Research and advocacy of progressive and pragmatic policy ideas.

Editorial Safety Nets

The Social Safety Net: What Should We Expect?

Do we have a clear idea of what the social safety net should provide?

By Editorial Team25 October 2019

  • Malaysians are approaching a symbolic milestone in the nation’s history: the year 2020. It is telling though that the vision of becoming a developed nation by the year 2020 (Vision 2020) is being succeeded by a vision to achieve more socioeconomic equitability (Shared Prosperity 2030). We live in more precarious times. The rise in self-employment or the gig economy, an ageing population and major technological shifts mean that there will be an increased need for measures to help people deal with unstable incomes, fast-changing labour markets and old age care.
  • Is our country’s social safety net sufficient to deal with these changes? Do we, as Malaysians and voters, have a clear idea of what the social safety net should provide and whether it can be financially sustainable? In this commentary, we ask some fundamental questions about what we can and should ask for.

What is a social safety net? For a quick overview, read our primer on Malaysia’s social safety net.

First, what do you believe?

  • Do you believe that (A) people should get a decent standard of living no matter their job, or (B) people can get a decent standard of living if they work enough?
  • If you believe in (A) you’re likely to be more left-leaning. You believe that all forms of labour, even ‘low value-adding’ work, have dignity and that the government needs to step in when free markets do not pay a sufficient wage.
  • If you believe in (B), you’re likely to be more right-leaning. You believe that income is mainly determined by personal effort or talent, and that government support should be for those without the capacity to work.
  • Looking back on our policies and ‘Asian Values’ rhetoric, it’s fair to say that right-leaning thinking has been the dominant ideology in Malaysia. The recent Budget 2020 promised an increase in the minimum wage to RM1,200 a month in urban areas but this is still some distance from the RM2,700 BNM considers to be a living wage. Meanwhile, the introduction of BR1M (now BSH) has been decried as inducing laziness, rather than assisting with rising costs.
  • The inference here is clear: if you work hard, you will get a good job and should have nothing to complain about. If you are in a low-skilled, low-paying full-time job, you’ll have to work much more and much longer than others. Better yet, take the initiative to get ‘upskilled’.

A reality check for right-leaners

  • We believe that it will become increasingly untenable to be right-leaning. Rightist values is politically manageable when mainly non-university educated blue collar workers are affected. It will no longer be manageable when more university-educated white-collar jobs get taken over by AI, machine learning and automation.
  • 2017 report by Khazanah Research Institute estimated that more than half of all current jobs in Malaysia are at high risk of being displaced by automation in the next 10 to 20 years. The situation is worsened by the decline of full-time employment and the rise of informal ‘gigging’ work.
  • The effects of automation on jobs has started and there is real fear about the future, particularly amongst the young. In light of this change in the job market, more Malaysians will likely become left-leaning – that is, more of us will want policies that ensure a decent standard of living no matter the job.
  • What does this mean for the social safety net? We argue that a clear social safety net framework is one where the minimum wage, BSH and other cash transfers actually add up to an acceptable outcome.

What might a good social safety net look like?

  • Item 1: We have to acknowledge that certain occupations will not earn a full-time living wage in the free market. These are jobs in industries with many competitors, thin margins and a relatively small local customer base*. Imposing a higher wage on jobs there will likely result in layoffs or business closure.

*Note: While cheap foreign labour does depress wages, it is not the sole reason for all low wages. Take away foreign labour and some jobs will still not be able to earn higher wages.

  • Therefore, a feasible minimum wage policy is needed – one that doesn’t exploit workers but also allows business owners a reasonable profit. The Government‘s current attempt seems to be in the right direction, viz. figuring out the minimum wage by sector. This policy could be more credible by making transparent each sector’s average margins. Setting minimum wage by locality would also help, to take into account geographical differences in operating costs and revenues.
  • Item 2: We need to accept that many workers are not earning ‘official’ or full-time wages. This proportion of informal workers is only going to increase with the rise of the gig economy. And so, a good minimum wage policy alone will not guarantee that all workers will earn a living wage. We will need income support, along with public goods like affordable transport, housing and healthcare.
  • Income support in particular, or BSH, is one of the hardest policies to pin down. Today, it is still not clear how BSH is calculated or structured. Being opaque, BSH thus becomes a handy tool for perpetuating ‘gratitude politics’. Why not make BSH more transparent and objective? By structuring a clear formula for BSH*, we can take it out of politics and make it predictable policy.

*Note: To avoid the problems and costs associated with targeting, we should also seriously discuss a Universal Basic Income or at minimum, a Universal Basic Pension.

  • Item 3: We need to expect that technological change and its impact on work will only increase in coming years. Given this, a social safety net would be incomplete without access to affordable reskilling and reemployment assistance. Currently, such programs, of varying effectiveness, are scattered over assorted ministries; the better ones do not cover all workers. If more than half of Malaysia’s working population will need reskilling in future, we will need a comprehensive response – Singapore’s SkillsFuture program and credits is one example.

Would it all add up?

  • Would a fair minimum wage policy, transparent income support policy, good public services and comprehensive reskilling & re-employment assistance add up to a good social safety net? It comes back to how we define a decent minimum standard of living. The answer to this question determines everything related to the social safety net, from the amounts of BSH to the design of affordable housing.
  • To this day, we think it’s fair to say that Malaysians do not have a clear and shared understanding of what a decent minimum standard of living should be. Should it be the one described in BNM’s living wage paper? Or the one underlying EPF’s Belanjawanku? Or something else?
  • How a decent minimum standard of living is defined and achieved needs to be part of every manifesto and every Administration. It will likely be expensive, but given the nature of uncertainty and change we expect, it will be necessary. The future is coming – let’s get clear about what we can do about our safety net today.

Good to know:

If you’re an A-sider you’re probably more leftist, but not necessarily liberal or libertarian. Find out where you are on the political compass.

Most Malaysians feel they need to upskill according to Randstad. But if you’re not already working for a company, getting guidance on upskilling is hard work (try Googling it).

Malaysia’s top 5 jobs of the future according to LinkedIn. Not surprisingly, it’s mostly tech-related. 

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