Malaysia’s labour market appears stronger than it has been in years, with low unemployment and steady economic growth. However, the World Bank says many workers are still not seeing their incomes rise at the same pace as the economy.
Its latest report, Raising the Ceiling, Raising the Floor: The Jobs Agenda as a Productivity Agenda, highlights a widening gap between GDP growth and wage growth over the past decade.
World Bank: Wages Have Increased, But GDP Has Grown Much Faster
According to the World Bank, real wages in Malaysia have increased over the past 14 years, but the pace has been much slower than the country’s economic expansion.
Median monthly wages rose from RM1,300 in 2010 to RM1,864 in 2024, while average wages increased from RM1,792 to RM2,570 over the same period.
This represents a 43% increase in real wages. However, Malaysia’s gross domestic product (GDP) grew by 82% during the same period.
In simple terms, workers are earning more than they did a decade ago, but wage growth has not kept up with economic growth.
The report noted that real wages grew by around 3% a year on average, although growth slowed during periods of economic adjustment and declined during the Covid-19 pandemic before recovering.
The Middle Class Has Seen The Weakest Salaries Growth
One of the most important findings in the report is the uneven distribution of wage growth.
While lower-income earners and top earners recorded relatively strong gains, many middle-income workers saw slower wage growth.
The report found that workers in the fourth to sixth income deciles experienced some of the weakest wage increases.
The fifth income decile recorded real wage growth of only 29% between 2010 and 2024.
By comparison, the lowest income decile saw real wage growth of 102%, while the highest income group recorded growth of 52%.
Although lower-income workers recorded the largest percentage increase, the report noted that this was from a relatively low starting point.
Meanwhile, higher-income earners enjoyed the largest increase in actual ringgit income because of their much higher salary base.
The World Bank also found that inflation reduced the purchasing power of many middle-income households, limiting the real impact of salary increases.
Malaysia’s Productivity Problem
The report argues that one of the main reasons wages are not rising faster is slower productivity growth.
According to the World Bank, Malaysia’s productivity performance has weakened compared to some of its regional competitors over the past decade.
In 2010, Malaysian workers were roughly twice as productive as workers in China. By 2024, China had largely caught up, while Singapore had widened its lead even further.
Without stronger productivity gains, businesses often find it difficult to justify significantly higher wages.
Speaking during the presentation of the report, World Bank senior economist Matthew Dornan said, “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.”
Too Many Graduates, Too Few High-Skilled Jobs
The report also highlighted a growing mismatch between education levels and available jobs.
Despite a strong labour market, many graduates are still working in jobs below their qualifications.
The findings showed that approximately 36% of tertiary-educated Malaysians are underemployed, meaning they are working in positions that typically do not require a university degree.
According to the report, graduates in mismatched jobs may earn 49.3% less than similarly educated workers in well-matched, high-skilled roles.
Dornan said, “These people did the right thing. They studied, applied themselves, graduated, and entered the labour market, but the economy isn’t generating enough high-skilled jobs to absorb them.”
He added, “The question is no longer whether Malaysians have jobs, it’s whether those jobs are productive enough and well-matched to worker skills or capabilities.”
In Kelantan alone, 52.3% of tertiary-educated workers are employed in lower-skilled jobs, significantly higher than the national average.
High-Paying Companies Are Not Expanding Fast Enough
Another issue identified in the report involves what the World Bank describes as “Frontier Firms”.
These are highly productive companies that use advanced technology and pay employees about three times more than average firms.
However, despite their productivity and higher wages, these firms are not expanding quickly enough to create large numbers of high-skilled jobs.
As a result, many educated Malaysians are unable to access the kinds of positions that typically offer stronger salary growth.
Dornan said, “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.”
Why The World Bank Believes Better Jobs Matter More Than More Jobs
While unemployment is near decade lows and labour force participation has reached record highs, the report argues that employment alone is no longer enough.
Jobs need to match workers’ skills and provide salaries that can keep up with rising living costs.
Ultimately, the World Bank argues that economic growth alone will not automatically lead to better living standards.
To achieve stronger wage growth, Malaysia must create more high-productivity businesses, improve job matching, raise worker productivity, and generate more high-skilled jobs.
Only then can salaries begin to catch up with the country’s economic ambitions.
Sources: 1| 2| 3| 4
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