. Labor productivity refers to the "outcome produced by each worker" that divides GDP by the number of workers. This will rise due to improvement of worker skill and knowledge, also improvement of operational efficiency, etc. According to the ILO estimate, the labor productivity is from USD 29, 428 in 1991 to USD 54, 652 in 2015, which increased magnification to 1.86 times.

Price increase:
 Prices in Malaysia (2016) are 1.75 times higher than year 1990. Prices in the 1990s raised by 3 to 5% every year, and from 2000 onwards, prices also slowed down by about 1 to 3%, but still risen. In other words, even if you raise 5% in salary, about 2% will be absorbed as price increase.

In the above, I explained the environment surrounding the labor in Malaysia from the above three points, but as you can see, it is the background that naturally raising of salary. As an employer, there is a limit though everyone wants to secure as many cheap and excellent talent as possible. Now, the point of emphasizing power is how to appropriately evaluate talented people, provide appropriate salaries, and continue to secure them for a long term. I think that it is an important point for employers who wish to operate in Malaysia from now on.

Pasona HR Malaysia Sdn Bhd details as below:
See Pasona HR Malaysia detail


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