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The Minimum Wage System – Who Wins?
Malaysia Perspective | 27 February 2013


Foreign bus drivers in Singapore recently staged a strike to demand pay that commensurate with their work. The situation was a reverse in Malaysia recently, when some bosses recently engaged in a peaceful demonstration to protest against the minimum salary system. The system was implemented in January 1 this year, and stipulated that the minimum monthly salary should be RM900 in West Malaysia and RM800 in East Malaysia. More than half of the manufacturers and businesses in Malaysia believe that this system will have a negative impact on their operations. As a result of rising production costs, companies will either fold or pass on the cost to consumers, which would lead to inflation. Foreign investments may also pull out of Malaysia due to rising salaries of foreign workers.

In today’s world where democracy is held as the gold standard, we always look for a win-win solution that is fair and reasonable for both employers and employees. Yet, negotiations are usually stymied over the differing views on a just and reasonable pay structure – just how much is enough? The minimum wage system was set up in consultation with various economic institutions and scholars, and thus should be well-founded and professionally derived at. This system may serve as a good blueprint, but it cannot be used as a blanket cover over all the different industries and sectors. For this reason, businesses feel that the Government should be flexible with its implementation, by taking into consideration factors such as individual company’s scale, location and revenue, and come up with several levels of minimum wages.

For example, in some townships in Malaysia, both the standard of living and production costs such as labour and location are relatively low. Thus, they are able to attract a lot of foreign interests, thus creating employment opportunities. However, with the minimum wage system significantly increasing labour costs, and the difficulties companies face in offseting the cost of shipping and marketing finished products from rural areas, these companies will be forced to move out of these townships and relocate to the more developed urban districts that provide more conveniences. At the end of the day, it is these rural townships that are worst hit by the minimum wage system. Furthermore, the minimum salary of foreign workers will need to be reviewed. Apart from providing for their meals, lodging and transportation, employers currently also need to pay a levy on foreign workers. Adding in the minimum wage system, they end up paying more for foreign workers than their local employees. Businesses feel that there need to be some differentiation between local employees and foreign workers, as well as urban and rural business locations, when the Government implements minimum wages, so as to create a practical, pro-business environment.

Businesses also feel that it is reasonable to enforce minimum wages for their local employees; if it becomes unfeasible to pay more for foreign workers, then they would employ locals instead. The problem is – will they be able to find enough locals? Economists believe that the Government implemented the minimum wage system to protect the welfare of the employees and to reduce the industry’s dependence on unskilled foreign labour. However, seeing that Malaysia currently employs about 4 million foreign workers, scholars believe that companies will not be able to find enough locals to replace these foreign workers in the near future. Moreover, local employees may not be willing to take over the kind of work done by foreign workers.

Despite the Government encouraging Malaysian companies to invest in high-tech production in order to enhance their competitiveness in the global market, Malaysia’s manufacturing, plantation and agriculture industries, which still play important roles in contributing to the nation’s economy, are reliant on a large number of foreign workers. Considering the diversified structure of the Malaysian economy, economists believe that the minimum wage system cannot be applied across the board. In the long run, the Government needs to review this system periodically and provide a detailed guideline that lists out the various levels of minimum wages, so as to facilitate companies in different sectors in their recruitment drive, as well as to help employers and employees resolve their conflicts and differences.

Businesses and economists have also made a number of recommendations to help employers and employees achieve a win-win result. They feel that, in order to accommodate the inadequacies of the system, the implementation of minimum wages should be tied in with productivity, that foreign workers should assume 100% of the levy, micro-enterprises that provide non-professional services should be excluded from the requirement until 2014, and that corporate taxes for some small and medium enterprises that meet the requisite conditions should be lowered to 18%. More importantly, the Government must first revitalise the overall economic situation in Malaysia so that businesses can be profitable, before they can provide for more benefits to their employees.

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