A Study on the Consumer
Price Index & its Impact
on Salary Adjustments
Prepared by Sam Chee Kong
Consumer Price Index & its Impact on Salary Adjustments
Prepared for
NATIONAL UNION OF BANK EMPLOYEES
Project Brief
To determine:-
- Whether the Consumer Price Index (CPI) is an accurate indicator of the cost of living in Malaysia;
- Whether the CPI can be relied upon to be the sole criteria upon which salary adjustments are based; and
- Whether taking 2/3 of the increase in the CPI between January 2009 to December 2011 would give a fair assessment of the salary adjustment that ought to be given for the current Collective Agreement between NUBE and MCBA.
Inflation/Consumer Price Index (CPI)
Inflation is known to many but at the same time also the least understood. This is because it affects us stealthily and by the time you realise that inflation has hit, it is already too late. What is Inflation? Other than rising prices not many people know what causes it, how it is measured and most importantly affects our daily lives. The most commonly used method to measure the rate of inflation apart from the GDP Deflator is the CPI or Consumer Price Index. The Consumer Price Index measures the movement of goods and services purchased for consumption over a period of time usually by monthly and yearly.
The Relevance of CPI
The following are some facts on the importance of the CPI:
- It is essentially an indicator of the effectiveness of the past policies implemented by our Government. It provides information on the movement of prices in the economy to the Government, Business and private citizens. It also helped provide a gauge on the ‘temperature’ of the economy. The information on the price movement of goods and services will help the authorities to implement its monetary policy targeting such as the inflation rate more effectively. If our economy is experiencing a high inflation rate then Bank Negara will counter it by implementing an appropriate ‘tight money policy’. The purpose of this policy is to reduce the overall money supply and hence economic activity. This will result in a slowdown in demand that will lead to a decrease in prices and hence will achieve price stability.
- The authorities tend to link the CPI to social security payments such as pension, citizenry welfare like disable and old age, subsidy food for students like fresh milk and free lunch, cost of living to wages adjustments and so on. Hence, as a result the CPI movement will influence the yearly budget set by our Government. Similarly, in the private sector, many corporations and companies also used the CPI as a basis for their wages and COLA adjustments.
- The Corporate sector often used the CPI as a market indexation tool in revising their wages. What is market indexation? To illustrate I shall use the LIBOR as an example. In the financial industry, the pricing of their interest rates are tied to the performance of the LIBOR or London Interbank Offer Rates. So, if the LIBOR is manipulated upwards then the interest rates charged on most financial products such as housing and car loans, personal and corporate loans will be higher. Thus, financial institutions will be able to charge more and hence increase their profits. The rate fixing of the LIBOR affects about $800 trillion of financial products globally. Similarly, the CPI was also used like the LIBOR as an indexation tool for many corporates in revising their yearly wages and allowances. Thus, if the CPI is manipulated downwards then it will benefit the corporations because they can revise their salary and allowances with a smaller rise.
Limitations of CPI
The livelihood of millions of Malaysians is affected by the CPI. The CPI is used as a bargaining tool for the employees and unions to fight for higher wages. However, the question that needs consideration is whether the CPI presented to us by our Government is being calculated in a fair and accurate manner that truly relects the cost of living?
I shall, in this paper consider whether our CPI really does reflect our current lifestyle and thus cost of living.
To begin with, we will look into the process on how the CPI is calculated. This is important because the classification, grouping and weightage all play an important role in determining the rate of the CPI.
How to Calculate the CPI?
How is the CPI measured? Certain essential goods and services are classified ‘into a basket’ that will represent the majority of the products consumed and services used. In Malaysia, they are classified into 12 Groupings that range from Clothing to Health Care. Each Group is also given a separate weightage, meaning each Group is assigned a figure depending on what impotance the government has given the same. The higher the weightage given, the higher impotance is given to that particular group.
Below are the 12 Main Groupings of our Consumer Price Index.
Table 1: CONSUMER PRICE INDEX FOR MAIN GROUPS, MALAYSIA (2010=100)
Group
|
Wt.
|
Index
|
% Change
| |||
Jan
2011 |
Dec
2011 |
Jan
2012 |
Jan 2012 /
Dec 2011 |
Jan 2012 /
Jan 2011 | ||
TOTAL
|
100.0
|
101.8
|
104.2
|
104.5
|
0.3
|
2.7
|
Food & Non-Alcoholic Beverages
|
30.3
|
102.6
|
106.6
|
107.5
|
0.8
|
4.8
|
Alcoholic Beverages & Tobacco
|
2.2
|
104.6
|
104.6
|
104.6
|
0.0
|
0.0
|
Clothing and Footwear
|
3.4
|
99.9
|
99.6
|
99.4
|
-0.2
|
-0.5
|
Housing, Water, Electricity, Gas & Other Fuels
|
22.6
|
100.8
|
102.5
|
102.6
|
0.1
|
1.8
|
Furnishings, Household Equip. & Routine Household Maintenance
|
4.1
|
101.0
|
102.5
|
102.9
|
0.4
|
1.9
|
Health
|
1.3
|
101.5
|
103.6
|
103.9
|
0.3
|
2.4
|
Transport
|
14.9
|
103.2
|
104.9
|
104.9
|
0.0
|
1.6
|
Communication
|
5.7
|
100.0
|
99.4
|
99.4
|
0.0
|
-0.6
|
Recreation Services & Culture
|
4.6
|
99.7
|
103.1
|
103.2
|
0.1
|
3.5
|
Education
|
1.4
|
101.0
|
103.2
|
104.1
|
0.9
|
3.1
|
Restaurants and Hotels
|
3.2
|
103.2
|
107.5
|
107.8
|
0.3
|
4.5
|
Miscellaneous Goods & Services
|
6.3
|
101.1
|
103.9
|
103.8
|
-0.1
|
2.7
|
Non-Food
|
69.7
|
101.5
|
103.2
|
103.2
|
0.0
|
1.7
|
Durable Goods
|
6.5
|
100.2
|
101.2
|
100.8
|
-0.4
|
0.6
|
Semi-Durable Goods
|
4.4
|
100.2
|
100.3
|
100.2
|
-0.1
|
0.0
|
Non-Durable Goods
|
41.6
|
102.9
|
105.5
|
106.1
|
0.6
|
3.1
|
Services
|
47.5
|
101.2
|
103.8
|
104.1
|
0.3
|
2.9
|
Or can be shown graphically with the following Pie Chart.
From above, we know that from Jan 2011 to Jan 2012 the price of goods and services increased by 2.7 %. This result is obtained by aggregation the readings from the 12 Groupings.
Our next concern is to determine the accuracy of the figures. After a study of the figures for the last few years it is apparent that there are some issues and inconsistencies in the figures. It is apparent that there are flaws in our CPI.
What are the flaws in our CPI?
As a start, a comparison of the CPI table between Malaysia and the United States is done. The reason why the U.S table is used for comparison is mainly because our CPI classification is similar to the US. The Groups that contributed to the discrepancy in our CPI calculation is highlighted in red.
No.
|
Group & Weighting
|
Malaysia
|
USA
|
Remarks
|
1
|
Food & Non-Alcoholic
|
30.3
|
14.312
|
Over Represented
|
2
|
Alcoholic Beverage
|
2.2
|
0.949
| |
3
|
Clothing & Footwear
|
3.4
|
3.564
| |
4
|
Housing,Water,Elec,Gas & Other
|
22.6
|
36.239
|
Under Represented
|
5
|
Furnishings, House Equip and Maint.
|
4.1
|
4.04
| |
6
|
Health
|
1.3
|
7.163
|
Under Represented
|
7
|
Transport
|
14.9
|
16.846
|
Under Represented
|
8
|
Communication
|
5.7
|
3.499
| |
9
|
Recreation Services & Culture
|
4.6
|
5.99
| |
10
|
Education
|
1.4
|
3.281
|
Under Represented
|
11
|
Restaurants and Hotels
|
3.2
|
0.741
| |
12
|
Miscellaneous Goods and Services
|
6.3
|
3.376
| |
Total Weightage
|
100
|
100
|
Source:
http://www.statistics.gov.my/portal/download_Prices/files/CPI/2012/JAN/BI/02Malaysia.pdf and http://www.bls.gov/cpi/cpid1309.pdf
From the table above, the 5 Groups that caused much discrepancy in our CPI calculation is highlighted in red. The problem is either over or under-representation in their respective weightings as compared to the BLS (Bureau of Labour Statistics). Below is an analysis on each of the five Groups starting with the Food Grouping.
- Food accounted for too much weighting in the CPI
Based on the above Table, the Food and Non Alcoholic grouping accounted for 30.3% of the total CPI weighting. This can be quite considerable when we compare it with the rest of the world. The following chart is the for the food component as a percentage of the CPI for 25 countries around the world.
Source: http://www.oecd.org/
As can be seen from the chart above when you remove the countries at the top and bottom end of the spectrum (India and U.S) the statistical bias will be reduced. This would provide a fairer and more accurate picture of the weightage given to the food component for 23 countries. After the adjustment, the mean for Food Component of CPI in the 23 countries averages about 17.3%. Malaysia’s 30.3% food weighting in the CPI can be considered on the high end of the table after China’s 31.4%.
Because a higher than average weightage is given to the food component (30.3%), less emphasis is given to other components in the basket that deserve a higher weightage such as health (1.32%) and education (1.41%). Although expenses for health and education makes up a large portion a family’s budget, it is given an insignificant weightage. Clearly, this shows that the CPI in Malaysia is flawed.
The next question that arieses is how the 30.3% food weighting actually affects the calculation of the CPI?
Price Change
|
Weightage
|
in %
| |
Items
|
Sep 12-Sep13
|
Malaysia
|
USA
|
01 - Food & Non-Alcoholic Beverages
|
2.6
|
30.3
|
14.312
|
001 - Food Away From Home
|
3.9
|
10.04
|
5.713
|
011 - Rice, Bread and Cereal
|
2
|
4.39
|
1.231
|
012 – Meat
|
7.2
|
2.94
|
1.189
|
013 - Fish and Seafood
|
5.5
|
4.5
|
0.652
|
014 - Milk and Eggs
|
5.6
|
1.77
|
0.905
|
015 - Oil and Fats
|
-0.5
|
0.58
|
0.263
|
016 – Fruits
|
3
|
1.2
|
0.526
|
017 – Vegetables
|
4.9
|
2.14
|
0.461
|
018 - Sugar, Jam and Honey
|
5.2
|
0.59
|
0.299
|
019 - Food Products – Spices
|
1.4
|
0.81
|
2.13
|
010 - Coffee,Tea and Cocao
|
1
|
1.37
|
0.943
|
Total (%)
|
30.33
|
14.312
|
Source:
The above Table is the breakdown of individual items that comprise the Food and Non-Alcohol Beverages Grouping. Looking at the table above, there are a couple of issues that need to be addressed.
Firstly, why is this group given such a large weighting and accounted for 30.3%?
I am of the opinion that the weightage given is way too high. As our country gets more developed, the service sector is overtaking the manufacturing sector as the main economic driver. This is clearly reflected in the statistics for other developed countries as shown by the graph above. On average, food only takes up about 17.3% of the total weightage.
Second, according to FAO (Food and Agriculture Organization) of the United Nations, prices of basic food necessities around the world have increased by 33% between 2009 to 2013.This translates to about an increase of 8% per annum. During this corresponding period our CPI only went up about 11 index points (from 98 points in 2009 to 109 points in 2013) as can be seen below. This would translate to an increase of 2.75%.
This clearly shows that there is a glaring discrepancy in the increase of food prices in Malaysia compared to the world statistics. This being the case, our figures in Malaysia for food increases would always be lagging compared to world statistics. With such great emphasis placed on the food component (30.3%), our CPI increases over the years is also compromised and does not show the real increase that has happened.
See Charts below.
Source:Food and Agriculture Organization (FAO)-
In 2009, our CPI reading was only 98 index points but then it shot up to 109.98 at the end of 2013. To calculate the percentage change during this period, we apply the following.
Percentage change = (109-98)/98*100 = 11.22%
The small percentage change (11.22%) in our CPI does not reflect the changes in the rapidly rising food cost around the world.
Thirdly, it is apparent that food prices have increased drastically over the last few years.
- Bias weighting in Housing, Water, Electricity and Gas.
The second grouping that is in dispute is the Housing, Water, Electricity, Gas and other Fuels. The following table is the breakdown of the Grouping.
Price Change
|
Weightage
|
in %
| |
Items
|
Sep12-Sep13
|
Malaysia
|
USA
|
04 - Housing, Water, Electricity
|
1.8
|
22.59
|
41.021
|
041 - Actual Rental for Housing
|
2.2
|
17.24
|
31.681
|
043 - Maintenance and Repair
|
1.4
|
0.67
|
4.04
|
044 - Water Supply & Misc
|
0.9
|
1.34
|
1.201
|
045 - Electricity, Gas & Other
|
0
|
3.34
|
4.099
|
Total (%)
|
22.59
|
41.021
|
Source : http://www.statistics.gov.my/portal/download_Prices/files/CPI/2013/SEP/BI/02Malaysia.pdf and http://www.bls.gov/cpi/cpid1309.pdf
Before we look into the breakdown of this Grouping, it seems justifiable to assign a big weighting since it is also known as the ‘Energy Grouping’. However as you can see most of the weighting goes to ‘Rental for Housing’ which was allocated a lion share of 17.24% out of the 22.59% or 76%. There are a couple of issues that I like to point out.
Firstly, the ‘Actual Rental for Housing’ does not breakdown into owner occupy and rental of residence. From BLS this Grouping can be further break down into Owner Equivalent (25.182%) and Rental of residence (6.499%). From Owner Equivalent, we can determine the mortgage and other cost associated with maintaining a house. I believe the weightage on this sub-grouping does not fully reflect the current cost of owning and maintaining a home. This is because in recent times, real-estate prices has escalated dramatically especially in the Klang Valley, Penang and Johor.
Secondly, by putting less importance to Electricity and Gas and Other Fuels in the ‘Energy Grouping’. Thus any price increase by the Government in Fuel and Electricity ‘will only have minimal impact’ on the overall grouping and hence the calculation of the CPI figure. Even with the recent rise in electricity tariff by 15%, it will have minimal effect on the CPI because Electricity, Gas and other Fuel represent only 3.34% of our Consumer Price Index.
This is yet again another example of how the CPI artificially reflects the increase in the cost of living by not giving sufficient importance to relevant components.
- Health Group weighting is too low.
Health expenses only accounted for 1.3% in the weightage of the Malaysian CPI? The BLS in the United States, allocated a weightage of 7.163% to this Grouping which better reflects the current cost of medical care.
According to the Household Income Survey in 2012, the average Malaysian household earns about RM 5,000 per month. Based on this statistic the health expenses of an average Malaysian household of 4 persons is only RM 66 per month (1.32% x RM5,000). This it would seem to be an understatement.
Below is the table of the Health Grouping.
Items
|
Sep12-Sep13
|
Malaysia
|
USA
|
06 – Health
|
1.7
|
1.32
|
7.163
|
061 - Medical Products & Equip
|
1.6
|
0.83
|
1.714
|
062 - Out-Patient Service
|
2.6
|
0.31
|
3.01
|
063 - Hospital Serv/InPatient
|
0.6
|
0.18
|
2.439
|
0631 - Govt Hospital
|
0
| ||
0633 - Private Hospital
|
0.9
| ||
Total (%)
|
1.32
|
7.163
|
Source : http://www.statistics.gov.my/portal/download_Prices/files/CPI/2013/SEP/BI/02Malaysia.pdf and http://www.bls.gov/cpi/cpid1309.pdf
Another thing that is not mentioned in the above Grouping is the ‘Medical Insurance’ expenses. It is listed in the Miscellaneous Goods and Services Grouping as insurance connected to accidents and health (0.14%). This I believe is under-weighted because we spend much more on health than life insurance from our income. Under-weighting the Health Grouping is a serious flaw because health care is the ‘biggest and most consistent’ source of inflation over the years.
- Education – Flawed in weightings.
I believe that the Education Grouping is grossly under-weighted and does not truly reflect its true cost especially at the tertiary level. The following is the breakdown of the Education grouping.
Price Change
|
Weightage
|
in %
| |
Items
|
Sep12-Sep13
|
Malaysia
|
USA
|
10 - Education
|
2.6
|
1.41
|
3.281
|
101 - Pre Primary & Primary
|
2.4
|
0.61
|
0.782
|
102 - Secondary Education
|
2.4
|
0.38
|
0.389
|
103 - Post Secondary
|
7.4
|
0.12
|
0.375
|
104 - Tertiary Education
|
1.1
|
0.14
|
1.734
|
105 - Education n.e.c
|
1.7
|
0.16
| |
Total (%)
|
1.41
|
3.281
|
Source:
As can be seen from above, the weight given to the different sub groups are clearly flawed. Firstly, Education as the Main Group, accounts for only 1.41% of the total CPI weightage as compared to 3.281% in the U.S.
Secondly, the Pre-Primary and Primary education seems to be given higher weightage than Secondary, Post-Secondary and Tertiary education. Giving Pre-Primary and Primary higher weightage than the Secondary and Tertiary Sub-Group is not sound when it is common knowledge that Secondary and Tertiary Sub-Groups command a higher cost. In the U.S, tertiary education rightly commands the highest weightage which is 1.734%.
Our Tertiary Education Sub-Group should command the highest weightage as in the U.S because it cost the most. According to studymalaysia.com the average cost for a 3 year Business Degree in a private university cost between RM 45,000 to RM 80,000.
It is clear that insufficient weightage is given to Education component although it amounts to a substantial portion of a household’s expenses.
- Transport.
The next grouping that we are going to examine is Transport. The following is the table for the Main and sub-grouping of Transport.
Price Change
|
Weightage
|
in %
| |
Items
|
Sep 12-Sep13
|
Malaysia
|
USA
|
07 - Transport
|
4.6
|
14.92
|
16.846
|
071 - Purchase of Vehicle
|
-0.1
|
2.9
|
5.551
|
0711 - Motocars
|
-0.1
|
2.55
|
5.033
|
0712 - Motorcycles
|
0.3
|
0.32
|
0.38
|
0713 - Bicycles
|
0.7
|
0.03
|
0.139
|
072 - Operation of Personal Tran.
|
5.8
|
11.8
|
10.105
|
0721 - Spare Parts
|
0.5
|
0.37
|
0.997
|
0722 - Fuels & Lubricants
|
6.6
|
8.77
|
7.959
|
0723 - Repairs & Mainte.
|
4.3
|
1.36
|
1.149
|
0724 - Other Services
|
-0.7
|
0.58
|
0.563
|
073 - Transport Services
|
3.8
|
0.94
|
1.189
|
0731 - By Railway
|
0
|
0.03
|
0.132
|
0732 - By Road
|
3.3
|
0.69
|
0.132
|
0733 -By Air
|
16.6
|
0.11
|
0.771
|
0732 - By Waterway
|
-8.8
|
0.07
|
0.151
|
0735 - Other Transport
|
4.2
|
0.04
|
0.003
|
Total (%)
|
14.92
|
16.846
|
Source:
http://www.statistics.gov.my/portal/download_Prices/files/CPI/2013/SEP/BI/02Malaysia.pdf and http://www.bls.gov/cpi/cpid1309.pdf
In transport under the sub-grouping of 071, the column for the purchase of motorcars (0711) is given a weighting of only 2.55. This is clearly under represented. In actuality, monthly payments for vehicle hire purchase constitute at least 10% of the average household disposable income.
To illustrate further, the low-end version of the Perodua Myvi which cost about RM44, 000 may be used. Assuming that the average annual household income at RM 60,000 per annum (RM 5,000 per month). For a loan of 90% (RM 39,144) with an extended repayment period of 9 years, consumers will have to spend about RM466 per month for the hire-purchase payments. Since the monthly loan repayment constitutes about 9.3% (466/5000) of the disposable income, assigning a weighting of only 2.55 is clearly flawed.
Summary
The CPI does not provide an accurate picture of the rate of inflation. I am of the opinion that our CPI is formatted in such a way that does not truly reflect the spending pattern of the lower income group.
Illustrations of this may be seen above.
Further, the Electricity and Gas Sub-Grouping under the Housing Main Group, accounted only for 3.34% of the weightage. Out of the 3.34%, 2.88% went to Electricity and 0.46% to Gas. From the data supplied by the Statistic Department as from Sept 2012 to Sept 2013 shows there is a 0% change in the index. This is yet again flawed.
I believe that if not for the manipulation of the CPI, our inflation rate would be much higher than the reported 2.7%. If classification of the groupings and weightings are done properly, then I believed the actual inflation rate could be much higher than the current rate. This would mean that the CPI increase would be higher year to year as opposed to what it is now.
What are the Implications of a Flawed CPI on the Collective Agreement between NUBE and MCBA being negotiated now?
The next important question is how does the CPI manipulation affect the Collective Agreement between NUBE and MCBA?
i. Salary Adjustment
I have been made to understand that according to the Industrial Court Award 117/82, salary adjustments are based on 2/3 of the increase of CPI in the last 3 years from the time the increase of salary is to take effect. I am also made to understand that the period for which this Collective Agreement takes effect would be from 1.1.2012 until 31.12.2014.
Accordingly if we use the Award as the benchmark to calculate the salary adjustment for Collective Agreement, based only on CPI, we need to take the CPI reading from January 2009 to December 2011. Hence the CPI for Peninsular Malaysia between January 2009 (98.1 index points) and December 2011 (104.2 index points) can be calculated as below.
The percentage is therefore,
(104.2 – 98.1)/98.1 x 100% = 6.2%
And two third of that will be (6.2% x 0.6666) = 4.14 % or about 4%.
If only this formula is used then any salary adjustment upon the signing the new Collective Agreement would not need to be more than 4.14%.
This would result in a great injustice and the employees would get a very raw deal.
Accordingly, I believe that CPI cannot be used as the sole criteria for calculating salary adjustment.
Other factors such as closing the widening income gap between the different income groups, average household income, ability of the employer the pay and the current economic conditions are important considerations in calculating the salary adjustment.
COST OF LIVING ALLOWANCE (COLA)
I am made to understand that at present the Bank employees under the current Collective Agreement (COLA) get an allowance of between RM100 to RM150 as Cost Of Living Allowance to compensate the employees on the rising cost of living.
There is a great disparity with employees in Sabah and Sarawak who are given COLA based on a percentage of their monthly salary.
Banks employees in Sabah and Sarawak are given a regional allowance (COLA) based on fact that it was assumed that overall the cost of living in Sabah and Sarawak is higher than in Peninsular Malaysia.
Below is the table for the allowances received by a Bank Employee in Sabah. This is based on the SCBA/Sabah Bank Employees Union Collective Agreement dated 23 April 2013.
Salary Range (RM)
|
Percent
|
Value from (RM)
|
Below 951.34
|
25%
|
237.83
|
951.35 - 1329.73
|
22.50%
|
214.05 - 299.18
|
1329.74 - 2015.73
|
20%
|
265.94 - 403.14
|
2015.74 - 4029.63
|
17.50%
|
352.75 - 705.18
|
4029.64 - 6289.13
|
15%
|
604.44 - 943.36
|
Source: SCBA/Sabah Bank Employees Union Collective Agreement dated 23 April 2013
Thus, without the regional allowance since 1985, bank employees in Peninsular Malaysia have lost out on a subtantial allowance denied to them based on the reason that the purported fact that the cost of living in Sabah and Sarawak was higher. This is a misconception.
CPI figure by States
State
|
Jan 2013
|
Jan 2014
|
Difference
|
Sarawak
|
105.1
|
108.9
|
3.6
|
Sabah
|
105.9
|
108.7
|
2.6
|
Peninsular
|
105.5
|
108.9
|
3.4
|
The above table clearly demolish the myth that Sabah and Sarawak has a higher cost of living compared to the rest of Peninsular Malaysia and there is great income inequality.
The CPI figure by States shows that the CPI index points in Sabah and Sarawak does not vary much from Peninsular Malaysia. This is because they are within the range of 108 index points. Moreover, Sabah recorded only a 2.6% rise in the CPI reading which is lower than Peninsular Malaysia.
Hence, it can be concluded that the rational for regional allowances for bank employees in East Malaysia applies equally to bank employees in Peninsular Malaysia.
Accordingly, COLA (from RM100 – RM150) currently accorded to bank employees in Peninsular Malaysia should be revised upwards to reflect equality with their counterparts in Sabah and Sarawak.
A Fair Salary Adjustment and Allowance Allocation
Thus, to help raise the standard of living and to help them (bank employees) cope with the increasing cost of living, I believe that a fair and reasonable solution should also take into account the following factors apart from that discussed above :-
- The increasing and phenomenal profits earned by banks are a factor. The good fortune of the banks in terms of higher profits should be shared among the employees and the shareholders. As announced recently, most banks are recording record profits as shown by the table below.
Column1
|
Column2
|
Column3
|
Bank
|
Period
|
Profit
|
Affin
|
Q3 FY2014
|
RM 628.9 m
|
Alliance
|
9M FY2014
|
RM 405.5 m
|
Ambank
|
Q3 FY2014
|
RM 423 m
|
CIMB
|
Q4 FY2013
|
RM 1.04 b
|
Hong Leong
|
1H FY2014
|
RM 1.06 b
|
Maybank
|
FY2013
|
RM 6.55 b
|
Public Bank
|
Q4 FY2013
|
RM 1.03 b
|
RHB
|
FY2013
|
RM 1.83 b
|
Source: various banks website and media.
- By raising the wages of workers, it not only help eased their burden in coping with rising cost of living but also helps our Government to reduce the income inequality among its citizens. This is because only when income inequality is reduced then a country’s economic growth will be sustainable. A study by the IMF shows that the lower the income inequality the longer the number of years a country can enjoy sustainable growth. It can be shown by the following graph.
Malaysia can be considered one of the most unequal nations in the Asia Pacific region in terms of income distribution. Income inequality can be measured by a statistical approach called Gini coefficient or index. The Gini index is used to measure the gap between the poor and the rich. The higher the reading the higher is the inequality. The following graph shows Malaysia’s standing in the Asia Pacific region.
.
As can be seen from above, Malaysia ranked third in terms of income inequality in Asia Pacific. High income inequality means higher proportion of the nation wealth held by a smaller group of individuals. This also implied that any benefits that derived from economic growth will flow to the higher income group instead of the lower income. To lessen the negative effects of income inequality on the provision of health care, education, housing and other social services, our Government increased the minimum wage to RM900 as of this year.
However this will not address the inequality problem as I will demonstrate with the following. According to the 2012 Household Income Survey, it found that the average monthly income of Malaysian households rose from RM4025 in 2009 to RM5000 in 2012. This is equivalent to an average rise of 7.2% per annum. A household by definition consists of 4 family members. (Source: http://www.statistics.gov.my/portal/download_Prices/files/CPI/2013/SEP/BI/02Malaysia.pdf
Thus, it can be deduced that the average income per person in a household is RM1250 (RM5000/4). So, in essence raising the minimum wage to RM900 does not have much material effect on average household income since they already earned more. On the other hand, it benefits the foreign workers who are earning a basic salary of about RM600 per month. To be effective, the minimum wage should be raised close to the average household income per person of RM1250.
- Applying the above to the bank employees concerned here who are divided into 3 categories, I am of the view that the salary adjustments should be as follows:-
Using the lowest category salary of RM845, increasing the salary to RM1,250 would mean salary increase of 48%.
Looking at the existing salary structure, the next category has a lower end of RM1,269. The difference between RM845 and RM1,269 is 50.1%.
Looking at the next category, the difference between the categories is between RM1,269 and RM1,600, which a difference of 26%.
Effectively the average percentage difference between the categories between Non-Clerical, General Clerical and Special Grade Clerical would be 38%.
Accordingly, I believe that there should be a salary adjustment of 38% across the board for all categories of employees.
Taking into account all the above factors, I believe that a reasonable salary adjustment should be 38% across the board for all categories of employees for reasons given earlier.
- Bank employees in West Malaysia should be accorded the same Regional Allowances enjoyed by their East Malaysian counterparts. This can be shown by the table below:
Salary Range (RM)
|
Percent
|
Value from (RM)
|
845.00 - 951.34
|
25%
|
211.25 - 237.83
|
951.35 - 1329.73
|
22.50%
|
214.05 - 299.18
|
1329.74 - 2015.73
|
20%
|
265.94 - 403.14
|
2015.74 - 4029.63
|
17.50%
|
352.75 - 705.18
|
4029.64 - 6289.13
|
15%
|
604.44 - 943.36
|
Thus, I believe this arrangement will be a win-win situation for all parties including the banks, employees and the Government.
Dated 14th March, 2014.
………………………………………
Sam Chee Kong
1 comment:
Useful Information, your blog is sharing unique information....
Thanks for sharing!!!
aggregate farming software providers
software for agricultural management
Post a Comment