WE often hear of the term of the middle income trap. What is it exactly? How does it affect the rakyat? And what can we do about it?

What is the middle income trap?

The middle income trap is when the average salaries of the rakyat remains stuck at a particular level for a very long time.

As an example, lets say an executive who works at a private sector.  His salary has been at between the RM3,000 and RM5,000 a month for the past five years. Unless the employer increase the salaries, he will continue to remain in that category for a long time and this is what is known as the middle income trap. His salary will not be increased and will stay there for a long time.

Unfortunately, a lot of Malaysians have been stuck in the middle income trap for quite a long time.


How to get out of the middle income trap? Learn new skills

Sunway University Business School Professor Of Economic Dr Yeah Kim Leng said the only way for the rakyat to get out of the middle income trap is to improve themselves. How can they do it?

The only way for them to do it is by furthering their studies such as going for training, learn new skills, get a higher degree in education such as a getting a diploma, a bachelors degree, a masters degree, a doctorate or other certificates. This is because only through education can they improve themselves and earn higher income.

If a person is a clerk, he can continue with his education and get a degree and become a chief clerk. From there, he can become a manager and eventually the managing director.

New skills can improve the lives of the rakyat

It is important for the rakyat to learn new skills because the world is always changing. It is now the knowledge economy where the rakyat can earn money by knowing something that others do not know.

As an example, the Ipad and the Iphone is an example of the knowledge economy. The smartphone is a product of the knowledge economy and look at what is happening right now. The whole world is using the smartphone.

For a Malaysian to be able to make the smartphone, he must first have the skills to make a phone. And how does he get the skills? Through education of course.

Boost productivity

The rakyat can also get out of the middle income trap by boosting productivity. What this means is that the higher the productivity, the higher the income.

As an example, a worker at a rubber glove factory can work for 8 hours a day. He also gets to earn higher income when the machines can produce more gloves.

How to boost productivity?

This can be achieved by using a more efficient machine with better technology which can produce more gloves. How can a Malaysian do that?

He will have to acquire the skills to improve the machine and this can only be done through education and training.


The rakyat should start a small business

The reason why the salaries of the rakyat is small is party because they are wage earners preferring to earn a monthly income and do not want to go into business. Unless the rakyat do something, they will continue to be low skilled salaried workers and will never get out of the middle income trap.

This is because Vietnam, Laos, Thailand are also fast catching up on us. Their workforce and costs are cheaper than us.

So pretty soon, the foreign companies such as Nestle or Pepsi will relocate to Vietnam and Laos as their workers salaries are cheaper compared to Malaysia.

So to prepare for this, the rakyat can start a small business so that they can become future entrepreneurs. Through business, the rakyat can sell food or clothes or headscarves (tudung) to boost their income.

Once their income become higher, they can get out of the middle income trap and reach the higher income category and be at the same level with other advanced countries such as Singapore, South Korea, Hong Kong and Japan.

Nik Haikal Nik Ibrahim is an independent analyst and Malaysian Access reader. Article written is strictly his personal view. Malaysian Access does not necessarily endorse the opinions given by any third party content provider.