Moving with the times: Labour costs are set to rise with the introduction of a minimum wage

Touting the country’s 12m-strong workforce as a highly skilled labour pool able to provide a competitive advantage for businesses setting up in Malaysia, the government upped the ante in 2012 by enacting a minimum wage. Announced by the prime minister, Najib Razak, in May, the law sets the minimum salary at RM900 ($290) per month for workers in Peninsular Malaysia and RM800 ($258) a month for Borneo-based workers. “The lowest-paid will 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 Department of Labour cooperated extensively with local industrialists and trade unions in order to set the wage at a manageable level.

FOLLOWING A TREND: With this law, Malaysia joins Cambodia, Hong Kong, Indonesia, Thailand and Vietnam in establishing some form of minimum wage in the region. According to government estimates, 3.2m workers will be affected by the legislation upon implementation, which is set for six months after the law is gazetted. Companies with five or fewer workers will be given an additional six months to comply. Opinions are split on the merits of the move, with many employers expressing concern that the new law will cut into profit margins and make them less competitive globally. “The minimum wage for blue-collar jobs is the biggest issue for manufacturers in Malaysia at the moment,” Emi Teshima, the director of the research and information service division of the Japan External Trade Organisation, told OBG. “Labour costs could skyrocket and investors would be in for a shock.” Some manufacturers could be tempted to leave. While nations such as Myanmar, Cambodia and Vietnam may have less-developed infrastructure and support services for industrial activities, a sudden spike in Malaysian wages could tip the scales in favour of locations with lower production costs. Conversely, many low-income earners expressed disappointment that the legislation did not go far enough. Entities such as the Malaysian Trade Union Congress and the opposition Socialist Party of Malaysia have called for a higher minimum in the range of RM1200-1500 ($387-484). The day after the law’s announcement, 600 protestors were reported to have taken to the streets to voice their disapproval of what they criticised as an insufficient base wage. Other criticism levelled at that the law is that it is discriminatory against workers in Sabah and Sarawak: the prime minister has publicly stated that the difference between the rates is a reflection of regional variations in salaries and cost of living.

SHARP END: Many industries will be relatively unaffected by the law, while others will find the going tougher. The country’s large agricultural plantation industry is one that could feel the pinch, with thousands of low-income employees working largely unmechanised jobs. To compensate, some companies that are unable to absorb the higher operating costs may be tempted to look at the informal labour market to make ends meet. Higher-end manufacturing companies, such as automakers, electronics producers and biotechnology firms, already pay wages exceeding the minimum wage on the average.

DEVIL IN THE DETAILS: As the debate between the camps continues, the true repercussions of the law may depend on details that have yet to be made public. “There is a question as to what will be included as part of the RM900 ($290): bonus payments, housing allowances, overtime and so on,” Stewart Forbes, the executive director of the Malaysian International Chamber of Commerce and Industry, told OBG. “The way the bill is worded is ‘basic wage’, which cannot be easily altered. The way to make changes is to redefine this term to include incentives, such as subsidised food and accommodation. There are many complexities, and there will not be a perfect solution.” The services and hospitality sectors, for instance, could be tricky to navigate given that cash payouts are often fairly low, with compensation – for example, room, board and other payments – making up the difference.