Salary Hike A Boon For Retail, Travel Sectors

By Nurul Jannah Kamaruddin

KUALA LUMPUR, Jan 20 (Bernama) -- The government's move to raise the salaries of civil servants and the minimum wage is set to positively impact the retail and travel sectors, which rely heavily on consumer spending.

An economist estimated that the civil servant salary hike will boost their consumption by 6.0 to 6.5 per cent this year.

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“For government servants in the lower- and middle-income brackets, the additional income will directly enhance their purchasing power, enabling greater expenditure on both essential goods and discretionary items,” UOB Kay Hian Wealth Advisors Sdn Bhd head of investment research Mohd Sedek Jantan told Bernama.

This, therefore, fosters economic activity and supports local businesses.

“The positive multiplier effect generated by increased consumption will stimulate revenue growth for businesses, encouraging further investments and job creation which will, in turn, strengthen the broader economy,” he added.

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Mohd Sedek also highlighted that the increased demand can prompt businesses to scale up production, extend operating hours, or hire additional workers.

“In a labour market characterised by perfect competition and low barriers to skill acquisition, employers may encounter difficulties in retaining employees, as workers might switch jobs in pursuit of better remuneration.

“To address this, businesses may raise wages to retain their workforce, potentially triggering a knock-on effect that drives wage increases in other sectors,” he said.

Moreover, increasing wages is often a more cost-effective strategy compared to repetitive hiring and incurring overtime costs, hence making it a pragmatic choice for businesses aiming to maintain efficiency, he opined.

As for the civil servants, he suggested the government consider implementing a performance-based range for salary increments rather than a fixed percentage to leverage the principle of loss aversion, motivating employees to sustain or enhance productivity.

Juwai IQI global chief economist Shan Saeed said the time has come to increase real wages as productivity has improved in the last 10 years for Malaysia.

“The Malaysian economy is on the upsurge as the average gross domestic product and income growth level hit 5.0 per cent. This bolsters the view that real wages need to be adjusted upward as the labour force accomplishes improved productivity,” he said.

According to a report by the Brookings Institution, one of the top think tanks in the United States, last year, productivity plays a crucial role in real wages.

According to its study, a 2.0 per cent productivity growth can generate a 4.0 per cent increase in real wage growth.

Shan also believes that one of the best ways to tame inflation is by increasing the productivity of the labour force.

“This move will broaden the income base and reduce structural issues in the economy. Rising income levels and improved living standards can support the government’s efforts to make growth inclusive for all segments of the society to share income prosperity,” he said.

Mohd Sedek concurred with Shan, emphasising that productivity improvements should be prioritised to ensure that wage growth aligns with output, thereby minimising inflationary pressures.

He also noted that monetary policy measures, such as inflation targeting by the central bank, can help stabilise prices and preserve purchasing power.

-- BERNAMA