Should fresh graduates be earning RM7,000-RM8,000 based on numbers taken from 1984? We bring the facts to you.

Tan Sri Muhammad Ibrahim, ex-Bank Negara Malaysia (BNM) governor, has said that Malaysian fresh graduates’ real salaries have gone down threefold in 40 years.

According to his reckoning based on his own salary way back then, fresh graduates of current times should be paid RM7,000 to RM8,000 per month. While higher pay is definitely welcomed (for all Malaysians, too, regardless of age), does it stand up to the facts and realities in the job market?

This article gives some important context to what he’s saying about Malaysian fresh graduate pay, and highlights the real struggles they face in the job market today.

Explanation about Real Wages/Salaries

Before we proceed, there is a need to explain what real salaries mean.

There is inflation every year. If you spent RM400 per month on groceries last year, you will probably spend about RM407 per month this year based on prices going up by 1.8% (2024 inflation rate).

That’s why your salary needs to go up by the same or more than 1.8% to ‘counter’ the rise in prices and maintain your ability to pay for things.

You might have heard about your parents talking about their salary being very low last time – maybe RM300 per month.

What you need to know is that prices of everyday things are much lower also back then. For example, they could be earning RM300 per month, but spend about RM60 per month on groceries. If you earn about RM2,000 per month today, and spend about RM400 per month, you are technically in the same position as your parents in that you spend about 20% of your salary.

#1: Starting Pay of RM1,300 per Month was Exceptionally High in 1984!

This is the crux of Muhammad’s argument. In 1984, he started out with a pay of RM1,300 per month. And if he takes into account of inflation of 5% every year, a fresh graduate should be paid about RM7,000 to RM8,000 per month in 2024 or 2025. However, since fresh graduate pay now hovers about RM2,000 to RM3,000 per month, he speculates that current salaries are about one-third of what it’s supposed to be! What?!

Let’s calm down and look at the details.

Firstly, it is not quite right to assume his starting pay is the average salary for any fresh graduate in 1984. In fact, based on the comparable data we found, RM1,300 per month for a fresh graduate pay in 1984 was very high!

  1. In 1984, average salary for all Malaysians was only at RM228 per month (RM248.70 in 1989 ringgit terms before taking into account inflation).
  2. RM1,300 per month would mean that the person is at the top 1% of income earners in Malaysia in 1984. (Yes, a fresh graduate immediately entering T1!)

Secondly, the 5% inflation rate he used for his calculation is also too high. According to data from Macrotrends, inflation in Malaysia averaged 2.4% from 1984 to 2023. Using 2.4% as the inflation rate, Muhammad’s fresh graduate pay of RM1,300 per month in 1984 would equal RM3,357 per month in 2024. A rather drastic difference from the claimed RM7,000 to RM8,000 indeed.

#2: University Graduates were Uncommon in 1984

The state of the job market in 1984 and 2024 is very different.

In 1984, only 4.8% of Malaysian workers had a university education. Meanwhile in 2024, 22% of Malaysian workers have a university education.

Most workers in the job market in the 1980s didn’t even complete primary education, with only 35% of workers having a primary education. Comparing graduate salaries between the two eras are not apple-to-apple comparisons.

Hence, anyone that had a university education in 1984 were getting a pay that is 3 to 4 times higher at RM720 per month, compared to workers who only had primary (RM180 per month), junior secondary (RM190 per month), and senior secondary (RM276 per month) education.

This actually brings us to the real problems that many university graduates today face.

#3: Graduates are Getting Lower Returns from a University Education

In 1984, it certainly was not commonplace for people to have a university degree. It took a lot of determination, effort, education opportunities, and financial opportunities to have a university degree. Therefore, when you graduate with a university degree, that meant something in the job market. You could get jobs that pay 3 to 4 times higher than the average salary.

Having a university degree is a norm today. Without that, you can’t get your foot inside of most jobs. That also means that it’s harder to differentiate yourself in the job market.

In 2023, Malaysian workers who has a tertiary education earns on average RM4,703 a month, less than 2 times higher than workers who had a secondary education (RM2,536 a month).

Many Malaysian students take up loans to acquire a diploma or degree to potentially earn a higher-paying job in the market. While graduates do indeed still get a higher pay on average, that return has been getting lower and lower.

And with education getting more expensive, Malaysians are increasingly finding it hard to repay their student loans with their current pay as they are considered overqualified and underemployed, according to Khazanah Research Institute.

And this is actually a symptom of a bigger problem Malaysian graduates are facing.

#4: Mismatch between Education and Job Market

There is one thing that Muhammad said that is generally correct – Malaysia has not been able to create high-skilled jobs for Malaysian graduates.

According to this research paper by Low and Mah, the gap between the number of graduates and high-skill jobs is widening, as Malaysia is unable to create enough suitable jobs for graduates.

For many Malaysians, there was an implicit promise from the government that getting a university education will lead to better jobs that are higher-skilled. That has not worked out exactly that way.

According to Khazanah Research Institute, almost half of graduates are overqualified for their jobs in 2021. They settle for semi- or low-skilled jobs as their first job or moved to the gig economy to make ends meet.

Furthermore, according to data from Department of Statistics Malaysia on graduates, from 2020 to 2023, the number of graduates grew by an average rate of 4.8% every year compared to just 2.0% yearly growth for high-skilled jobs.

While some have managed to get into high-skilled jobs, many didn’t.

#5: Graduate Salary Grew the Strongest in the Past Few Years but Still Not Enough

So, here’s something interesting.

According to data from DOSM, graduate salary for workers aged below 25 years (proxy for fresh graduates) grew the most at an average of 6.5% yearly from 2021 to 2023. This is higher compared to graduates aged

  • 25 to 34 (Avg: 4.2%)
  • 35 – 44 (Avg: 2.8%)
  • Above 45 (Avg: 3.2%)

Thanks to that growth, fresh graduate salary is estimated at RM2,242 per month in 2023.

The big question is: Is this enough?

The answer to that question varies depending on the person’s living style and choices. DOSM estimates that a Malaysian who is single will need to spend about RM1,632 per month to have a ‘decent living’.

After deducting for EPF, SOCSO, and taxes, a fresh graduate salary today comes up to about RM1,977 per month. This translates to a savings of about RM334 per month.

Quite a small margin to survive on in case anything goes wrong.

Conclusion

RM7,000 to RM8,000 per month for a fresh graduate salary is certainly desirable. Looking at the numbers, this is an unrealistic figure to quote as it is based on a personal experience of RM1,300 per month in 1984, where Tan Sri Muhammad Ibrahim was already at the top 1% of income earners in Malaysia although he was just on his first job.

However, this discussion also exposes some of the realities that graduates face in the job market, namely lower returns from getting a tertiary education, mismatch between their education and the job market, and a graduate salary that is low and insufficient.

 

Let us know in the comments below what was your first salary drawn and what you think about it then versus now!

 

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