Malaysia - .Malaysia plans to set minimum wage

Malaysia looks set to introduce a minimum wage of between 800 ringgit (US$265) and 1,000 ringgit ($332) a month, as pressure mounts on the government to ensure that private-sector workers earn salaries above the poverty level.

Deputy Prime Minister Muhyiddin Yassin announced on Sunday that Prime Minister Najib Razak will make an announcement soon, after an agreement was reached with employers' associations and labour unions.

"We have reached an agreement with many of the parties involved like employers, workers' unions, and even the human resources minister has made proposals," he said. "We believe there is basis for this (minimum wage) but we don't want to make a rash decision."

While the minimum wage has yet to be set, the Malaysian Trades Union Congress, an umbrella body of unions with 800,000 members, has asked for at least 900 ringgit ($298) per month, not including allowances, and a review every two years.

The move to have a minimum wage could help the government politically at a time when elections are imminent, but could spell disaster for small businesses which use cheap labour.

Malaysia has been considering a minimum wage since Najib unveiled plans in 2009 to restructure the economy away from a low-cost model. Among its neighbours, Singapore does not set a minimum wage. Indonesia does, but it varies significantly by district. In Vietnam, the minimum wage is two million dong ($95) a month in Hanoi and Ho Chi Minh City.

The Malaysian government said a minimum wage policy would benefit about 3.2 million workers, or a quarter of the country's workforce, who earn less than the poverty level of 700 ringgit a month.

Setting a minimum wage could help cut migrant labour by boosting wages to a level where the jobs are more attractive to Malaysians, said Dr Yeah Kim Leng, chief economist of Malaysian rating company RAM Holdings.

The inflationary impact is unlikely to be significant since it will affect only the very lowly paid, he said. The political impact, however, could be far greater, especially coming at a time when a general election is widely expected. Dr Yeah said creating a base wage for the poorest in society would be a hugely popular move.

Employers, however, say a minimum wage would bankrupt small firms which rely on cheap labour. Malaysian employers have long hired low-wage workers from Indonesia, Myanmar and Bangladesh. The Malaysian Federation of Employers, whose members collectively hire two million workers, said it wants an exemption for the smallest employers, and for the policy to be implemented over several years.

"Based on the spirit of compromise, we have accepted minimum wage but we still hope that some leeway can be given," said the federation's executive director Shamsuddin Bardan.

He said it would be especially hard for micro-enterprises, which employ 3.5 million to four million workers, to absorb a cost increase of up to 40 per cent. These are manufacturing firms that employ fewer than 10 workers, and non-manufacturing firms with fewer than five workers. They include estate smallholdings and market and hawker stalls.

Dr Yeah however said it is unlikely that many businesses will close because the gap between current wages and the minimum wage is relatively small.

Former premier Mahathir Mohamad, who remains a potent force in politics, has weighed in, saying a minimum wage could hurt competitiveness. "This is what happens when wages and compensation for work are not accompanied by increases in productivity. I fear Malaysia may be heading this way if we pay more for less work, as we are doing now," he wrote in his popular blog, chedet.

Human Resources Minister S. Subramaniam, however, said the increase in operational costs would be minimal if the minimum wage was kept at between 800 ringgit and 1,000 ringgit.

The minimum wage is among the government's raft of labour reforms intended to jump-start the economy and double incomes in 10 years. The plan is to boost the wages and skills of Malaysians and reduce the use of migrant workers as Malaysia seeks to differentiate itself from lower-cost neighbours like Indonesia and Vietnam.

Currently, a quarter of the country's workforce of 12 million are migrants, who work in low-wage positions, keeping wages down.

According to a World Bank report, Malaysia's wages have risen by only 2.6 per cent a year in the past 10 years, while average inflation has jumped by between 3 and 3.5 per cent.

Carolyn Hong

The Straits Times

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