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  • Staff Member 01

Let’s look at wages

On Astro Awani yesterday, I stressed over and over again that we need to protect jobs but as suspected, politicians preferred to provide handouts.

In macroeconomics terms, job security is much more crucial than handouts. Here is a much simpler explanation; protect the fishing rod (job) and not just give fish (handouts).

To the new government’s credit, the RM25 billion direct injection for a period of 2 to 3 months is very good. The quantum of support is about right, in terms of fiscal reality. However my immediate recommendation to the new MoF is to readjust and rebalance the RM25 billion injection package, prioritising jobs over handouts at a better ratio of 2:1.

The government’s offer of wage subsidy is RM600 a month. In my humble opinion, this is inadequate. Why? The mean income of Malaysians is a low RM3,087. A RM600 subsidy represents a mere 20% support. It is also limited to those earning RM4,000 and below, affecting only 3.3 million out of a total of 15.3 million workers or roughly 21% of the workforce. This policy is too little and too narrow to have a strong positive economic impact. I am also afraid that most SMEs and businesses may only be able to hold the fort on a low revenue scenario, for not more than 3 months. With salaries representing, plus minus 50% of SME operating costs, a better wage subsidy scheme will greatly help.

In Denmark, the wage support is 75% across the board. In the Netherlands, it goes up to 90%. Singapore wage support is around 25% to 75% depending on earning levels and sectors.

Like Malaysia, Singapore also rolled out a combination of welfare payment and wage subsidy. But interestingly, the welfare component is $4.66 billion compared to the wage subsidy of $15.1 billion. In other words, in Singapore wage subsidy is 3.2 times bigger than the welfare component. In Malaysia, we go the opposite direction, allocating RM12 billion on welfare handouts and RM6 billion for wage support.

Sure, you can say that Malaysia and Singapore have different economic structures. But the principles of macroeconomics are still the same. You have to protect employment to keep the economy safe and sound.

In addition, Malaysia has a very low unemployment rate of 3.4%, this data tells us clearly that we should focus more on wage subsidy rather than handouts. However in the warped world of Malaysian politics, handouts are often seen to be more beneficial to political interests.

As I said at the start, I applaud the RM25 billion injection but I will urge the government to readjust the ratio for the welfare and wage subsidy component. My last recommendation to the government is to keep a flexible policy and talk a lot more to SMEs.


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