Friday, January 10, 2014

Fact Check: Wages And Inflation

I seem to be taking a lot of pot-shots at Rafizi lately; perhaps its because he makes it so easy (excerpt):

Kadar naik gaji Malaysia 2.6%, Indonesia 10%, dakwa Rafizi

Kadar kenaikan gaji pekerja di negara ini hanya sekitar 2.6% sahaja jika dibandingkan dengan Indonesia yang menerima kenaikan empat kali ganda lebih baik iaitu 10% dalam tempoh lima tahun, dakwa Pengarah Strategi PKR, Rafizi Ramli.

Dalam wawancara eksklusifnya dengan Selangorkini, Rafizi berkata, lebih memburukkan keadaan ialah peningkatan kos sara hidup yang berlaku tidak selaras dengan kadar kenaikan gaji yang perlahan.

“Kita lihat Singapura kadar perkembangan ekonominya kukuh tumbuh dengan baik, gajinya naik. Kita lihat Indonesia pula kadar kenaikan gaji 10% dalam tempoh lima tahun berbanding kita 2.6%, maksudnya kadar gaji di Indonesia empat kali ganda meningkat lebih cepat berbanding kita.

“Apabila kita lihat pula hasil perkembangan ekonomi rakyat negara lain gaji naik, harga barang tidak meningkat dengan banyak dan mendadak, taraf hidup bertambah, perkhidmatan seperti sekolah dan sebagainya menjadi lebih baik, tetapi di Malaysia pula makin menurun.

“Bukan sahaja di Asia Tenggara, tetapi negara lain di seluruh dunia yang sumber dan kekayaannya sama lebih kurang seperti Malaysia juga keadaannya lebih baik. Trend ini sangat merisaukan kita,” katanya.

I have no idea where the 2.6% or 10% figures comes from – if anybody knows, point them out to me.

However, I do have data on Malaysian manufacturing wages, and they’re nowhere that bad:


Over the sample period, which is approximately 5 years, the compound annual growth rate works out to about 7.0% per annum. Even if we take growth averages rather than compound growth, wage growth comes in at around 5.5%. Manufacturing tends to be better paid than most other sectors, but still…

Be that as it may, even if we take Rafizi’s numbers at face value, the statement that “harga barang tidak meningkat dengan banyak dan mendadak" in other countries is wholly false.

The following table shows the CPI index numbers from 2008 to 2013, as compiled by the IMF for the three countries in question:

  2008 2009 2010 2011 2012 2013f CAGR
Indonesia 113.86 117.03 125.17 129.91 135.476 148.393 5.4%
Malaysia 98.1 99.1 101.2 104.2 105.933 108.052 1.9%
Singapore 101.179 100.41 104.393 110.173 114.571 116.733 2.9%

In case anyone wonders how accurate these figures are, I’ve cross-checked against national sources, and they’re correct. Most would probably argue that the CPI doesn’t really reflect “true” inflation – but if that’s so, it would be true for all three countries. The methodology used is virtually identical.

Indonesia may have higher wage growth, but they suffer from much higher inflation. Even Singapore has higher inflation than Malaysia – and their property prices are even frothier.

On the growth front, Indonesia’s economy has grown 32.4% in real terms from the end of 2008 to 2013, Singapore 25.6%, and Malaysia 23.0%. The CAGR works out to 5.8%, 4.7% and 4.2%.

I wouldn’t take these growth numbers with any kind of seriousness though, as both 2008 and 2009 were recession years for Malaysia and Singapore (Indonesia’s economy is domestic demand driven), so any growth metric using those years will be highly skewed.

The same criticism applies to inflation, but here the conclusions generally hold – from my own data, the price level in Singapore and Malaysia have moved virtually identically (overall prices are about 35% higher than in 2000), while Indonesia’s inflation is in another time zone (180% higher than in 2000). The only other country in this region with higher inflation is Vietnam, but only by a hair.

The BOI has done a great job in bringing inflation in Indonesia down, but they’ve still got a ways to go before bringing it anywhere near ASEAN norms (for the curious, Thailand is at 42% higher than in 2000, the Philippines is at 78%).

Maybe we should let salaries for Parliamentarians and Assemblymen to go up – then they might actually be able to afford research assistants to check their facts for them.

Technical Notes:

  1. Manufacturing wages and employment data taken from various issues of Monthly Manufacturing Statistics from the Department of Statistics
  2. CPI data taken from the October 2013 World Economic Outlook database


  1. This comment has been removed by the author.

    1. You poor fellows are arguing about wages when there is an easier way to make money. Big money!
      The 4D way!
      The Finance Minister has just allowed 52 Special draw a year.
      This is a license to print money estimated to be 8 billions a year...
      This is better than the tax
      poor people gamble,, Vincent Tan and Da Macai make money..

  2. Here's where Rafizi got his 2.6% figure:

    "A study by the World Bank that shows that wage growth was 2.6% p.a.
    in the past 10 years compared to productivity growth of 6.7% p.a., suggesting
    suppression of wages, especially for low-paid workers, and also an inefficient
    labour market."

    Seems Rafizi is not talking cock at all :P

    Will update when i manage to find the 10% figure for Indonesia

    1. @Norman



      He still needs to do his homework. The CIMB report actually quotes the wrong figures. BNM has the correct reference:

      The source document is here (pg47-48):

      The actual number is not 2.6% and 6.7%, but 2.4% and 5.0%.

      More importantly, its clear from reading the document, the wage number is in real not nominal terms. In other words, this is the rate of growth over and above the rate of inflation.

      Second, the growth figure quoted is for manufacturing only. To quote the chart headers describing this issue from the World Bank document:

      "Wage growth lagged productivity in
      manufacturing…but grew faster in services"

      So overall wage growth (combining manufacturing and services) was higher than the 2.4% quoted.

      So I'm afraid Rafizi is still off the mark.

    2. Will have a look at the links you provided. Thanks :)

      Judging by the speed that you responded to my comment and giving me all the links and analysis, perhaps not wrong for me to say that you did not do that much research for your article when you say you dont really know where rafizi gets his 2.6% figure. Just a simple Google search would suffice, i believe.

      Eventhough i'd like to take your word at face value, perhaps not only the cimb note is incorrect (didnt PEMANDU do any fact check before putting it on their website?), seems like the Ministry of Human Resource (MOHR) is quoting the same 2.6% world bank figure. Maybe the reason being it was MOHR who commissioned the World Bank study, if i read the TheStar report correctly:

      "In addition, MoHR commissioned the World Bank to conduct a study and advise the Government on the minimum wages policy, the design and its implementation. The study showed that Malaysia was caught in the middle-income trap, with labour productivity growth of 6.7% between 2000 and 2008, far exceeding the wage growth of 2.6% over the same period. The World Bank concluded that Malaysia should implement a minimum wages policy to address the labour market imperfections which have resulted in suppression of wages especially for the low-skilled employees."

      Even the Minister of Human Resources Datuk S. Subramaniam quoted the 2.6% figure in his speech back in 2010:

      "One fact is of course the issue that our wages did not increase over the years. Our wage, according to the World Bank report has only increased 2.6% for the last 10-15 years, as what Mr. Andrew Lo (a participant of the workshop from Malaysian Trade Union Congress) said that the salary at McDonalds is still the same today when compared with 20 years ago whereas the cost of living has increased over the same period."

      Even Maybank quoted the 2.6% World Bank figure in their note:

      to a World Bank study in 2011, Malaysia’s wage growth (2.6% p.a.)
      was slower than productivity growth (6.7% p.a.), implying the capacity
      to implement minimum wage without causing excessive inflation rate

      CIMB, Maybank and the MOHR. Still i'd love to take your word over theirs ;)

    3. @Unknown

      You're quite correct, I didn't bother looking up the 2.6% figure. Mainly because I have data of my own and from DOS, none of which showed 2.6%.

      If in fact MOHR/Maybank is talking about a 2011 study, then it's different from the one I quoted, and it doesn't seem to be publicly available. Moreover, the 2012 document I quoted appears to have updated the figures up to 2010, which means it is probably the more accurate and up to date.

      But whichever datapoints are used, the underlying issue remains - the numbers are real (i.e. inflation adjusted), while Rafizi (and just about everyone else it appears) are treating them as nominal. It's also a bit of a stretch to then insinuate that this rate of growth refers to the recent past.

      PS I'll dispute that Malaysia is in a middle income trap with anybody and everybody.

  3. Reading the World Bank document, in page 47, clearly states that the figures of 2.4% and 5.0% are only for the manufacturing sector, and not for the whole Malaysian labor market.

    "Whereas labor productivity in manufacturing (measured simply as real value-added per worker)
    grew by an average of 5.0 percent per year over the past decade, real average manufacturing wages expanded
    by a much slower 2.4 percent per year during the same period (Figure 70). "

    So the figures 2.4% and 5.0% does not really cancel out the figures 2.6% and 6.7% quoted by Rafizi, CIMB, Maybank and the Minister of Human Resources.


    1. @Unknown

      ...which I already pointed out in my earlier reply to you.

    2. Owh my bad!

      Then again, since you said "So overall wage growth (combining manufacturing and services) was higher than the 2.4% quoted."

      and Rafizi did say 2.6%, which more than the 2.4%, pardon my math but I think 2.6% is higher than 2.4%. no?

      I concur with you on one point, it'd be great if we can get hold of the actual World Bank report which came out with the 2.6% and the 6.7% figures and read the analysis. it would certainly help with the discussion we are having right now :)

      If you ever find that report, please do share. Thanks in advance!

  4. And the mystery gets more and more interesting!

    Apparently you yourself quoted the the figure 2.6% in one of your previous blog posting back in 2010:

    Would you like to say you got it wrong then?

    Ahh the wonders of Google :)

    1. @Unknown


      The article I quoted made no mention of provenance, so I took the number on faith. But I'd be careful about quoting the number myself unless I could back it up, especially when I have much better statistical resources now than I did back then (note what I said in my commentary in that blog post).

      And you're still evading the other issues I've raised, which are much more pertinent to this issue. There's no inconsistency with real wage growth at 2.4% or 2.6% or whatever, and the data I have showing 5%-7% nominal growth. The problem is using the former as a basis of comparison:

      1. against inflation (it's already inflation adjusted), and

      2. across countries, especially when alleging those other countries have experienced lower inflation

    2. Dear @hishamh,

      I am as much an economist as I like to think I play better football then messi, so truth be told, I'm not really interested in the economic analysis and all the mumbo jumbos.

      Just what brought me to this particular posting of yours is how easy it is for you to be dismissive of what Rafizi said, even by your admission you didn't do that much study on the matter yourself.

      I'm glad that I was able to push you to provide a more detailed and fact driven analysis of the matter. For that I believe I deserve a pat on the back :)

      But just say I didnt bother to comment here, perhaps all the other readers who are not economist and cant differentiate GDP with SPM or PMR will take your assessment of Rafizi as a liar and believe them wholeheartedly, even when CIMB, Maybank and MOHR quoted the same figures as Rafizi did.
      A little bit of integrity is needed here. I believe you are a smart, educated man, and by your writing you aim to educate and enlighten others. It would be good if you can be fairer in your assessment.

      Then again, reading the other postings on your blog rather obvious you are leaning towards the establishment, so perhaps the rather misleading initial analysis is intended as it is.

      It would be great if somebody would write a blog that can fact-check both the gov and the PR 's story, indeed what an immense contribution to society that would be.

      I bid you good night. And have a great weekend ahead :)

    3. @Unknown

      If you read through my blog, you'll notice that I have no problem with people fact checking me. So yes, thank you. And thank you for tracking down the source of the 2.6%. I hope you'll keep dropping by to keep me honest.

      To explain my attitude towards Rafizi's allegations, I've had occasion to critique his analysis before. So when the article quoted above came up on my twitter feed, it raised my antennae immediately, mainly due to the claim that inflation was not as high outside Malaysia, which I know is false.

      Besides that, while there are no official time series covering the last five years on wages in Malaysia apart from the manufacturing data I charted above (DOS has only just started an annual survey), there are regular household income surveys which I've documented before. And household income growth over the years has been much stronger than the 2.6% wage growth claimed.

      Now I know why - the latter figure is real wage growth, not nominal wage growth. But correct or not, this figure should not be used in comparison with changes in the cost of living, because it already incorporates those changes.

      So while Rafizi is certainly being accurate with Malaysian wage growth, he is using it in a way that is not correct and very misleading. Which means the general thrust of my blog post is still valid and correct.

      I did not call Rafizi a liar - many politicians on both sides are no better than laymen when it comes to economic statistics and have at best a hazy notion of what goes on outside Malaysia, and I have on occasion criticised ministers for the same reason.

      BTW, the only recent reference I can find on 10% Indonesian wage growth is a 10% adjustment to Jakarta's minimum wage for 2014, which is not the same thing as a 10% increase in overall wages over the last five years. If anybody can find a firmer source, please let me know.

    4. Unknown

      1) Hisham never dismissed Rafizi's claim on Malaysia's and Indonesia's wage growth. He requested for source on the data and compared with data available to the public which disputed Rafizi's claim (a very detailed, fact-driven study/analysis on Hisham's part no thanks to anyone's pursuant). Even then, he took Rafizi's claim at face value. That's good faith on Hisham's part. You twisting Hisham's statement as quick dismissal of Rafizi is unprofessional though

      2) One claim made by Rafizi that Hisham actually dismissed was on inflation. And publicly available data by IMF showed that Rafizi has been untruthful about that. Funny how you casually gloss over that.

      4) To refresh your memory, here is what Hisham actually said:

      " I have no idea where the 2.6% or 10% figures comes from – if anybody knows, point them out to me.

      However, I do have data on Malaysian manufacturing wages, and they’re nowhere that bad:

      Be that as it may, even if we take Rafizi’s numbers at face value, the statement that “harga barang tidak meningkat dengan banyak dan mendadak" in other countries is wholly false"

      3) For making baseless allegation and twisting ppl's statements, to borrow your own words, "a bit of integrity is needed here".

  5. Replies
    1. al, there are two unknown, which of them are you referring to, i trust the latter as the former is really spinning ....

      Please put name or pseudo name, lah, so scare???

      Zuo De

  6. It is sad, Rafizi and his cohorts has done this (spinning) once too many times that I, once, gave him the benefit of the doubt, but now, NO. He is wrong until proven correct. Sorry, no hard feeling, have a excellent weekend all.

    Zuo De

  7. Hi Hisham,

    Optional tip from someone who is a little bit more than obsessed with stuff like this...

    For manufacturing average wage calculations try to strip out the commodity-based industries (petrochem and palm-oil based ones), the variability is a little bit high for calculations.

    But otherwise, great post. Although, I guess you don't really need me repeating my case re: labour markets and wages.

    1. Jason, thanks. I've never taken the time to look at the data on a sub-sector level, as I don't use CEIC for this blog so everything has to be done by hand, but I'll have a looksee when I can spare the time.

      I remember you're argument, and I think you're right, though I think more transparency would be one of a parcel of measures, rather than sufficient on its own.

  8. On a completely unrelated matter in regards to wages and inflation, do you have any statistic on price of "kangkung"?
    It was mentioned by our PM in the economic context that the price of kangkung has gone down.

    1. @Anonymous

      As of 13th Janaury..

      In Petaling Jaya, Selangor

      Mydin which prolly bought in bulk before price decrease early this month = 99 sen for 250g of kangkung

      At Pasar Besar Jalan Othman which prolly got fresh at the latest price: 50 sen for 250g of kangkung

      about 44% price decrease

    2. @anon 11.33


      @anon 10.27

      It's spin, whether its correct or not. I wouldn't be surprised if it was true, but that's neither here nor there. Prices of fresh food, but particularly fruits and vegetables are HIGHLY volatile. It's not unusual to see 50% price drops or 50% price increases in any given month. It depends on season, weather, transportation, consumer demand and a whole bunch of other factors. So a big price decrease in itself doesn't really signify anything.

      But in the context in which it appears, the reference appears to be rhetorical, and I've noticed the same thing myself long ago. Nobody makes a peep when prices drop, only when prices increase.

  9. I am staying in Shah Alam, last week for the first time I played golf at Kelab Kg Kuantan, Kuala Selangor. After playing my friend advised me to go and have a look a Psar Penambang, just 100m from Giant Kuala Selangor.
    The Ikan kembong ws RM 6/kg, at Giant Shah Alam it was RM 10-12 that week. Tenggiri was RM 24, Giant Shah Alam was RM 36-42 that week. So I bought other fishes too, and sotong as well. The fish semua fresh and sparkling . Balik goring ikan kembung, punyalah manis sedap. I am sure the big prawns are much cheaper in Kuala Selangor, but, I am an udang fan, so, no interest there.
    Kalau ikut Guthrie hiway sambung dengan LATAR, Kuala Selangor is only 30 mins, away from my house. Tol semasa pergi balik cuma RM 6.00.

    So, what I want to say is that, how stupid we can be to just succumb to prices and goods presented to us. We can get good and cheaper goods by planning our buying attitude.
    Kalau nak barang kering, ikan bilis, sotng kering, ikan kering and belacan, just go santai2 to Lumut/Pangkur Island, maybe once in 2-3 months, you will laugh at the prices, and, you get to have a short holiday. More so, it is cantik and fresh lagi. Balik hari pun boleh, Lumut bukannya jauhdari Klang valley. Ikan basah pergi Kuala Selangor or Sekinchan. For sayur, and canned/packed food, we still go to Giant or Tesco.

    I don't know much on data on economies, who cares. I don't buy or sell economy, I just buy food for my family. Our basic needs, tepung, beras, even gula are much cheaper than Indonesia or Singapore. Yes, beras Wangi is cheaper in Singapore, but, beras Malaysia lagi sedap. Even minyak masak, ours are better quality and cheaper than the biggest producer, Indonesia.

    Sesiapa yang tak percaya, silalah pergi Supermarket di Medan, lihatlah harga barangan harian yang mereka kena bayar. Tengok harga bawang besar pun nanti ada yang terperanjat besar. Last month, I saw di Bandung, it was IDR 80,000 sekilo. Itu adalah l/k RM 24/kg.

  10. Hisham

    I wonder why you are so adamant in claiming that Malaysia is not in a "middle income trap"?

    Do you have access to any data that proves this?

    And how do you define "middle income trap" anyway?

    1. Anon 1:15 PM

      I suggest you take a look at the paper "How to avoid middle-income traps? Evidence from Malaysia" by Flaeen, Ghani & Mishra (

      It appears to be a fairly rigorous analysis of the subject.

    2. @anon 1.15

      Try here.

      There is in fact little consensus on what constitutes a middle income trap - there is no single accepted definition.


      Like many other papers on this issue, the Flaeen paper presents precious little evidence that Malaysia is in a middle income trap. It just makes the presumption that we are, and then presents some data to support its claim - not, if it was really rigorous, the other way around.

      The only paper that I found to take a truly rigorous and theoretically defensible approach to examining this question is this one. And it says we're not.

      In fact that paper, while proving the existence of middle income traps generally, also proves that the causes of growth slowdowns are highly diverse, and not necessarily in the ideological straitjacket that the Flaeen paper presents. It basically debunks almost every other paper written on the middle income trap in the research literature.

    3. Yes, Hisham - "growth slowdowns" are par for the course for open trade-based economies like Malaysia.

      There's nothing to worry about there.

      But what is worrying is if the Malaysian economy does not go into a "sustainable growth" phase when the US, Europe and Japan are exiting the financial crisis and negative growth.

      If the Malaysian economy can't grow sustainably, the "have nots" are going to be left further and further behind, which will inevitably trigger calls for more populist and redistributive policies, which the country can ill afford.

      I note the current discussions going on in Singapore about the need for a "compassionate meritocracy" in the run up to their 2014 Budget.

      Some of the points raised in these discussions are also relevant to Malaysia, I think.

    4. @Arimnestos,

      Yes definitely - Singapore's society is undergoing some of the stresses that we are. No surprise since inequality there is on par with ours, so much of the debate would also parallel.ours. Note that Singapore started doing cash giveaways before Malaysia did.

  11. Hi Hisham,

    below are the link for the people sentiment on jobs that are overpaid and underpaid in US. Is there such survey done here for Malaysian context.

    1. @dzuliskandar

      Not that I know of. For starters, DOS has only just begun publishing data on salaries and wages. Might be interesting to tabulate that data and ask what people think.