Malaysia sets a minimum wage

2012-05-05 10:02

Reaction to government’s decision is mixed, with one economist dismissing the move as an election gimmick

At construction sites, plantations and factories, millions of low-income workers across Malaysia are set to receive a pay increase.

About 3.2 million such workers are expected to benefit from the newly announced introduction of the nation’s first minimum wage, part of the government’s plan to transform Malaysia into a high-income nation.

But reactions to the government’s decision to introduce a minimum wage varied this week, with one economist dismissing the move as an election gimmick designed to appeal to workers before election day, which many expect could be held as early as next month.

The minimum wage would be set at 900 ringgit (R2 296) per month for workers on the Malaysian Peninsula and 800 ringgit for those in the states of Sabah and Sarawak on the island of Borneo, Prime Minister Najib Razak said this week when announcing the details of the new legislation.

“The lowest-paid workers will now be guaranteed an income that lifts them out of poverty and helps ensure that they can meet the rising cost of living,” Najib said.

The number of nations and territories in the Asia-Pacific region that have some form of minimum wage has grown in recent years.

They now include Cambodia, Hong Kong, Indonesia, Thailand and Vietnam. In some places, the minimum wage covers all workers, while other nations have set minimum wages for specific regions or industries.

The Malaysian government is seeking to transform the nation into the high-income bracket by 2020, which would require the average yearly income to rise to the equivalent of $15 000 (R116 063).

Najib said last month that per capita income had increased to $9 700 a year, up from $6 700 two years ago.

Most companies will be required to begin paying the minimum wage in six months, although companies with five workers or fewer will be given 12 months to comply.

Foreign workers will be entitled to the minimum wage, but it will not cover workers in the domestic sector, like housekeepers and gardeners.

Abdul Halim Mansor, secretary-general of the Malaysian Trades Union Congress, described the introduction of a minimum wage as a “very big gift” for workers.

Mansor said the union had been calling for a minimum wage for more than a decade. While his union initially asked for the minimum wage to be set at 1 200 ringgit a month, he said it had later revised its demand to 900 ringgit in an attempt to reach a compromise with the government and employers.

“At the moment, it’s adequate,” he said.

However, the Socialist Party of Malaysia, opposition to Najib’s United Malays National Organisation, had called for a minimum wage of 1 500 ringgit a month.

The Socialist party, which held a rally in the capital city of Kuala Lumpur this week, criticised the government
for not introducing the new rates immediately and said in a statement that it was discriminatory that there would be different rates for workers in different parts of the nation.

According to news reports, the prime minister has said that the different rates were a reflection of regional variations in salaries and cost of living.

Employer groups say that paying the minimum wage would reduce companies’ profit margins and that some companies with five or fewer employees could be forced out of business.

Shamsuddin Bardan, executive director of the Malaysian Employers’ Federation, said: “Why I say it’s a big challenge is because the new rates are not really premised on increases in productivity or performance.

“This is a cost factor that has to be borne by employers, which eventually will affect their competitiveness.”

He said some companies might have to increase wages by as much as 100%.

For instance, he said, some plantation workers in Sabah were currently paid about 400 ringgit a month, but that would increase to 800 ringgit under the new wage structure.

Terence Gomez, a professor in the economics faculty at the University of Malaya, said the introduction of a minimum wage could increase the cost of exports if companies passed the extra cost on to their customers.

Gomez said the 900 ringgit monthly wage would be more significant for workers in the rural areas than those in urban centres, where the cost of living has risen steeply in recent years.

He added that in Malaysia, “the rural vote is what puts the government in power”.

There has been much speculation that a national election could be held next month, although the government has until April 2013 to hold the vote.

Najib recently announced that civil servants would receive a pay increase and gave families earning less than 3 000 ringgit a month a one-time payment of 500 ringgit, a move expected to benefit 4 million households.

– The International Herald Tribune


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