FMM, Margma unfazed by minimum wage hike

> Manufacturers and glove makers take it in their stride, former hope govt will help mitigate impact

PETALING JAYA: The Federation of Malaysian Manufacturers (FMM) and the Malaysian Rubber Glove Manufacturers Association (Margma) are taking the increase in minimum wage in their stride, with FMM expressing hope that the government will step in to help mitigate the 14% increase in wage cost in Sabah and Sarawak.

The Prime Minister’s Department in a statement yesterday said that the minimum wage would be increased by RM50 for Peninsular Malaysia and RM130 for Sabah and Sarawak in an effort to standardise salaries across the country in 2019.

It said following recommendations from the National Wage Consultative Council (MPGN), minimum wage would be set at at RM1,050 a month from Jan 1, 2019.

In the same statement, the Prime Minister’s Department said it would not subsidise employers due to the current financial constraints faced by the government, as earlier promised in Pakatan Harapan’s election manifesto.

In calling the increase painful for Sabah and Sarawak manufacturers but reasonable, FMM said the four-month lead time before implementation would allow the industry to make necessary budgetary adjustments. They include addressing knock-on effects whereby salaries of staff that are at and near the minimum wage level are adjusted to maintain wage differentials between grades and seniority.

“However, we expect adjustments this time around to be less extensive in Peninsular Malaysia,” it added.

FMM said it hopes the government will continue to consult closely with the industry in deploying its phased increase approach. “Early consultation will reinforce goodwill as well as give greater certainty and clarity on the mechanism to help businesses in planning their operations and strategies,” it said.

FMM represents more than 10,000 member companies from the manufacturing supply chain.

Meanwhile, MIDF Research sees positive impact from a gradual rise in the national minimum wage on Malaysia’s economic activities, but noted that it is negative news for the glove industry.

Based on latest data, the median salary for Malaysian was RM2,016 per month with an increment of 4.2% (inflation-adjusted) in 2017.

The research house concurs with the decision to equalise wages between Peninsular Malaysia and Sabah & Sarawak to RM1,050 a month as it could reduce the income gap between the two regions.

“For instance, in 2017, average median salary for Peninsular Malaysia was RM2,015 while for Sabah & Sarawak it was RM1,782.”

MIDF Research expects overall wage for 2018 to grow by 5.3%.

Commenting on the minimum wage rise’s impact on the glove sector, MIDF Research sees minimal impact on the glove manufacturers’ earnings considering that most of the employees in the sector are already earning more than RM1,050 a month.

“For employees who fall below the minimum wage requirements, which we estimate to be less than 10% of total employees, our calculation shows that the impact on earnings of glove manufacturers will be less than 1%.”

The research house said aside from a minimal impact of less than 1% on the earnings of glove manufacturers, the impact of the new minimum wage on them is also negligible as they will be transferring the increase in production costs to their customers, which has been the industry-wide practice all this while.

In general, labour cost constitutes of 12% of the total glove production cost for the manufacturers.

MIDF Research is maintaining a “neutral” call on the glove sector in view of the capacity constraint due to most manufacturers already operating at a sold-out capacity position at this juncture.

“Furthermore, potential earnings growth of these producers might be capped due to closure of some production lines for upgrades and revamps. Additionally, the sector remains unexciting due to lack of strong re-rating catalyst.”

Meanwhile, Margma president Denis Low Jau Foo in a separate statement said the rubber glove industry will take the wage increase in its stride.

“The government is striving for an equitable and balanced solution for both employees and businesses. We will manage and do the necessary cost adjustments,” he said in a statement yesterday.