The implementation of the minimum wage of RM1,500 comes at an inopportune time of increasing business costs, worker shortages, and cautious consumer spending, an economist said.
Socio-Economic Research Centre (SERC) Executive Director Lee Heng Guie said that imposing additional labour costs on businesses could force impacted business owners to raise prices (consumer inflation) and reduce employment to preserve their business margin.”
The knock-on effect of proposed minimum wage on other categories of workers will add to higher employment and operating costs.” he said.
Lee said that in addition to this problem, most businesses are facing challenges of managing increased costs and supply chain disruption to recover sustainably.
“The Russian invasion of Ukraine has worsened the situation and a steep rise in the minimum wage (25%-36% to RM1,500 per month) would adversely affect overall business competitiveness and costs, dampening their business recovery pace,” he said.
Prime Minister Datuk Seri Ismail Sabri Yaakob announced that Malaysia will implement the RM1,500 minimum wage starting May 1 during his winding-up speech at the Umno General Assembly.
In addition, Lee said that businesses following the sharp rise in the minimum wage also cause increases in statutory increases in statutory contributions such as EPF, SOSCO, and EIS.
“Employers have included other components to the basic pay: meal and lodging allowances; tips; in-kind benefits; productivity and performance pay; allowances and premiums for non-standard work hours or dangerous work. These components added together are higher than the stipulated minimum wage,” Lee said
Lee said that the rise in minimum wage does not stop there. It also results in cascading wage increases for other categories of workers as the proposed new minimum wage would narrow the wage gaps between different groups of workers earning between RM1,200-RM1,500 and between RM1,500-RM2,000 per month.
On shortage of workers and how the minimum wage would impact industries, he said that in addition to the financial burden caused by rising business costs, the shortage of workers and the consequential bid-up wages have impacted companies’ cost, production, and margin. “Market forces have already seen most businesses in urban areas paying above minimum wage,” he said.
On the domestic labour conditions, Lee said that as the domestic labor market condition still slowly recovering with the unemployment rate of 4.2% in January 2022 below the pre-pandemic level, the proposed 36% increase in the minimum wage would render the employers in rural areas less developed states less affordable to pay for it, and hence may cut down the number employees.
Lee said that under the current high inflationary environment, businesses that are unable to absorb increased employment and operating costs would pass on increased costs to consumers, aggravating inflation and further reducing the households’ purchasing power.
On how competitive be after implementing the minimum wage, Lee said that the proposed higher minimum wage (RM1,500 = US$358.00 per month) places Malaysia in a less competitive wage position when compared to Indonesia (US$126.86-US$325.52 per month), Vietnam (US$132.67-US$189.15 per month), Philippines (US$147.68-US$273.26 per month) and Thailand (US$244.66-US$270.66 per month).
A competitive wage remains one of the key investment considerations for foreign investors. “The proposed increase in minimum wage must be appropriate and not too steep to balance between the welfare of employees and the cost impact on employers, “he said.
