Review on minimum wage policy


  • Business
  • Saturday, 24 Jan 2015

THE minimum wage policy is up for a scheduled review this year and the trade unions are asking the Government to increase the current floor of RM900 a month by 30% to RM1,200.

A more realistic figure of RM1,000 had been proposed, but even that may not go down well with employers, many claiming they are still struggling to adjust to the set minimum level.

Malaysian Employee Federation (MEF) executive director Datuk Shamsuddin Bardan says any review to the policy this year is too soon given that it was only implemented in full for a year.

“Employers should be given sometimes to adapt to the current policy especially at the current uncertainty in the economy,” he says.

It is unclear whether the Government will go ahead its the scheduled review.

Minister in the Prime Minister’s De­p­artment Datuk Seri Abdul Wahid Omar said in September last year that the Government is loooking at gradually increasing the ratio of wages to gross domestic product (GDP) from 33.6% in 2013 to 40% in the long term.

“There is a need for intervention in order to push the ratio of compensation for workers to GDP,’’ Malaysian Institute of Economic Research (Mier) executive director Dr Zakariah Abdul Rashid said.

He said a gradually increasing level of minimum wage would work in favour of the Malaysia’s economic development.

“Actually, the new rate haven’t been finalised yet, but it is something that need to be done because based on the minimum wage policy, we need to do the review every two years,” he tells StarBizWeek.

The minimum wage policy in Malaysia was launched on Jan 1, 2013, nearly three years after it was first announced in 2010. The policy sets a minimum wage of RM900 per month for Peninsular Malaysia and RM800 per month for Sabah, Sarawak covering both the local and foreign workforce, except for domestic helpers and gardeners.

Full implementation of the policy began in January 2014. This means any increase this year, if the review goes through, would be done just a year after the policy is fully enforced.

“The concern is if increase in wages is too fast, businesses might suffer,” Malaysia University of Science and Technology School of Business dean and economist Dr Yeah Kim Leng tells StarBizWeek.

The Government, earlier this week had revised its GDP forecast to a growth of 4.5% to 5.5 this year from an earlier projection of as much as 6%.

“Given the current economic situation, maybe it is best to wait until the uncertainties subdued,” he says.

But some economist argued that the revision need to come sooner rather than later.

“We have to look at it (minimum wage adjustments) as long-term measure that may need us to go through short-term hardship for long-term gains,” Zakariah says.

He said the ratio of compensation for employees (CE) to GDP is very low in Malaysia, implying that workers are not getting a fairer share in economic development of the country.

Countries that have moderate of about 40% CE ratio are Taiwan 46.2% and South Korea 43.7%. While developed countries generally have high CE ratio of about 50% such as the US 52.8%, Japan 51.9% and Germany 51.5%.

Zakariah said although salaries in Malaysia have rise over time, but the growth is rather flat and somehow it does not reflected the country’s productivity gains. In order to catch up to the 40% CE-to-GDP target it would need to see salaries and remuneration growing at a faster rate than revenue.

He explains further that when the intervention made on the minimum wage floor, it would subsequently impact the other income group.

“Yes, the intervention in the minimum wage floor would benefit the lower income group, but after that employers would need to adjust its salary structure,” he says.

Zakariah, however, conceded that increasing the floor for minimum wage rates need to be done in gradual manner to ensure that the economy are capable to absorb the impact.

He explains that Malaysia currently unemployment rate is below 3%, hence the rise in unemployment rate due to higher floor of minimum wage should not be the main concern,

“At present our unemployment rate is still low, Malaysia could be considered to have full employment,” he says. International Labour Organisation had defined an unemployment rate of below 4% as “full employment” or zero unemployment.

For the layman, however, the issue of minimum wage is more than just economic indicators. As the country’s strive to become a developed and high income nation in five years time, it needs to ensure even the lowest wage workers earns a decent living.

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