Malaysia Minimum Wages Background: Eating out becoming expensive, construction cost escalating, labour intensive industry getting hardship. MTUC, Malaysia Union Trade Congress recommended a minimum salary of RM 1800.   What is minimum wage? A minimum wage is the lowest remuneration that employers can legally pay their workers   How the idea of minimum wage origins Minimum wage laws were first passed in New Zealand and Australia in the 1890s. The movement for minimum wages was first motivated as a way to stop the exploitation of workers in sweatshops   Malaysia minimum wages Problem faced:

  • Data in 2010 revealed that about 48% of employees in Malaysia received less than RM1000 a month.
  • Malaysia was caught in the middle-income trap, with labour productivity growth of 6.7% between 2000 and 2008, far exceeding the wage growth of 2.6% over the same period.

Action taken: Malaysia implemented a minimum wage policy on 1 January 2013. The policy sets a minimum wage of RM900 per month for Peninsular Malaysia and RM800 per month for East Malaysia. Effective from 1 July 2016, a minimum wage of RM1000 a month has been set for private sector workers in Peninsular Malaysia and RM920 a month for workers in East Malaysia. How to justify minimum wages? We justify it by considering the minimum wages as a percentage of GDP per capita. The higher the percentage, it shows the minimum wages are set at a rate much more similar to the national average income.

Country Minimum Wage In Ringgit Term Percentage of GDP per Capita
Bangladesh 1500 taka 77.5/month 97%
Australia AUD 18.29 60.7/hour 50%
Germany EUR 8.84 44/hour 47%
Hong Kong HKD 34.5 18.72 /hour 20%
Jakarta, Indonesia 3355750 IDR 1050/month 25%
Singapore No
Taiwan NTD 133 18.51/hour 39%
US USD 7.25 30.72 /hour 27%

Malaysia minimum wages are set at 21.7% of GDP per capita Exchange rate is accurate as of 4 Oct 2017

How will it impact the economy?

Employee

  • Increases the standard of living for low paid employee
  • Increases incentives to take jobs
  • Stimulates consumption
  • Removes low paying jobs, forcing workers to train for higher paying jobs.

Employer

  • Encourages efficiency and automation of industry
  • Invest in higher technology by moving up their value chain and in the long run reduce dependency on foreign employees.

Government

  • Decreases the cost of government social welfare programs by increasing incomes for the lowest-paid.
  • Transform the economy from a labour-intensive to a capital-intensive economy through automation and mechanisation

Criticism

  • Produces a net increase in poverty due to disemployment effects.
  • Hurts small business more than large business.
  • Reduces quantity demanded of workers and result in higher long-term unemployment
  • Cause price inflation
  • Discourages further education among the poor by enticing people to enter the job market.

Opportunities The government has the policy to revise the minimum wage every two years and we believe labour cost will definitely at an increasing trend for the next 5 years. Here are some of the industry that may benefit from it

  • Automation provider and relevant services provider
  • Industrialised Building System (IBS): Increase the efficiency in construction activities
  • Enrichment service: More on the job training is required for an employee to catch up with the automation trend.

At the same time, some industry where intensive labour is required may be forced to shift out of Malaysia and move to a country with more ample supply of human force.