EVIDENCE shows that wage is one of the key ways to effect structural economic changes in the country.
Recently, the economy minister said the government wants to formulate a policy on a progressive wage model (PWM), or also known as the progressive wage system. I welcome the government's commitment to change the wage structure.
PWM emphasises progression or advancement in wages based on certain controlling parameters.
Unlike the traditional minimum wage model, which sets a standard wage floor for all workers regardless of skills or experience, the progressive wage system recognises and rewards individuals who make progress in their careers and enhance their productivity.
As workers acquire skills, gain experience, and demonstrate improved job performance, they become eligible for higher wages, progressing along a wage scale.
The PWM is a fair system that offers market equilibrium between workers and employers.
Productivity growth means an increase in output and revenues that will compensate for the increase in labour costs. Thus, workers and employers are well off.
PWM can be customised to specific sectors or industries, taking into account unique characteristics and requirements. This flexibility allows targeted wage adjustments based on skills demanded by different sectors, ensuring a more accurate reflection of wage structures.
In the case of Malaysia, PWM should be focused on low-wage workers, particularly those in semi-skilled and low-skilled occupations. Singapore has applied PWM to overcome wage stagnation among workers.
The model was developed by tripartite committees consisting of unions, employers and the government.
PWM sectors have raised wages at a sustainable and meaningful pace without hurting the livelihoods of low-wage workers.
It can map out a clear career pathway for wages to rise along with training and improvements in productivity and standards.
At the same time, higher labour productivity will translate into more profits for employers.
The following are some advantages of implementing PWM:
WAGE progression. The progressive wage model emphasises wage progression based on skills, productivity and experience.
It allows workers to be paid more as they gain experience and develop their skills. This provides an incentive for workers to improve productivity, leading to better job performance.
REDUCED income gap. By linking wages to skills and productivity, PWM will help address the country's income gap.
It ensures that workers who enhance their skills and contribute more to their jobs are rewarded with higher wages.
This approach promotes fairness and reduces wage disparities between workers at different skill levels, helping to narrow the income gap.
SKILLS development. PWM will encourage workers to invest in skills development and training.
With the prospect of earning higher wages as they acquire new skills, employees are motivated to participate in training programmes. This benefits both workers and employers by enhancing workforce skills and productivity.
IMPROVED job quality. The progressive wage model incentivises employers to enhance job quality to justify higher wage levels. To justify the higher wages associated with skills and productivity, employers may improve working conditions, provide additional benefits, and offer opportunities for career advancement.
This can lead to better job satisfaction, increased employee loyalty and reduced turnover.
PRODUCTIVITY gains. By linking wages to productivity, PWM encourages workers to be more productive.
When employees realise that their efforts directly impact their earnings, they have a greater incentive to work efficiently and effectively. This can lead to productivity gains for businesses, contributing to economic growth and competitiveness.
PWM is one part of the solution for the overall shifting in labour compensation. In my view, there are two aspects that are needed to support this shift.
First, we need to develop guidelines for better adoption of the profit-sharing model. Second, we need to have a holistic governance body to monitor the whole wage structure from pre-employment to post-employment.
The writer is chief executive officer of THE FUTURE, a think tank established to bring about economic transformation by using evidence-based approaches in applied research, advisory services and educational programmes