Introduction
Economic theory posits that the scarcity of a good or service acts as a driving force to elevate its traded value on the market. Scarcity empowers providers to raise their asking price against those who demand. But this logic seemingly fails to hold when applied to our labour market, as the conventional indicator of labour market “tightness”, a low unemployment rate, has coexisted with underwhelming real wage growth over the past couple of decades.
This view was prepared by Nithiyananthan Muthusamy, Deputy Director of Research; Shazrul Ariff Suhaimi and Dr Mohd Amirul Rafiq Abu Rahim, Research Associates from the Khazanah Research Institute (KRI). The authors are grateful for the valuable comments from Dr Suraya Ismail.
Deunionisation
The first critical factor is the systematic diminishing and weakening of organized labour since colonial times. Colonial laws, beginning from the Trade Union Ordinance of 1940, sought to limit and control the registration and composition of trade unions, which up until then had been a major source of anticolonial and nationalist agitation against British rule. Independent Malaya inherited and expanded this legal corpus to prohibit multi-industry or general unions, and to vest employers and the government with increased authority to limit union registration.
Exploitation of Migrant Workers
Malaysia has a long history with labour migration in the modern era, beginning with the influx of Indian and Chinese labour in the colonial period (19th and early 20th century) for rubber plantations and tin mines. As the economic focus for independent Malaysia shifted towards export-oriented industrialization in the 1970s and 80s, migrant labour was relied upon to address labour shortages in primarily low wage occupations. Migrant workers now comprise a sizable share of the workforce in key sectors such as manufacturing, plantations, and construction.
The dependence on low-wage migrant labour relates to our argument through two channels. First, the true scale of migrant labour is undercounted in official statistics, thereby providing a potentially inaccurate picture of the tightness of our labour market. Second, even if the “true” unemployment rate (including the full migrant labour count) were low, the exploitative institutional conditions of migrant workers would dramatically reduce the bargaining power of a sizable share of the labour force and thereby contribute to the minimization of the wage bill.
Education debt and sluggish job creation
Malaysia has successfully increased the tertiary-educated share of its labour force. While technology and shifting economic models are challenging the use of tertiary education as an indicator of skills accumulation, its relevance to our argument here is due to Malaysia’s institutional set-up that encourages debt-financed attainment of tertiary credentialing in an economic environment marked by poor job creation.
These indebted students enter the labour market and struggle to find well-paying jobs that are suited to their qualifications. A worker subject to immediate claims on their income stream in the form of debt repayment, while struggling to find jobs of adequate pay and quality, and lacking the collective potential of a union, is less empowered to withdraw and withhold their labour in the pursuit of more satisfactory terms. This is compounded by an economy with a sluggish job creation “engine”.
Conclusion
Worker power has reassumed its analytical significance as a key structural feature of economic life, with the power to explain a range of phenomena. The unemployment rate, on its own, fails to provide an adequate picture of “tightness”, if the term is meant to imply workers who are empowered to command a higher asking price for their services. Our understanding of labour market conditions should be enriched with a wider range of indicators that include dimensions of worker power and employer demand.
