Labour costs rising in Southeast Asia

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ProtonLabour costs in the Southeast Asia region are rising further in 2014, in line with the implementation and increment of minimum wage in a few countries.

Cambodian garment workers ushered in 2014 with a strike that turned ugly after the announcement of a minimum wage of $100 per month, instead of $160 per month, as demanded. The garment industry accounts for more than 90 per cent of Cambodia’s export and is worth approximately $4.6 billion a year.

Malaysia officially implemented the country’s first-ever minimum wage on January 1, 2014 after a year of postponement. The minimum wage in Peninsula Malaysia is set at $273 (900 ringgit) per month, in Sabah and Sarawak $243 (800 ringgit) per month.

Effective January 1, 2014, the minimum wage in Jakarta was raised to $202 (2.4 million rupiah) per month. Besides that, another 23 provinces out of the total 34 provinces in Indonesia also confirmed their new provincial rates range from $105 (1.25 million rupiah) to $160 (190 million rupiah) for the year 2014 . Indonesia has different minimum wage rates across provinces as the local governments have the authority to set their own rates according to Indonesian law.

Vietnam also raised its minimum wage in four different regions categorized based on the standard of living, to $90 (1.9 million dong), $100 (2.1 million dong), $114 (2.4 million dong) and $128 (2.7 million dong), respectively, on December 31, 2013.

Labour intensive sectors will feel the pinch in the short run through the implementation and increment of minimum wages. It may also affect export competitiveness due to rise in production cost, given that some ASEAN countries like Malaysia and Indonesia are gradually cutting down subsidies on fossil fuel and electricity.

However, the overall labour cost in Southeast Asia countries is still relatively cheaper than in China. The minimum wage in China is expected to increase another 10 per cent or more in 2014. Effective February 1, 2014, Shenzhen has the highest minimum wage rate of $299 (1,808 yuan) per month. Moreover, other important production inputs and resources are also less expensive in most Southeast Asia countries especially in Laos, Cambodia and Myanmar. Therefore, Southeast Asian region remains as an attractive investment destination.

Furthermore, the purchasing power amongst low and middle-income groups are declining as inflation rate increases faster than income rise. Therefore, it limits private consumption and spending besides imposing negative impact towards the GDP growth. Minimum wages have more positive effect in the long run as the increment of income amongst the low and middle-income groups lead to a virtuous cycle of greater consumption of goods and services. Thus, it will strengthen the real private consumption and boost the GDP growth.

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Reading Time: 2 minutes

Labour costs in the Southeast Asia region are rising further in 2014, in line with the implementation and increment of minimum wage in a few countries.

Reading Time: 2 minutes

ProtonLabour costs in the Southeast Asia region are rising further in 2014, in line with the implementation and increment of minimum wage in a few countries.

Cambodian garment workers ushered in 2014 with a strike that turned ugly after the announcement of a minimum wage of $100 per month, instead of $160 per month, as demanded. The garment industry accounts for more than 90 per cent of Cambodia’s export and is worth approximately $4.6 billion a year.

Malaysia officially implemented the country’s first-ever minimum wage on January 1, 2014 after a year of postponement. The minimum wage in Peninsula Malaysia is set at $273 (900 ringgit) per month, in Sabah and Sarawak $243 (800 ringgit) per month.

Effective January 1, 2014, the minimum wage in Jakarta was raised to $202 (2.4 million rupiah) per month. Besides that, another 23 provinces out of the total 34 provinces in Indonesia also confirmed their new provincial rates range from $105 (1.25 million rupiah) to $160 (190 million rupiah) for the year 2014 . Indonesia has different minimum wage rates across provinces as the local governments have the authority to set their own rates according to Indonesian law.

Vietnam also raised its minimum wage in four different regions categorized based on the standard of living, to $90 (1.9 million dong), $100 (2.1 million dong), $114 (2.4 million dong) and $128 (2.7 million dong), respectively, on December 31, 2013.

Labour intensive sectors will feel the pinch in the short run through the implementation and increment of minimum wages. It may also affect export competitiveness due to rise in production cost, given that some ASEAN countries like Malaysia and Indonesia are gradually cutting down subsidies on fossil fuel and electricity.

However, the overall labour cost in Southeast Asia countries is still relatively cheaper than in China. The minimum wage in China is expected to increase another 10 per cent or more in 2014. Effective February 1, 2014, Shenzhen has the highest minimum wage rate of $299 (1,808 yuan) per month. Moreover, other important production inputs and resources are also less expensive in most Southeast Asia countries especially in Laos, Cambodia and Myanmar. Therefore, Southeast Asian region remains as an attractive investment destination.

Furthermore, the purchasing power amongst low and middle-income groups are declining as inflation rate increases faster than income rise. Therefore, it limits private consumption and spending besides imposing negative impact towards the GDP growth. Minimum wages have more positive effect in the long run as the increment of income amongst the low and middle-income groups lead to a virtuous cycle of greater consumption of goods and services. Thus, it will strengthen the real private consumption and boost the GDP growth.

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