Why malaysia should implement minimum wages

The Minimum Wage Order was gazetted on 16 July, which enforce the implementation of the minimum wage rates on 1 January, for employers with more than five workers and on 1 July, for employers employing five and less workers, excluding firms that provide professional services classified under the Malaysian Standard Classification of Occupation MASCO. Despite the fact that the real labour productivity of Malaysia grew faster at 6.

This paper shed more light to the concept behind a statutory minimum wage policy and its application in the case of Malaysia. Its rationale and justification are reviewed and analysed. The objectives determined the dimensions, coverage and criteria considered in setting the minimum wages. Your email address will not be published.

Save my name, email, and website in this browser for the next time I comment. Notify me of follow-up comments by email. Notify me of new posts by email. Stay Ahead of the curve in Emerging Asia. Our subscription service offers regular regulatory updates, including the most recent legal, tax and accounting changes that affect your business. Malaysia Increases Minimum Wage. The council was established on Sept 20, with the main role to undertake research on all matters relating to minimum wages and to make recommendations on minimum wages to the Government.

At present, there are 26 members in the council, including a chairman, a deputy chairman and a secretary. The Government had to ensure that the minimum wages rate is not set too high to the extent of having a negative impact on the employers and the national economy while at the same time not too low to be insignificant.

In arriving at this decision, various statistical data and research papers were studied. It is crucial to note that the statistical indicators such as the median wages, poverty line income, unemployment rate, consumer price index and other indices only represented a reference point for effective deliberations in NWCC. Numerous meetings and deliberations have led to both parties making significant compromises and adjustments along the way. Admittedly, such compromises became more evident during the many deliberations held when processing and deciding the applications for deferments by employers.

Frankly, it was not a deliberate decision but this was done out of sheer necessity for a better tomorrow for our beloved nation. There are several reasons for this decision. A study conducted by MoHR in showed that In addition, MoHR commissioned the World Bank to conduct a study and advise the Government on the minimum wages policy, the design and its implementation.

The study showed that Malaysia was caught in the middle-income trap, with labour productivity growth of 6. The World Bank concluded that Malaysia should implement a minimum wages policy to address the labour market imperfections which have resulted in suppression of wages especially for the low-skilled employees. The minimum wages initiative is seen as one of the policy instruments vide the New Economic Model NEM , to ensure inclusiveness by transforming the economy from a middle-income to a high-income by the year In order for Malaysia to become a high-income nation with inclusiveness, wages at the bottom have to be lifted up.

There was no right answer to this question. Perhaps, if the labour market had been fairer towards the employees, especially for the lower segment of workforce, the Government would have hesitated to intervene to correct the labour market by way of the minimum wages policy.

The minimum wages policy is important for employees as it helps to ensure wage increases are in line with the cost of living, thereby enabling employees to afford basic necessities.

For the employers, this policy should encourage them to invest in higher technology by moving up their value chain and in the long run reduce dependency on foreign employees. For the Government, this policy is expected to transform the economy from a labour-intensive to a capital-intensive economy through automation and mechanisation and help the nation to become a high-income economy by Minimum wages policy should also benefit the economy in the long run with the likely improvement in the purchasing power of the working class.

The Minimum Wages Order was gazetted on July16, to be effective from Jan 1, for employers with six employees and above and for employers with five employees and fewer, to be effective from July 1, It is understandable that the new government needs to consider the current dire economic circumstances like the national debt, forex volatility and the national dependency on foreign labor.

However, the end result must be one that is win-win for all segments of society. As it is, even the new and improved minimum wage of RM1, is too low and cannot be considered a benefit for the bottom half of society. January 8, Reactions to the Standardization Employers Initially, employers represented by bodies and organizations like the Federation of Malaysian Manufacturers FMM wanted the government to maintain the current minimum wage.

With an increased minimum wage, the economy is also believed to potentially benefit from the following: A significant boost in purchasing power: The income boost for the bottom half of society will stimulate national economic growth and benefit everyone else due to increased economic activity.

Reduce dependence on foreign labor: A higher minimum wage will make low-skilled foreign labor less attractive and encourage the local labor market to migrate towards better-paying jobs that require more skill and technology. The increased wage will further rationalize and reduce the total number of foreign workers in Malaysia from six million to four million. A significant increase in productivity: With a higher minimum wage, employers will be more incentivized to increase the efficiency of their operations by increasing the productivity of their employees which is an essential pre-requisite to higher wages.