The Small and Medium Enterprises Association of Malaysia (SAMENTA) has commended Prime Minister Datuk Seri Anwar Ibrahim and Economy Minister Rafizi Ramli for the introduction of the Progressive Wage Model.

Its national president Datuk William Ng (pic), said the organisation shares the sentiment that Malaysian wages, especially for those at the lowest level, are notably insufficient. The data reveals a stagnation in wages since the late 1990s, which has not managed to keep up with inflation.

The Progressive Wage Model (PWM) aims to address this issue by increasing wages across various job tiers. It mandates salary increments based on an employee’s skill development and productivity achievements. This approach addresses the limitations of the minimum wage system, which primarily supports only the lowest tier of workers.

While SAMENTA supports the endeavour to improve wages for Malaysians, Ng said it firmly advocates for the sustainability and survival of businesses, particularly small and micro enterprises.

Despite being the country’s oldest and largest SME association, SAMENTA has not been included in discussions by the Ministry of Economy or the National Economic Action Council concerning the PWM.

Nevertheless, the organisation places trust in the Minister being well-advised by other stakeholders regarding the potential risks and challenges in implementing the PWM in Malaysia.

Reflecting on Singapore’s experience, where the model has experienced mixed results, Ng said the PWM has not extended beyond its initial sectors even after a decade of implementation.

It’s noteworthy that Singapore’s supportive rollout included substantial government subsidies and targeted skill enhancement programs. Additionally, Singapore’s lack of a minimum wage policy distinguishes it from Malaysia.

Implementing the PWM might be comparatively simpler in Singapore due to factors like a majority of workers having undergone regimented national service, familiarity with career pathways, and the concept of continuous training and productivity improvement, he said.

There’s also extensive support for skills development and industry transformation, along with government procurement based on living wages.

If Malaysia is intent on implementing the PWM widely, Ng noted that there must be readiness to subsidize employers, especially SMEs, to ensure successful implementation.

The associated costs extend beyond salary increments and encompass training, administration, and compliance expenses. This could fundamentally reshape the cost structure of many SMEs, potentially leading to detrimental outcomes.

For the PWM to be viable, he said the government might need to subsidise up to 75 percent of the wage differential, similar to Singapore’s practice, while funding employee training for tier advancement.

It’s implicit that any wage increase measures must be linked to labor productivity growth. This principle underscores the basis of the current minimum wage model in practice.

While the minimum wage in Malaysia increased from RM900 (Peninsular Malaysia) in 2013 to RM1,500 in 2023—an increment of 67%—labor productivity improved by a mere 25% over the same period. This growth was primarily attributed to the export surge of the last decade, added Ng.

The divergence between rising minimum wages and productivity has led many SMEs further into a low-income, low-value-add cycle, resulting in precarious profit margins and contributing to the majority of recent business failures.

The issue is not that SME owners intend to underpay or mistreat employees, but rather a structural matter. Many SMEs serve larger firms, which outsource labor-intensive tasks such as cleaning, packing, and transportation.

Consequently, Ng noted that SMEs exhibit labour productivity that’s 30% lower than larger enterprises. The PWM might disproportionately affect SMEs compared to larger corporations.

The PWM is unlikely to resolve the root problem of SMEs being entrenched in a low-income, low-value-add cycle. If not executed carefully, it could exacerbate this issue, leading to the collapse of more SMEs.

SAMENTA holds that while the PWM deserves a chance to succeed, it shouldn’t be viewed as the definitive solution to the wage stagnation challenge. At best, it could be a temporary measure to aid specific segments of Malaysians, assuming it replaces the minimum wage regime rather than being an additional layer.

Once again, SAMENTA urges the government to establish a high-level Future of Work Taskforce. This taskforce should address the substantial disruptions in the job market and formulate a comprehensive plan for the future of work.

This endeavour must involve relevant government bodies, the industry, including SMEs, to bridge the gap and equip Malaysia and its workforce for a transformed workplace.

The aim is to tackle not only the problem of job market disruption that leads to underemployment and stagnant wages but also to forecast a skilled workforce’s availability to support industry growth, create meaningful high-value jobs for Malaysians, and enable businesses, especially SMEs, to enhance their workforce and digital capabilities.

The current fragmented and reactive approach poses risks and hampers progress, leading to a widening gap between policymakers and the industry on matters like minimum wages, labor laws, social security coverage, employee benefits, and more.

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