Earnings Differentials Determinants Between Skills in the Malaysian Manufacturing Sector

Rahmah Ismail () and Ragayah Haji Mat Zin

Asian Economic Journal, 2003, vol. 17, issue 4, 325-340

Abstract: The Malaysian manufacturing sector has been experiencing a gradual change in its production process as it shifts from labor‐intensive to more capital‐intensive techniques. This has led to a change in the skills required by the industries where skilled workers are in greater demand and where the wage ratio between skills favors the skilled workers. There are many factors that can influence an indi‐vidual's earnings. These include educational attainment, job location, types of industries and sex. This paper attempts to measure the determinants of earnings differentials among skilled, semi‐skilled and unskilled workers in the Malaysian manufacturing sector. The analysis is based on a survey of 2065 workers in six major industries conducted in 1999. These are the electrical and electronics, textile, wood‐based, transport equipment, food and chemical industries. The determin‐ants of earnings differentials are obtained by using the coefficients of the earnings functions. These factors are decomposed into several categories, namely human capital, individual characteristics and the residual. The results reveal that human capital variables, which comprise education, training and experience, play a significant role in determining the earnings differentials, particularly between skilled and semi‐skilled workers and between semi‐skilled and unskilled workers.

Date: 2003
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