World Bank Identifies 4 Reasons Why Salaries In Malaysia Low

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A recent World Bank (WB) report has confirmed what many Malaysian professionals have been feeling: Wages are simply not keeping up
While the economy is technically growing, the report noted that the gains are not sufficiently filtering down to the middle class.

The international financial institution revealed its findings in its latest report, 'Raising the Ceiling, Raising the Floor', released on 14 May.

In it, WB detailed several factors contributing to the slow wage growth.

It found that Malaysia's productivity has slowed, with wage growth being weakest among middle-income earners
While minimum wage has increased and top earners continue to see gains, those in the middle-income bracket are experiencing stagnant earnings.

Due to the lagging productivity levels, Malaysian workers also do not see the same productivity gains as their regional peers.

According to WB, Malaysian workers were twice as productive as those in China in 2010. However, in 2024, China has effectively caught up, while Singapore — already ahead of Malaysia — has widened the gap further.

Because Malaysian workers aren't producing 'higher-value' output at a faster rate, employers are hesitant to offer the 'higher-value' salaries many are seeking.

"The question is no longer whether Malaysians have jobs, it's whether those jobs are productive enough, whether they are well matched enough to the skills or the capabilities of workers in the labour market, and, I think importantly, whether they pay well enough to deliver on Malaysia's high-income aspirations," World Bank senior economist Dr Matthew Dornan said during the presentation of the report, according to The Edge Malaysia.

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On the other hand, Malaysia's top tier companies — dubbed 'Frontier Firms' — aren't growing fast enough
The WB has identified these 'Frontier Firms' as highly efficient companies that adopt the latest tech and pay their staff about three times more than the average firm.

However, instead of expanding and hiring more people, the WB said their market share has actually shrunk, resulting in fewer 'well-paying' jobs for Malaysian professionals.

The WB also found that 36% of tertiary-educated Malaysians are underemployed
This means many graduates are working in jobs that do not actually require a degree. The report describes underemployment as a form of 'wage penalty'.

It added that graduates in mismatched roles likely earn 49.3% less than peers in well-matched, high-skilled positions.

"What we argue in the report is that the primary driver is a demand-side constraint. The economy is not creating enough high-productivity jobs to absorb what is an increasingly educated workforce," Dornan said.

And then there's climate change, adding further pressure to wage growth
"Wage growth has been slower as a result of climate change, with flooding having a significant impact in certain regions and sectors," the WB said.

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