KUALA LUMPUR: The common assumption that increasing wages can lead to market distortion and reversely affect economic performance is viewed to be an "unspell curse" to the Malaysian economy.
According to the Economic Outlook 2023, this assumption was strongly held by the majority of employers mainly due to the lack of evidence-based facts and scientific evaluation.
"Labour compensation or wage share has always been debated as a measure of how the benefits of growth are fairly distributed between labour and capital.
"The decent level and growth of wages represent the concept of economic justice or fairness for households as almost two-thirds of their income is sourced from the labour market," the report added.
From the national accounts perspective, the nation's total income is shared by labour, capital owner and government.
Income received by labour is essentially measured by compensation of employees (CE) or also known as labour compensation. Whereas, income for the capital is commonly represented by the operating surplus.
The report highlighted that the share of CE to gross domestic product (GDP) in Malaysia was considerably low despite increasing from 31.7 per cent in 2010 to 35.9 per cent in 2019.
This was much lower compared to other countries such as Germany (53.4 per cent), the United Kingdom (48.7 per cent), Republic of Korea (47.5 per cent), Australia (47.2 per cent) and Singapore (39.9 per cent) in 2019.
Meanwhile, the distribution of GDP growth on CE and gross operating surplus (GOS) is different.
Both CE and GOS are positively correlated with GDP but the latter has a much stronger relationship, which implies that the distribution of growth benefits the capital owner more than the workers.
"For example a 1.0 per cent increase in GDP growth contributes to 1.05 per cent to the growth of GOS compared to 0.63 per cent to the growth of CE. These confirm that the benefits of economic growth are more in favour of the owners of capital," it added.