Thursday, 3 August 2017

(The Edge Financial Daily) Labour income share ‘highest ever’ at 35.3% in 2016 — MIDF Research


KUALA LUMPUR: Employees’ share of income generated in 2016 was almost 5% higher compared with 2010, pushing labour income share to gross domestic product (GDP) to 35.3% — its highest ever — while corporate earnings declined by 5.1% to 59.5% from 64.6% in the same period, said MIDF Research.

This means for every RM1 generated in 2016, 35.3 sen was paid to employees, while 59.5 sen went to corporate earnings, and another five sen went to the government, it said in a note yesterday.

It said a major factor pushing up Malaysia’s labour income share was the implementation of the new minimum wage policy in 2016 — RM1,000 per month in Peninsular Malaysia, and RM920 in Sabah and Sarawak.

While the services sector remained the biggest contributor to employee compensation in 2016, at 21.4%, both the manufacturing and construction sectors saw growth, thanks to rises in trade activities and the number of infrastructure projects here, said MIDF Research.

From 2010 to 2016, the manufacturing sector’s income share increased 0.5 percentage point (ppt) to 8% from 7.5%, while the construction sector’s grew 1.1ppts to 3.6% from 2.5%.

“Moving forward, the shift from labour-intensive to capital-intensive will lead to [a] reduction of low-skilled labour, [to be] replace[d] with the expected rise of skilled labour. Therefore, we expect labour income share to GDP to reach 40% by 2020,” it added.

Notably, it said the bottom 40% or B40 low-income group has seen the fastest income growth post-2009, compared with the middle 40% (M40) and the top 20% (T20) household groups.

It said that between 2012 and 2014, the B40 group — those with monthly income of RM3,900 or below — posted a 17.2% year-on-year (y-o-y) growth compared to both the M40 and T20 household groups, which posted 11.3% and 8.2% y-o-y increases respectively.

“We believe the upward trend in income growth for [the] B40 [group] as well as other groups was driven by the policy reform undertaken by the government to address the income inequality gap. In addition, we foresee the momentum in income growth for all groups will sustain due to the increases in the share of labour income and government revenue in 2016,” it said.

However, the research house said Malaysia’s high household debt will continue to pose a challenge to domestic spending, with the household debt-to-GDP ratio at 88.4% in 2016 — among the highest in Asia.

“The elevated level of household debt was due to a surge in mortgages as rising housing prices led towards high values of loans and mortgages ... additionally, any shock from cost prices, especially fuel prices, will have a negative effect on consumer spending,” it said, but pointed that the downside risks are “contained” at present.