This article first appeared in Forum, The Edge Malaysia Weekly on August 26, 2024 - September 1, 2024

Last week’s review of the civil service salary structure, the first since 2012, is one of the most generous in the history of Malaysia’s public sector. The 1.6 million civil servants will get to take home an extra 16.8% to 42.7%, including allowances, by January 2026.

The last major hike was in 2007, under the administration of Tun Abdullah Ahmad Badawi. According to reports, the salary review then saw a hike of between 7% and 42%, including allowances. It cost the government an additional RM8 billion.

The salary review under Prime Minister Datuk Seri Anwar Ibrahim will cost the government RM10.5 billion. The money will largely come from the savings arising from the rationalisation of subsidy programmes such as those for diesel and electricity.

The rationalisation of the diesel and electricity subsidies will save the government RM8 billion annually. The government is also putting in place other savings measures as it aims to rein in the budget deficit.

As the civil service is the biggest employer in the country, a review of the salary structure will have an impact on the economy. Affordability levels will increase, leading to an uptick in demand for big-ticket items such as houses and cars.

It is only natural for employees, whether they are in the civil service or private sector, to upgrade their homes or purchase another unit for investment when there is a big jump in their take-home salaries. This is because many who could not qualify for a housing loan previously would be able to get one now.

Eventually, the increased spending by civil servants will filter down to the economy in the form of an increase in domestic demand. Developers and construction companies will benefit directly. The impact will last for a few years before it fades away.

Following the civil service salary review, the pressure will be on the private sector to also review their salary structure. But, there is a difference between the push for a salary review in the public and private sectors.

In the private sector, wages are normally linked to productivity. When productivity increases and the company makes more money, it can afford to pay its workers more. But that mechanism does not apply to the civil service.

The reason is that job scopes in the civil service do not change much. Civil servants’ responsibility grows as they move up the ranks through promotions.

Even with the latest review, the private sector is still viewed as the best option by the general public. This is because the remuneration in the civil service will not be attractive enough to attract the best brains.

A graduate has better chances of commanding a higher salary in the private sector compared to the civil service.

For instance, a graduate teacher with five years’ experience in the civil service would be earning about RM3,838, not including allowances. According to the Public Services Department, the teacher would receive a basic salary of RM4,085 by the end of this year and RM4,559 in January 2026.

In the private sector, a degree holder with five years’ experience will be looking at getting more than RM5,000 a month. The quantum is even higher for those with a degree that allows them to use their skills.

For instance, a junior project engineer can easily command RM6,000 a month. And the opportunities in the private sector are not only confined to Malaysia; Singapore is a favoured destination for most Malaysian graduates.

Even those without degrees normally aspire to earn more than RM5,000 a month. For instance, a lorry driver earns about RM5,000, depending on the frequency of the trips he makes in a day. Those working in the gig industry such as food delivery and ride hailing earn an average of RM3,000 a month.

And the best part of being in the gig economy is that there is no superior monitoring your work or a punch clock regulating the hours put in, which is why the gig economy is so attractive.

Nevertheless, while the civil service salary structure will never be able to match the private sector, it does offer some advantages.

Job security is one attractive aspect. Once a person is absorbed into the civil service, they can rest assured that they will not be retrenched. Civil servants are only sacked for disciplinary reasons and even then, only if the offender shows no signs of remorse.

The pension civil servants receive used to be another draw but that privilege is likely to be taken away as the government is saddled with a huge pension liability that it is unable to cope with.

In fact, the salary review is part of the reform of the civil service. The government’s next step is likely to be the removal of pensions for new recruits.

Even without pensions, the civil service will continue to attract graduates simply because it is the biggest employer in Malaysia, where there are insufficient jobs to absorb the number of new graduates coming into the market.

According to the Statistics Department, in 2022, a total of 282,038 of graduates entered the workforce. In contrast, the number of new jobs created, included those for skilled labour, was only 83,070.

On average, only 30% of graduates are likely to land a job. And very few get a job that matches their skill set or qualifications. The mismatch in job specifications and qualifications is huge in Malaysia.

So, about 70% of graduates end up in semi-skilled work or enter the gig economy, where the salaries and perks are far less than what the public sector offers.

The civil service is an important component for the Anwar government. It is no secret that some ministers are having difficulty getting the buy-in of civil servants.

The fact that the parliamentary constituency of Putrajaya is held by Perikatan Nasional is evidence of the civil service’s political alignment.

Previous prime ministers often spoke about a review of the salary structure for the civil service, but none had the financial discipline to see it through. This latest hike should appease some of those who are not in sync with the current government.

M Shanmugam is a contributing editor at The Edge 

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