Volume 21 Issue 3 March 2017

The rising cost of living in conjunction with stagnating wages has been adversely impacting populations around the world. Countries that are far apart in geographical terms but closely linked due to trade ties and reliance on the same scarce resources are feeling the effects of shrinking incomes. Malaysia, which is often cited as an example of the kind of economy a developing country can aspire for, is also facing the issue of the middle class being squeezed by these constraints.

There are increasing discussions in the Malaysian press regarding what is viewed as a serious problem and a barrier to the country’s overall growth. Beneath the outward surface of prosperity, the Malaysian economy is facing a multitude of issues which are leading to stagnating wages and price hikes. Businesses in Malaysia are not seeing any significant growth in profits and are in turn forced to pass on their costs to consumers while being unable to offer increments in salary to their employees. This creates a vicious cycle since the employees are unable to purchase higher priced items as consumers because of their low incomes which leads to slow business growth. According to the Department of Statistics, wage increases after adjusting for inflation, have been minuscule over the past few years. In urban areas, where the cost of living is already higher, this lack of income growth leads to bigger problems.

However, the issue is not wholly due to slow growth of businesses or their unwillingness to increase wages but also the way income is generated and distributed in the Malaysian economy. Like other countries reliant on the manufacturing businesses, Malaysia is feeling the pinch of job redundancies in the face of growing automation. The jobs on offer in the manufacturing sector are generally labour intensive and attract low-skilled individuals. In order to save costs, labour is often hired from amongst immigrants who demand lesser pay than Malaysian nationals. This too has become a thorn in the side of people who are seeing their incomes and opportunities shrink while jobs continue to be offered to foreign workers. In addition, employees get a lesser share of business profits as their income as compared to Malaysia’s neighbouring countries. For every ringgit (the local currency) earned by a business, employees received only 35 cents on average as their wages. It is also worth noting here that Malaysia does not have a strong system of unionization which has left employees without the power to collectively bargain for more pay and benefits.

There is also the issue of indirect taxation. The increase in cost of living is widely attributed to the government’s imposition of the Goods and Services Tax. According to experts, the impact of GST could have been borne with ease had wage growth continued. However, since incomes have already become stable at a certain point, rising costs through imposition of indirect taxes is an additional burden on consumers.

All these factors combine with a distrust of a system which seems rigged against ordinary Malaysians. There is talk in the media of shady business practices through which favoured individuals may receive much higher salaries because of cronyism while those without anyone to give them a leg up are stuck in dead-end positions.
Whether this particular claim is true or not, the perception of the issue is causing dissatisfaction in the Malaysian public.

As basic necessities become more and more unaffordable, life is changing in Malaysia for those at the start of their careers and also those nearing the age of retirement. Fresh graduates are finding that there are fewer places to work in, the jobs on offer don’t offer much growth or income and their future life plans now have to be more modest and have longer timelines. Increased property prices mean that like in many other countries around the world, the dream of owning a house may not come true for many young Malaysians. Meanwhile, older employees are having to defer their retirements in order to make ends meet.


Economists and experts both in Malaysia and abroad offer several solutions to the economic issues which are currently plaguing the country. However, the implementation of these would require the government to first acknowledge the existence of a systemic problem. Thus far, the strategy has largely been to lay the blame on businesses and on citizens themselves. When the Malaysian Prime Minister, Najeeb Razak spoke on the issue he was quick to defend the GST while also stating that the issue of low incomes was caused by low academic qualifications which barred people from being offered higher paying jobs. While there may be some truth to this statement, it refuses to account for the fact that a government’s responsibility is to ensure that all people in a country, regardless of their education level, are able to earn enough to sustain themselves.

More recently, the government has started looking into ways to reduce the cost of living after the issue has been raised consistently on a number of forums. The Domestic Trade, Cooperatives and Consumerism Ministry has announced measures which aim to promote fair pricing and subsidized supply of certain products to reduce the burden on end consumers. Though this is a positive step, its effects on helping Malaysians balance their household budgets remain to be seen.

Apart from such stopgap measures, there is a need to conduct a deep, countrywide analysis to find out the root causes of this multi-layered issue. The coming years point to an overall slowing down of the world economy, particularly in manufacturing industries which rely on low skilled labour. Instead of seeing this as an opportunity to revamp their economic model and pointing the workforce in a new direction for the future, most governments are looking backwards by promising to kick out immigrants and bring back factories. The Malaysian government should not follow this example and should instead change the course of the country’s economy by investing in those enterprises that are expected to grow in the future. Not all jobs are going to disappear in the kind of technology rich world which will exist a decade or two from now. But the nature of work i.e. the amount and kind of work to be done will change drastically. In such circumstances only those economies will manage to succeed which position themselves in the right direction today.

The Malaysian government would do well to listen to economists who, instead of offering quick band-aid solutions, are urging policymakers to have an in-depth look at the issues. Wage stagnation and cost of living increases are putting undue pressures on the middle class, leading to the creation of economies in which only the rich and poor exist. Such a situation is untenable and can only have a severely negative impact on Malaysia’s development goals and its standing in the world as a modern, well-developed country. Only foresightedness and a sound decision-making ability can lift the Malaysian economy out of the quagmire. The urgency of the issue and its far-reaching impact should be understood by the Malaysian government before it is too late.

The writer is a business graduate. She has an interest in political and social issues.

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