Manning the state government

Photograph: Kwong Wah Yit Poh

By Chan Huan Chiang

PEM unravels the Penang state government’s wage bill and finds that the implementation of minimum wage may not have much of an impact on cost or income distribution. The question to ask is how productivity is best rewarded.

States in Malaysia
The Malaysian flag, now affectionately called the Jalur Gemilang, raised at the Stadium Merdeka in 1957 when Malaya became a new nation, bears a close resemblance to the American Stars and Stripes. The Malaysian flag’s red and white stripes represent one state each as do the star’s 13 points. The US flag also has 13 red and white stripes and originally had 13 stars arranged in a circle, representing the 13 states that made up the United States of America in 1776.

The similarities between these nations go beyond the flags though, and both Malaysia and the US were formed as a federation of many states.

Governance of a state is funded in three parts according to the terms under the 10^th Schedule. Part I is the capitation grant paid by the federation to the state: RM72 per person for the first 100,000 of the population in the state, RM10.20 each for the next 500,000 people, RM10.80 each for the subsequent 500,000 people and finally RM11.40 per person for the remainder of the population.

With a population of 2.4 million Penang’s capitation grant from the federal government amounts to RM23.4mil per year.[2] In Part II, the state receives a state road grant based on mileage and the cost of road maintenance at the minimum standard. Finally Part III lists sources of revenue assigned to states, chief of which are lands, mines and forest revenues. Other revenues include toddy shop revenues, various business activity-related licenses, entertainment duties, fees and receipts for certain government department services, fines and certain kinds of Islamic religious revenues. Local government revenues will also fall within Part III of revenue sources. In 2009, total expenditure by the Penang state government amounted to RM543mil which left an RM985,000 budget surplus when compared to revenues raised.[3]

The Penang state government
In accordance with the state and concurrent lists, the Penang state government is made up of the Governor’s office, Chief Minister’s office, State and Assistant State Secretaries’ office, the Directorate of Lands and Mines, the District and Land offices (each incorporating also the physical and social development units), Drainage and Irrigation Department, Forestry Department, Botanical Gardens, Public Works Department, Religious Affairs Department, Social Welfare Department, Town and Country Planning Department, State Financial Department, Veterinary Services, Agriculture Department, Mufti’s Department and Syariah Court. The manning of these departments is shown in Table 1.

Source: Bajet 2009 Negeri Pulau Pinang: Perjanjian Program dan Senarai Perjawatan.

There are several other agencies in the Penang state government that are not full departments which are subsumed under either the Chief Minister’s office or the State and Assistant Secretaries’ office. They include a wide array of functions such as the secretariat to the State Assembly, the protocol office, audit, quality assurance, corporate communications, privatisation, complaints bureau, education, science and technology and innovation, entrepreneur development, student loans, health, heritage, human resources and training, research and development, the state economic planning unit, development and environment, information technology and data base system portal including the Penang Geographical Information System, athletics, youth and sports, housing, tourism, trade and industry, Dewan Sri Pinang and the Penang Hill Railway.

The two municipal councils for the island and Seberang Perai are local governments with their own public services not covered here. There are also several state organisations such as the Penang Development Corporation, InvestPenang, Penang Global Tourism and etc. which do not strictly form part of the state public service being discussed here.

Income levels and distribution in the Penang state public service [4]
In 2009, the Penang state government employed a total of 4,196 people to serve all the various functions, for which the wage bill amounted to RM101.7mil. The total expenditure in 2009 amounted to RM543.38mil which means that emoluments made up 18.7% of the cost to run the state. These figures work out to RM24,246 a year per employee on average or roughly RM2,000 a month each.

The employment profile of the Penang state government in terms of numbers, pay grade and the wage bill is shown in Figure 1. The area below the blue line is the total annual wage bill. The median pay scale divides between grades upwards from 17 and grades downwards from 14 in which half of all employed are above and half below these grades.

Figure 1: Numbers employed, pay grade and the annual wage bill in Penang, 2009.

In the middle pay grade categories, grades 4 through 36, the numbers employed and the impact of their employment on the annual wage bill are better matched. However, in the lowest pay grade, the numbers employed are among the highest. Yet due to lower wages, the impact on the wage bill is relatively small. This contrasts greatly with the upper categories, where fewer numbers are employed but the impact of their wages is comparatively higher.

The median monthly income (half of the state employees earn more and half earn less) is RM2,000 or about the same as the mean income. However, wage levels and numbers employed skew heavily away from this point. The cumulative distribution of numbers employed and the wage bill is shown in Figure 2. Those earning below the median salary (50% of numbers employed cut off at pay grade 17) account for only a quarter of the total wage bill which means to say that those earning above the median salary account for 75% of the total wage bill.

The top two per cent of those employed take home 10% of the total wage bill, while the top 10% of those employed take home 30% of the total wage bill. The top 20% of those employed take home 40% of the total wage bill. The bottom 30% of those employed take home only 15% of the total wage bill.

Figure 2: Cumulative distribution of numbers employed, pay grade and the wage bill in Penang, 2009.

Job descriptions at the bottom
Out of 4,196 employees in the Penang state public service, among the bottom 2,000 or so employees, there are some 1,400 lower category general workers, peons and a handful of cooks. There are some 230 drivers, 43 notice servers, 46 mechanics, electricians, carpenters and painters, another 28 or so apprentices, 43 security guards, 15 gardening foremen, eight forestry monitors, 156 junior administrative assistants and some 24 data processing machine operators.

Above these, workers numbering some 1,300 add another 30% to the total employment of the Penang state public service. About half of them are administrative assistants. The state also employs more than 240 technicians, 170 accounting assistants, 120 or so assistant Islamic Affairs officers, 70 or so assistant land officers, 80 or so forest rangers, agricultural assistants and veterinary assistants, and about 15 social development officers in the welfare department.

Implications of a minimum wage law
When the minimum wage law comes into effect, it is unlikely that the government will abstain from complying. Table 2 shows typical entry level monthly wage levels of the lowest grades in the public service in Penang. There may be small variations for specific positions. T1 through T7 and beyond (which can go up to T22) show annual increments and P1, P2 and P3 are merit increments for excellent service based on annual staff assessments.

It is possible for the minimum wage to be set anywhere between RM700 and RM1,000 and depending on which level it is set, how it will affect the public servant concerned can be seen in Table 2. For example, if the minimum wage is RM800, then those in grade 1 who have worked less than five years and those in grade 3 who have worked less than four years will be affected, unless they have already been upgraded to P2 or P3 due to merit. Needless to say new recruitments of inexperienced staff to these grades will have to be paid wages equivalent to counterparts who have served for many years. The problem is further aggravated if the minimum wages are set higher say at RM1,000 which will not only push entry wages of new recruits to match those who have served longer but will also affect pay grades as high as grade 17 at the entry level, which is currently below RM1,000.

Table 2: Typical entry basic wages of the lowest grades in the public service (RM per month). Source: Bajet 2009 Negeri Pulau Pinang: Perjanjian Program dan Senarai Perjawatan.

One might easily assume that upgrading wages of those at the bottom will not be met with widespread objections. However, a recent issue of The Economist carried a surprising but insightful article backed by both experienced scholarship as well as survey data (it is a US example that may or may not apply here).[5] People appear to have a “last place aversion” and would object to a small increase in income when the same policy of income distribution would also lift poorer people up to the same income level as them.

The same people might also not favour increased taxes imposed on higher income folks because they aspire to one day be in the higher income category. This behaviour was also demonstrated by an experiment involving a choice to redistribute money either to someone one class higher or one class lower. Surprisingly the choice is mostly to pay to someone in the class above and not the class below, because one not only hopes to one day move into the higher class, but also to ensure that people who are poorer than one will exist!

Regardless of this, the impact on the total annual wage bill of the public service in Penang will be minimal since government salaries are generally seen as good in the bottom positions. For example if the minimum wage is set at RM850 per month, this should, using very simplistic calculations, affect one-sixth of all those in grade 1 and one-seventh of those in grade 2 if public servants work for 30 years and they are generally spread evenly age-wise across the public service. The increase in wages is only RM150 to RM200 and multiplying such amounts with numbers now earning below RM850, the increase to the wage bill would amount to about half a million Ringgit for grade 1 and RM100,000  for grade 2. Relative to the total wage bill this increase will only add an additional six per cent to the wage bill of RM102mil, based on 2009 figures.

Conclusion
This simplistic review of staff structure and wage rates of Penang’s public service suggests that the minimum wage is not the critical issue when it comes to welfare concerns for lower level employees. The same may not apply to lower level employees in the private sector. In the public sector, it is possible that the introduction of a minimum wage will not affect many employees if at all. For example at RM850, fewer than 300 state employees or six per cent of the total number employed would be affected. It so happens that the increase to the wage bill will also be roughly six per cent.

The more critical concern is having 30% of the entire Penang state government staff in the lowest category and having half (the median) of its employees below grade 17. The main cause for this is that entry into the public service is based on paper qualifications. Without a university degree, a public servant can never earn an officer’s scale salary. Rank and file promotions have upper limits unlike in the private sector.

Given the distribution of the population, it will be unlikely that degree holders will outnumber those without. The path towards a high income society cannot and should not be exclusively pursued through people having university degrees. Instead wages should reflect productivity outputs and depending on what one does in his or her profession or vocation, remunerations should follow suit whatever the paper qualifications.

Chan Huan Chiang is a senior research fellow at the Penang Institute.