Growth without the paycheque

KUALA LUMPUR: Despite a stronger-than-expected six per cent economic growth in the second quarter (Q2) of 2026, many Malaysians continue to feel the impact of rising living costs, leaving them disconnected from the country's broader economic gains. The country's nominal gross domestic product (GDP) reached RM2.03 trillion in 2025, but workers' compensation only accounted for 33.9 per cent of GDP, compared to 62 per cent for gross operating surplus, reflecting the larger share of income going to businesses.

Economists attribute the disconnect between economic growth and higher disposable incomes to several factors, including modest wage growth, higher costs, and uneven distribution of gains. Dr Mohamad Idham Md Razak, a senior lecturer at Universiti Teknologi MARA, emphasized that economic growth does not automatically translate into higher disposable incomes, particularly when expansion is sector-specific or driven by investment and exports.

He highlighted that rising costs for food, housing, healthcare, and education have weakened purchasing power, leaving many households disconnected from the broader economic gains.

Dr Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat, pointed out that the income and wealth gap exacerbates the pessimism among Malaysians despite positive economic data. Compensation of employees constituted 33.9 per cent of economic output in 2025, while gross operating surplus accounted for 63.4 per cent, indicating that a larger share of income flows to businesses rather than workers.

The wage challenge is rooted in low labour productivity, reliance on low-skilled jobs, skills mismatches, and slower adoption of high-value technologies. Addressing these issues through education, workforce development, automation, and stronger incentives for high-value investments is crucial for ensuring that stronger growth translates into higher household incomes.

The labour market also plays a significant role in the disconnect between economic growth and household income. Economist Dr Geoffrey Williams noted that economic growth does not automatically lead to higher household incomes because its benefits tend to concentrate among businesses and higher-income groups. Over half of the employed workers earn below the living wage threshold of RM3,100 per month, and many rely on multiple income earners within households to cope with financial pressures.

The oversupply of talent in lower-skilled jobs and the limited bargaining power of workers in the gig economy further suppress wages. While government measures such as salary increases for civil servants and government-linked companies have been implemented, private-sector wage growth remains lagging behind. Additionally, labour market imbalances suppress wages, with insufficient graduate-level jobs and an oversupply of talent in lower-skilled jobs contributing to downward pressure on salaries.

The wage issue affects not only household finances but also consumer spending, a key driver of Malaysia's economic growth.