High time for a wage raise
In 2010, Malaysia had announced that it will implement the minimum wage policy which made it compulsory for employees to be paid above the ‘legal floor wage’ in hopes to ensure employees would be able to afford a reasonable basic standard of living as well as to reduce poverty and inequality in the labour market in terms of wage distribution.
This policy also required the average minimum wage to be raised every two years.
The National Minimum Wages initiative in 2010 also led to the National Wages Consultative Council Act 2011 (Act 732) which was gazetted in 2011, and the establishment of the Minimum Wages Order 2012 which required employers with six employees and above, to raise their minimum wage by 2014.
Subsequently, the last time Malaysia’s average minimum salary had been called for a raise was in 2016, with the implementation of the Minimum Wages Order 2016. The minimum wage was expected to increase to RM1,000 per month for Peninsular Malaysia, and RM920 per month for East Malaysia and Labuan.
This year, most analysts are expecting that Malaysia’s minimum wages will be raised, despite the uncertainties the 14th General Election (GE14) brings.
Whether or not there will be a Minimum Wages Order this year or a new wages policy by the new government, Malaysia is now due for a review.
According to the research arm of Maybank Investment Bank Bhd (Maybank IB Research) in its special report on minimum wage, now, the expected level of minimum wage demanded by the trade unions and workers representatives is RM1,500 per month.
It noted that this was based on the basic metric or minimum benchmark suggested by the International Labour Organisation (ILO) to set/reset minimum wage, which is to use Poverty Line Income (PLI) as a guide to allow for workers to be able to cover the costs of basic needs, namely adequate nutrition, clothing and shelter.
Of note, the basis of the implementation of minimum wage in 2010 was to ensure that workers at the lowest level of wage distribution should receive above the PLI recommended by ILO.
“When the minimum wage was reviewed in 2016 to RM920RM1,000, the PLI has risen further to RM960 for Peninsular Malaysia, RM1,020 for Sarawak and RM1,180 for Sabah & Labuan,” Maybank IB Research noted.
Using the compounded annual growth rate of PLI between 2009 and 2016 of 2.9 per cent per annum for Peninsular Malaysia, 1.4 per cent per annum for Sarawak, and 1.5 per cent per annum for Sabah & Labuan, the research team expected that the PLI for Peninsular Malaysia, Sarawa, and Sabah & Labuan to be at RM1,017, RM1,049, and RM1,216 respectively this year.
Nevertheless, while minimum wage should be raised this year, the prospects of a hike still hinges on the employers’ willingness to give the raise.
The research house pointed out that based on a survey on the impact of minimum wage reported in the National Employment Returns Report 2016, published by the Institute of Labour Market Information and Analysis (ILMIA), a majority of companies surveyed (60.8 per cent) experienced lower profits as a result of the implementation of minimum wage.
“However, the report highlighted that such high proportion was due to companies being accustomed to low-cost labour strategy. Following this, the second highest impact was the reduction in workforce (36.5 per cent of the companies surveyed) to contain both labour cost increase and profit margin erosion,” it stressed.
With higher income, comes higher productivity
While the average minimum salary in Malaysia needs to be increased, the pay- off should also be more productivity in the country to compensate for the cost to bear in increasing the overall minimum wage.
However, BNM in its ‘The Living Wage: Beyond Making Ends Meet’ report, pointed out that the Malaysian economy faces the challenge of modest productivity growth relative to its peers.
Based on data from the ILO, it noted that between 2011 and 2017, Malaysia’s growth of GDP per person employed – a measure of labour productivity – is only 1.7 per cent, less than half of the average labour productivity growth in upper-middle income economies (3.8 per cent).
“Persistently weak productivity growth risks lower wage growth, which could ultimately hamper the ability of households to afford at least a minimum acceptable living standard,” BNM warned.
It suggested that the move towards productivity-led wage growth relies on wide-ranging support from all parts of the economy.
“Governments can foster a conducive environment for employers to improve productivity by ensuring the availability of good institutional support, minimal regulation on productive
investment activities, and the affordability of training and higher-level education,” it said.
The central bank also advised that incentives are also key to drive motivation for employees to increase their productivity or upgrade their skills.
“Employees need to also recognise the importance of self- improvement to achieve a higher wage level that can sustain a minimum acceptable living standard, and take the initiative to upskill,” BNM stressed.
As Malaysia develops into a progressive high-income nation, it highlighted that all segments of society should reap the benefits and not be dislocated in the process.
“It is thus important that Malaysia overcomes the challenge of modest productivity growth, and strives towards creating high productivity, high-paying jobs that could afford a minimum acceptable living standard,” it said.