PETALING JAYA: A voluntary progressive wage policy will positively impact worker compensation and competition, but could leave the labour market open to wage inequality and exploitation, an economist said.
Universiti Malaya senior economics lecturer Goh Lim Thye said if many employers opt out of the system, workers in those companies may continue to earn lower wages with no opportunity for fair advancement.
“The actual outcome would be determined by a variety of factors, such as employer attitudes, labour demands, market dynamics, and government interventions,” Goh told FMT.
Last Monday, Prime Minister Anwar Ibrahim said the government’s proposed progressive wage policy would be voluntary, incentive-based and productivity-linked.
Economy minister Rafizi Ramli had previously hinted that the plan for progressive wages could entail making annual salary increments mandatory.
Goh said employers must design their incentive-based compensation schemes to ensure they are aligned with employee performance, the company’s overall objectives, and the employees’ mental health.
He said a recent study had shown that workers receiving performance-based pay work harder but have higher stress levels and lower job satisfaction.
Goh said making annual salary increases mandatory may not be a good idea as it would increase the financial burden on small businesses and cause inflationary pressure from increased production costs.
“This could be passed on to consumers via price increases,” he said.
Carmelo Ferlito of the Center for Market Education said a productivity-linked wage system would incentivise employees and employers to work together to improve productivity.
He said the voluntary nature of the policy recognises the fragmented nature of Malaysian capitalism, characterised by many microbusinesses.
“Therefore, it recognises that automatic mechanisms cannot be suitable for every business, and flexibility is needed,” he said.