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Budget 2027 proposes a minimum starting salary of RM2,500 a month for graduates and semi-skilled workers, with implementation targeted for June 2027. The government says the move is part of a broader effort to ensure wages better reflect workers' qualifications and skills.
However, will a higher starting salary translate into stronger financial security and a more sustainable future for young workers? What are the proposed policy's potential and its limitations? On this episode of #ConsiderThis Melisa Idris speaks with Dr Suraya Ismail, Director of Research of Khazanah Research Institute, and Dr Juita Mohamad, Senior Lecturer at Universiti Malaya’s Department of Economics.
However, will a higher starting salary translate into stronger financial security and a more sustainable future for young workers? What are the proposed policy's potential and its limitations? On this episode of #ConsiderThis Melisa Idris speaks with Dr Suraya Ismail, Director of Research of Khazanah Research Institute, and Dr Juita Mohamad, Senior Lecturer at Universiti Malaya’s Department of Economics.
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NewsTranscript
00:18hello and good evening i'm melissa idris welcome to consider this this is the show
00:23where we want you to consider and then reconsider what you know of the news of the day budget 2027
00:28proposes a minimum starting salary of 2 500 ringgit a month for graduates and for semi-skilled
00:36workers the implementation target for this is june 2027 now the government says that all this is part
00:43of a broader effort to ensure wages better reflect workers qualifications and skills however this
00:50initial framework will be a guideline and it will not be legally enforceable just yet however the
00:57question we want to ask tonight is will employers follow it and will the higher starting salary for
01:03graduates translate into stronger financial security and a more sustainable future for our young
01:10workers well joining me on the show to help me examine the proposed policy's potential and its
01:16limitations i have with me dr sarai ismail who is the director of research at kazanah research institute
01:22as well as dr juita muhammad who is senior lecturer at university malaya's department of economics
01:28welcome to the show thank you so much both of you for joining me um dr juita if i may
01:32begin with you
01:33very quickly i i would love actually to hear the both of you um your thoughts on the proposed policy
01:40in budget 2027 what did you make of the government's proposal to have this starting salary for graduates
01:47and semi-skilled workers okay there's no short answer to this okay but i before answering this
01:55question i really want to go back to the basics okay and first i think we need to think about
02:01why
02:01malaysian wages have been relatively low in the first place so i see this as a structural issue and it's
02:10there are about three or four structural issues first is our dependence of relatively low unskilled
02:18foreign workers particularly in the labor intensive industries and then again this can actually reduce
02:27the pressure on the businesses to increase the wages and to invest in technology in automation
02:35and to move towards uh like high productivity uh production uh model so that's one um issue um the second
02:45one is that we don't have enough um skilled workers jobs for skilled workers which is um supported by
02:57again automation and digitization so that's number two and number three we have an issue of mismatch
03:04between the skills that people have and the jobs that are available okay so again with this mismatch
03:13um persistent over two decades at least we see that our graduates are being underemployed while
03:23on the other hand the employers simultaneously keep complaining that they cannot find workers with the
03:30the skills that they need so putting all this together i see 2 500 ringgit in nominal terms
03:38as addressing part of the problem but it cannot substitute for structural reforms okay so again we need to be
03:49able to create more high skilled jobs for our skilled workers um so that we can also ensure our economy
03:57um so that it can generate a more sufficient demand for the skills that we produce so when you say
04:04part of the
04:04problem which problem specifically which part of which problem low wages low wages so specifically low
04:11wages so you're raising the floor for graduates uh starting salary to 2005 and i want us to make a
04:18distinction because there were several issues that came up during budget 2027 minimum wage was one so
04:23two thousand ringgit minimum wage then we had the starting salary for graduates 2005 and then there's a
04:28living wage of two uh 3004 uh dr sraya let's start with what you made of these different categories of
04:37wages that was announced in budget 2027 i'm sorry i've got the wrong year thank you um thank you for
04:46for
04:46for having um me on the show i think um i'd like to um extend as well what um what
04:53was discussed earlier
04:54which is um why why do we have this to begin with yeah why why do why is it the
05:00government is going in
05:02at the minimum wage at the graduate salary entry level as well as decent wages so something must be wrong
05:09somewhere um and i think it's um it's not just about um as as mentioned by dr jurita um that
05:18there's
05:18economic fundamentals which is we are in a cycle vicious cycle of low wages low productivity but it's
05:26also about the bargaining power the power relations in terms of wage dispersion why do i say wage distribution
05:35or dispersion or dispersion is because it appears that the government is helping in terms of setting
05:42minimum wage the minimum the basic minimum and then as well as graduate level and as well as decent uh
05:48wages and and this um brings to a a a real problem of um why why do government have to
05:58interfere in all
05:59three um so let's bring a little bit of history into this um when we first started the nine uh
06:07the 2012
06:08the the minimum wage was 900 um and then after that 2018 1000 2019 1001 1100 but and then up
06:20till now
06:21uh in 2025 it's once once one seven and then the proposed for 20 uh 2027 is 2000 but let's
06:30look into
06:30the process uh historically as well as the process of why it came about in 2012 so prior to that
06:38however
06:39productivity gains the economy has had that by the 1957 we've never had proper um which compensation to
06:47those productivity gains so it's a catch-up grade 50 years of not doing anything or 60 years why was
06:53why why why why wasn't there um because in in terms of which setting we have we must have unions
07:00uh we must
07:01have a certain apparatus that is critical to ensure that workers get decent wages now in the absence of a
07:10centralized or union or people really taking care of the workers welfare um so we have um a concerted
07:21effort from the government in 2012 but in this process we also had all the major unions as well as
07:28all the
07:28workers union as well as all the major employers um groups coming together discussing back in 2012
07:39um for minimum wage um for minimum wage and the government as an arbiter or someone who negotiate
07:45between these two okay and that's why it came about with the 900 but again before that prior to that
07:52there was no there was none so this is a catch-up rate essentially okay yes so so so when
07:57people are
07:57asking hey but from 2012 you nampak in the tiktok social media and whatnot from 2012 to 2025 from 900
08:05to
08:052017 and now it's you know 2000 but we are playing catch-up okay because that's why when we we
08:12look into
08:13the the the progressive or which stagnation a report by kri backed by bank negara back in uh we did
08:21a study
08:22from 2010 to 2019 uh there was a uh increase in wages but there was still uh wage stagnation now
08:31that was
08:31after minimum pay so can you imagine before that so there there is a lot of catching up to do
08:37okay
08:38the historical context is is important it's important it's important at the same time the
08:43process in which this proposed minimum wage was um this uh discovered the price price you know price
08:51setting needs to be discovered too i mean you can't put arbitrary number boom letak you have to you have
08:56to test the water see whether it works or not so so so it was done in such a way
09:00that there was some
09:01econometric modeling done by a few universities and gave to the wage council and this was discussed
09:09between the workers union as well as employers union and you know look by by the government okay
09:16and they were even testing econometric testing whether it could be absorbed this wage increment
09:22across sectors across industries so this was done in such a way that minimum pay i'm talking about minimum
09:27minimum wage okay uh it was a process that for me one it highlighted that um we are serious as
09:36a trap
09:36i type uh government workers union and employers uh group that we we want to get away from those economic
09:45fundamentals that we are going for you know low wages low productivity uh low rnd we want to move away
09:53from
09:53that and having a decent pay will then encourage this sort of okay well so the conversation is now
10:01uh focused on minimum wage and i just want to ask the both of you do you agree with malaysia
10:06setting
10:07a minimum wage and having it steadily increase and the reason i ask is that many people disagree with
10:13this they they point to singapore and say singapore doesn't have a minimum wage it's set by the um the
10:18market market market forces so uh how do we think about the minimum wage both of you let's start
10:24with the minimum wage and then we can go on to the graduate um graduate starting pay that's right are
10:29you are you a proponent for minimum wage or against it of course i'm i'm a because i look at
10:35the process
10:35and how we arrive at the minimum wage because uh again if we didn't have that process in place
10:41the prices the wages that we have from 1960s will still be the wages that we have now so back
10:47in
10:471995 when uh just for personal experience for example and i went into the job market in 1995 my wage
10:55was um 180 and now it's still 180 so so so so so the point of the matter is we
11:05have to even look at the
11:07the integrity of the process in this process there is an econometric modeling done there is a
11:14um workers uh union giving their um inputs on cost of living there is also the benchmark of um the
11:24living wage how much it how much does it cost to have a decent a decent life because what's the
11:29point
11:30of working you can't cover cost of living but though you're right so so so so that's one yeah yeah
11:35yeah dr juita what what about you when you think about the minimum wage are you agreeable to it of
11:40course
11:40in the absence of strong union movements you need minimum wage laws and again um minimum wage laws
11:55empower the workers and one of the very important chapters when we look at the free trade agreements is
12:03the labor chapter so again this might be one of the boxes any free trade agreement partner would like to
12:13tick because again it shows that there is um a law that protects uh the workers and it's not just
12:23about
12:23minimum wages but also when you have strong labor unions you have stronger bargaining power not just for
12:32wage related um conditions but also non-wages like better working conditions conditions yeah and
12:41and benefits okay non-non-financial right okay so so let's move the conversation to the graduate
12:48starting pay 2005 um i want us to think through this policy this proposed policies a lot of people have
12:55been poking holes in them saying that it might not affect many graduates who are underemployed currently
13:01but talk to me about let's think through maybe some of the limitations or the unintended consequences
13:08of this a lot of um some of the issues that have been raised is that it could produce because
13:13they've
13:13loved graduates with semi-skilled workers and the in the same category does this mean that we're
13:19creating a system where we're undervaluing certain skills are we thinking about graduates of the same
13:25category as semi-skilled workers how do both of you uh see if i may be with you dr juita
13:30wow this is a
13:31difficult question so you're right um 2500 in nominal terms for all graduates that is a blanket yeah um in
13:44certain countries in certain developed countries and even for uh vietnam um they have the minimum wages for
13:52vietnam uh based on the location or the states that they're in okay okay so in germany wonderful uh
14:00wonderful example for this the minimum wages is that it goes back to the industry if you are in the
14:08manufacturing uh sector you have a different minimum wage so again i've said this before the the 2500
14:18blanket could be the first step for malaysia um but again i keep saying in nominal terms because we
14:28haven't actually um accounted for inflation right inflationary pressure but again you are right um when
14:37but then the definition goes that if you are a graduate graduate from tertiary um institutions you are clumped as
14:47skilled workers yeah right yes so the semi-skilled workers is a problem for me yeah how do you think
14:55about that category the different qualifications so again when it goes back to wage determination you
15:02need to be looking at age you need to be looking at education attainment and years in schooling so that's
15:10wage determination right so again the minimum wage is just a benchmark okay but does it mean that it
15:18should be the ultimate wage that is being paid okay so in terms of implementation this is where again
15:25you need to have interactions with the industry okay is that is that has that communication be made clear
15:31because it sounds like well employers need to pay 2005 for for graduates now and what is then stopping them
15:39from only hiring graduates at 2005 yes and not really going up more than 2005 i think um again i
15:47i always
15:48believe in the um investing in the process of making sure that um each every time we set something up
15:57it is it must be based on um workers um workers input at the industry level um as well as
16:07employers and of
16:08course the government um to look into it however i'd like to bring another issue about this because you know
16:16minimum wage we we understand how it's done and the process was for me intact um the rest of the
16:23numbers
16:23across the distribution i think uh it's a little bit problematic um if i just look into the uh um
16:30um median wage medium wage medium wage is 3k currently so you have a minimum wage of 2k you have
16:38a uh
16:39median wage is 3k the bunching so half of the working population is at three now we're saying it's two
16:46now
16:47then then we put two five it's it's all very arbitrary i i think um but what we do know
16:53for certain outcome
16:55base is 3k is the current median wage and i think um there will be a lot of uh bunching
17:02there and there
17:02will be more stagnation there in terms of um which um which increments and which stagnation will happen
17:11however in order to circumvent this problem i think this is why we have to institutionalize
17:18um the progressive wage initiative you can't have minimum wage at two and then median wage at three
17:28in the current state you must have uh you have to i mean to my humble opinion sorry advice is
17:36that
17:36we must have also a mechanism for progressive wage initiative in each industry okay yes because um that
17:46is very important because um in order for us to really um understand um the wage dispersion and
17:54distribution um without having that um um sorry wage um distribution numbers as well as a progressive
18:05wage initiative as well as sector-based industry productivity there's so many other things we have to do
18:13i think before we come up with these other numbers i understand i understand because there would be wage
18:19compression also for people coming in with a certain salary and the people who are already in the
18:24workforce for several years yes getting the same salary for instance right that that's another so so
18:30there are other um systems or structures that need to be put in place before we can actively um think
18:37about implementing this and implementing this well yes at the distribution level because minimum is fine
18:43but once you start going along the curve okay distribution there must be more numbers to it okay
18:49do you see the same with dr twitter that we need to have these processes in place yes but i
18:54also believe
18:54in the power of negotiation okay so when the new 2500 ringgit minimum wage is set then those like
19:06on the upper echelons can use this as a negotiating okay chip right so if you've been say working in
19:15a
19:15company for five years and you have five years experience but you're still earning 2005 you can
19:22come and negotiate this hey someone new is coming in i've got five years experience raise my salaries so this
19:28is where i want to ask you about pushback this is precisely what employers fear that it not the
19:34minimum not the starting salary but all the requests that will come in later from employees who've been in
19:41the company concerned about wage compression uh how do we consider that in the policy design of a graduate
19:48starting salary uh dr sir yeah you're nodding i'm gonna come to you so so as i mentioned before um
19:57starting at minimum wage is you actually had a system where you um people from the union and people from
20:06employer came together at the national level means it's very centralized but once you start at the sector
20:12level professional non-professional you really have to have that processes in place as well so then then
20:22only you can see and it and and firms they do have their cost curve they do have their you
20:27know income
20:28curves um and i think one of the real issues that they have to look into is can i can
20:35i still retain
20:36the ones that i have or do i then i mean this is was the thinking do i then have
20:42to uh increase my um operations
20:47in terms of mechanization uh do i ensure that i am no longer reliant on cheap labor and then the
20:55the move
20:56to then put everybody up onto the higher which uh distribution makes sense so this is basically a whole
21:06i know evolution or what we call a um quite a revolution at the firm level to then think about
21:15what ought to be the case once you have minimum wage at two and what is the distribution that you
21:22are
21:22thinking about right again progressive wage initiative must be in because that's when the people in the um
21:30in the distribution or in that sector can think about okay so how much more do we need to increase
21:37every year okay progressive which and that is done in singapore by the way that is that is how singapore
21:43does the progressive wage model okay so so in the time that we have left can i ask you uh
21:48time is really
21:49slipping away from us very quickly today how do we ensure that wages continue to
21:56arise but to do so in a sustainable manner so it's not um overburdening businesses and employers um
22:04um so just to summarize we've had a conversation where the blanket is 2500 ringgit for smes and bigger
22:15firms so one of my talking points was actually when we look at um the wage determination for the
22:25minimum wage is that it's not only productivity it's not um just about um productivity or it needs to be
22:35also on labor intensity okay uh the usage of labor how intensive it is but also to look at other
22:46determinants or other variables like the willingness of firms to pay and the ability of firms to pay and we
22:54did not talk about that here so the bigger the firm is the higher the profit margin would be
23:01so they have the ability to pay for this right willingness is something different different
23:07right the ability is the ability is there but for smaller firms the smes where they are maybe concentrated
23:14in low productivity uh production of goods and then they have to operate within a very tiny
23:24margin of profit then it's very difficult for them because they don't have the ability to pay so i think
23:33the conversation should also be looking at bigger firms who can pay and those who do you think smes should
23:42be exempt from their starting pay um for now my take is that smes need a bit more help incentives
23:51but
23:52these incentives should not be long term or permanent because it will just serve as a crutch to the smes
23:59it should be eventually yes in the long term we want the smes to be productive and when they're more
24:05productive they can pay their workers higher wages organically okay without the help of the government
24:11dr sraya i think um there is a i'll i'll i'm reading this book by asker nazi
24:18where he described a phenomenon over the decades that downplays or flatly denies ordinary workers
24:24contribution to quote-unquote wealth generation of firms and by saying that their labor is unproductive
24:33so i think this is in the us so i think once you have profit you can pay your workers
24:40you should be able to pay your workers because they helped create that so i think this is a
24:45wonderful um quote by asker nazi 2016 okay there you go so so you're gonna end on that note i
24:53will
24:53i will end the show on that note i want to thank you for um coming on and sharing your
24:57insights because
24:57this is really quite complex we haven't even touched on living wage and i i think we will
25:02have more discussions about what that entails for many people thank you both for being on the show it's
25:08been a pleasure talking to you today that's all the time we have for you on this episode of consider
25:12this i'm melissa idris signing off for the evening thank you so much for watching and good night
25:39thank you
25:41so