A progressive wage model might not be what Malaysia needs

A progressive wage model (PWM) has been a point of discussion for the Malaysia government in recent months. Rafizi Ramli, Minister of Economic Affairs of Malaysia, recently shared that the government is studying the PWM model that has been implemented in Singapore. Can this wage model be successfully implemented in Malaysia?

The PWM model is mostly used in jobs where salaries do not rise very much because productivity and the value-add of the work is difficult to improve, opined Professor Geoffrey Williams, economist at the Malaysian University of Science and Technology.

Writing in Free Malaysia Today, he added, “The idea is that the wage will increase if workers enhance their skills, which hopefully would improve productivity to compensate employers for paying higher wages.” 

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Professor Williams argued that while the PWM is a success in Singapore, it is not a feasible model to be employed in Malaysia. Enforcement of the laws is near impossible, and could potentially lead to corruption where some vendors would be preferred over other eligible companies. Another drawback would be that it would not be able to cover informal workers or foreign workers in Malaysia. Lastly, employers would be more likely to rely on subsidies and payouts rather than actually reworking their business model.

“Judged against these criteria, the PWM is not a panacea and there are simpler ways of achieving the same thing,” Professor Williams concluded. “A reverse income tax as a form of universal basic income or enforcing the minimum wage and increasing it in line with inflation are both easier and universal and it serves as an incentive for employers to manage their wage increments and business models better.”