Malaysia's labour-share debate highlights the limits of GDP ratios as a measure of wages

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The debate over labour's share of GDP

Highlights

Statistics from the Department of Statistics Malaysia for 2025 show that average monthly wages in mining were RM6,175, nearly twice the RM3,188 in construction, despite a lower labour share.
Malaysia's labour share edged up to 33.9% in 2025 from 33.6%, with total employee compensation rising 5.8% to RM686.9 billion.
The article stresses that assessing whether workers are underpaid requires data on median hourly compensation, wage growth relative to productivity, and workers' bargaining power.

This article was translated from the original. Read the original version by our correspondent here.

What labour-share figures mean in comparisons across sectors

As reported by The Edge Malaysia, the article's central argument is that a low labour share does not necessarily prove that workers are underpaid, because the measure shows only the percentage of value added allocated to the workforce.

The article explains that the labour share is the ratio of employee compensation to value added, while workers' actual earnings also depend on how much value added is generated per worker. In the example given, a business with annual value added of RM150,000 per worker could still pay average compensation of RM60,000, even with a labour share of just 40%, compared with RM30,000 at a business with value added of RM50,000 and a labour share of 60%.

This difference is also evident across industries. Statistics from the Department of Statistics Malaysia for 2025 show that employee compensation accounted for 11.3% of value added in mining and quarrying, compared with 75.2% in construction. Yet average monthly wages in mining and quarrying were RM6,175, almost twice the RM3,188 in construction.

The article also stresses that this relationship does not mean a lower labour share is always associated with higher wages. Agriculture, for example, recorded a labour share of 16% and the lowest average monthly wages, at RM2,575, showing that the ratio alone is insufficient to assess whether workers receive fair compensation.

International comparisons point to a similar conclusion. In Ireland in 2025, the information and communications sector recorded a labour share of 12.8% but median weekly earnings of 1,516 euros, while accommodation and food services had a labour share of 82% but median weekly earnings of just 409 euros. According to the International Labour Organization's estimates for 2025, labour income's share of GDP also varied from 71.2% in Switzerland and 63.1% in Germany to 45.9% in Norway, partly because of differences in economic structures.

Implications for wage policy and labour-market measures

The article notes that the labour-share measure also has methodological limitations because GDP is a gross measure that includes depreciation of productive assets, self-employment income, and taxes less subsidies. Therefore, the share of economic output not counted as employee compensation cannot simply be treated as corporate profit.

Moreover, the Malaysian figures cited measure employee compensation as a share of value added and exclude the labour component of self-employment income. This can make the labour share appear lower, particularly in economies with many self-employed workers, while measures such as the International Labour Organization's estimates of labour income share seek to adjust for this shortcoming.

At the aggregate level, the article argues that changes in the labour share do not necessarily reflect the well-being of individual workers either. In Malaysia, the labour share edged up to 33.9% in 2025 from 33.6%, while total employee compensation rose 5.8% to RM686.9 billion from RM649.3 billion. This increase could result from more jobs, higher compensation per worker, or both.

The article also cautions that employee compensation includes executive remuneration as well as ordinary workers' wages, so a stable or rising labour share does not show who actually benefits from the increase. The labour share can also rise when the economy is under pressure if profits fall faster than employee compensation, even as workers face wage freezes or job losses.

The policy conclusion is that determining whether workers are underpaid requires more direct evidence, including real median hourly compensation, wage growth relative to productivity in comparable industries, pay for equal work, the cost of living, and workers' ability to negotiate or change employers. For Malaysia, the proposed priority is to build productive capacity through investment, technology adoption and learning, while ensuring that competition for workers, labour protections and stronger bargaining power help distribute those benefits more fairly.

In our previous coverage of quality investment criteria in Malaysia, we stressed that investment should be assessed not only by the amount of capital it brings in, but also by the quality of the jobs it creates—including fair wages, safe workplaces and flexible working arrangements. We also discussed how these benchmarks are particularly important for increasing women's participation in the workforce, including in addressing constraints such as the continued lack of adequate childcare support.

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