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A big concern if inflation outpaces wage growth

By Dr. Muhammad Daaniyall Abd Rahman
 

Welcome to the year 2022, the actual year of economic recovery for Malaysia. Malaysia's economic recovery from the Covid-19 shock is in progress. Although we can see the economy slowly healing, a full recovery is expected to take more time.

In fact, the country's gross domestic product (GDP) had shown great improvement in 2021, rebounding by 16.1 per cent in the second quarter. That could at least partially reduce the losses incurred during the lockdowns.

 

 

While the economy is keeping up, the whole population is worried about the inflation "curse".

Globally, the price hike happened due to rampant demand for goods and services that met bottlenecks due to supply chain disruptions.

In an economic equation, this causes a surplus of demand; supply struggles to catch up, leading to a higher price level.

 

This trend is exacerbated by soaring energy prices, particularly in large economies, such as the United States, China and the United Kingdom.

In Malaysia, up to November 2021, inflation had increased by 3.3 per cent, compared with 2.9 per cent in October, with November being the fourth month of price rise since August.

The higher price level reflects expanding nominal profits for firms — which is good to portray a rise in GDP — but at the cost of greater pressure on people's purchasing power, especially the low-income groups. However, the question that is even more crucial is, how does wage growth compare with the rise in prices?

In rich economies, a recent trend of a wage-price spiral has emerged, where prices of goods and services, and wages are surging.

For example, in the US, it is reported that the American hourly pay rose by 4.6 per cent in September 2021. At the same time, consumer-price inflation rose by 5.4 per cent. Despite the wiping-out effect — inflation being higher than wage growth — it is learnt that wage can still grow during a crisis.

Has the same trend taken hold in Malaysia? Inflation rose for four straight months, based on official statistics, but for salaries there is not much evidence.

In 2020, the average monthly employee salary dropped by 9.0 per cent, from RM3,222 to RM2,933. It seems that the average salary drop was likely induced by cuts or unpaid leave by companies to reduce overhead costs.

As referred to in the Q3-2021 EU-ERA Quarterly Labour Market Perspectives report, 62.8 per cent of job placements are for positions that pay between RM1,200 and RM1,999, with most of them concentrated in places having a high cost of living, such as Kuala Lumpur, Selangor and Johor.

While Bank Negara Malaysia's individual "living wage" estimate starts from RM2,700, the EU-ERA report states that only a quarter of people returning to work received wages above the living wage line. Job opportunities also seem to show a similar trend with 62.3 per cent of vacancies being in the non-PMET (professional, managerial, executive, and technical) category, offering wages of below RM2,000, the EU-ERA report says.

At the national level, this is not surprising as the average employee salary had been stagnant prior to the pandemic. It is estimated that the average salary growth rate was 2.8 per cent between 2015 and 2020, while inflation grew by 1.0 per cent in the same period.

However, only recently, as people are suffering from income reduction and job losses, the curse of inflation has generated public outcry. People are asking for decent wages.

It then becomes a big concern if inflation outpaces wage growth, as high inflation will hurt the post-pandemic economic recovery.

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The writer is a Senior Economist at EIS-UPMCS Centre for Future Labour Market Studies (EU-ERA) and also a Senior Lecturer at Universiti Putra Malaysia

Sumber: New Straits Times, 6 January 2022

Tarikh Input: 15/03/2022 | Kemaskini: 15/03/2022 | syazmer

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