Wages increment promotes economic growth
KUALA LUMPUR: A gradual increment in minimum wages is anticipated will have a lower impact on the Consumer Price Index ( CPI) while promoting economic growth as compared to a one- off increase.
According to the Economic Outlook 2019 report released by Ministry of Finance, this was among the findings of an empirical analysis based on the Applied General Equilibrium ( MyAGE) model.
According to the report, changes in the minimum wage policy would have a positive impact on private consumption, increasing between 0.3 and 0.4 percentage points in gradual increment, while 0.6 points in one- off increment.
“The results also revealed that there is a marginal increase in CPI due to demand-pull inflation,” said the report.
MyAGE was done to estimate the effects of increasing the minimum wage rate across the nation from RM1,050 in 2019 to RM1,500 via two scenarios, gradual and oneoff increment.
According to the report, the empirical study assumes an annual increment of RM150 starting in 2020 until 2022, while a one- off increment to RM1,500 in 2020.
Furthermore, the study revealed that the changes in the minimum wage could cause a potential impact on businesses’ production costs and competitiveness.
It said, businesses, in particular Small and Medium Enterprises ( SMEs) relying on low-wage workers are at the risk of losing their businesses due to the inability to comply with the minimum pay requirement.
Nevertheless, firms would be encouraged to substitute labour for capital through automation and mechanisation when the relative cost of labour increases.
“This would improves productivity and reduce dependency on low- skilled workers, enabling the firms to afford higher minimum wages without passing the increase in the cost of labour to consumers,” it said.
The report also stated that the success of the minimum wages implementation is contingent upon the ability of firms to adopt best business practices to enhance productivity through greater automation and mechanisation.
The results also revealed that there is a marginal increase in CPI due to demand-pull inflation. Economic Outlook 2019 report
“Simultaneously, industries are expected to shift from low-skilled workers to semi- skilled workers as well as reduce the dependency on low- skilled foreign workers, thus enhancing the nation’s competitiveness,” it said.
The Minimum Wages Order 2012 was implemented on 1 Jan 2013 with a minimum wage of RM900 a month ( RM4.33 per hour) in Peninsular, while RM800 a month ( RM3.85 per hour) in Sabah, Sarawak and Labuan.
In line with the National Wages Consultative Council Act 2011 (Act 732) requirement, the rate was reviewed on July 1, 2016 with minimum wage being increased to RM1,000 a month ( RM4.81 per hour) in Peninsular, while RM920 a month ( RM4.42 per hour) in Sabah, Sarawak and Labuan.