Minimum wages on the rise in ASEAN

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Several ASEAN countries have raised their minimum wages or will do so in the near future to adjust salaries to the rising costs of living and to provide the population with higher purchasing power. However, businesses and investors claim that the wage hikes were a blow to competitiveness and would make setting up new businesses in the countries unattractive. Also, small and medium businesses would face the highest disadvantages, they argue.

The ASEAN countries with notable minimum wage hikes are Thailand, Vietnam, the Philippines, Malaysia and Indonesia.

Thailand

Thailand has started to raise the minimum wage gradually in provinces from April 2012 with the target to achieve a nationwide daily minimum wage of 300 baht (approximately $10) by 2013 which would benefit around 6.9 million workers who are currently paid below 300 baht daily. For some regions in the country the new minimum wage means salary increases of up to 40 per cent. Government officials have tied the wage hike to the need to raise skill levels and attract more advanced industries to Thailand as rival countries seek to compete on labour costs, but critics say the wage policy will not help industry in the short term.

Vietnam

The Vietnamese Ministry of Labour in September has proposed to increase the monthly minimum wage from its current range of $67 – $96 to approximately $89 – $125, which would be an increase of around 33 per cent. The minimum wage increase proposal comes in light of the Vietnamese government calculations that current minimum wages only cover approximately 60 per cent of employees’ costs of living. Despite the extra financial burden of increasing the minimum wage, local companies have mostly supported the proposal.

This minimum wage increase proposal comes despite Vietnam’s current economic difficulties. As of August 2012, over 30,000 companies in Vietnam have declared bankruptcy. As a result, the minimum wage increase now has been postponed from its originally planned date of January 2013 to March 2013 to ease the burden on local businesses. However, if businesses continue to suffer financially through the end of 2012, the date for the wage increase may be pushed back as far as September 2013. Around 8.3 million people in Vietnam will receive the raise.

The Philippines

Starting this year, the Philippines has raised minimum wages by a cost of living allowance of about 15 per cent of the basic wage in Metro Manila, and other provinces are supposed to follow. Under the current system, daily minimum wages range from as low as $3.30 daily in retail or service establishments with 10 or less workers to as high as $10.37 daily for a non-agricultural worker in the national capital region.

Nevertheless, minimum wages in the Philippines are substantially below the poverty threshold. In the national capital region, the poverty line is $15 a day for a family of five, or 50 per cent higher than the existing regional wage rates. In addition, nearly 30 per cent of all businesses do not comply with the minimum wage rates.

The Philippine government has said it will dismantle the minimum wage system by 2013 and replace it with a two-tier scheme. This system will consist of a mandatory floor wage for new hires and low skilled workers as the first tier, and a productivity-based pay system as the second tier. A productivity-based pay system shall be issued in the form of wage advisories with industry-specific wage recommendations based on labour productivity growth, labour market conditions and business expectations, among others. The system will affect around 20 million workers.

Indonesia

Indonesia may boost the average minimum wage in 2013 as labour groups demand higher pay amid economic growth that has exceeded 6 per cent for eight straight quarters.

The Jakarta Wage Council decided on November 14 to recommend a massive 44 per cent increase in next year’s minimum wage for workers in the capital, much to the dismay of business representatives.  If approved, this would mean Jakarta workers should next year receive no less than $230 per month. For the whole country, the government may raise the lowest required compensation to $208 a month.

Malaysia

Malaysia has in May 2012 introduced a minimum wage for the first time in a move to support low income households. Private sector workers in Peninsular Malaysia will receive a minimum salary of $297 a month from January 1, 2013, and workers in the states of Sabah and Sarawak will get $264. Companies in labour-intensive industries, such as the rubber sector, have already asked the government to defer the new minimum wage as their labour costs would rise by 15 – 20 per cent.

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Reading Time: 3 minutes

Several ASEAN countries have raised their minimum wages or will do so in the near future to adjust salaries to the rising costs of living and to provide the population with higher purchasing power. However, businesses and investors claim that the wage hikes were a blow to competitiveness and would make setting up new businesses in the countries unattractive. Also, small and medium businesses would face the highest disadvantages, they argue.

Reading Time: 3 minutes

Several ASEAN countries have raised their minimum wages or will do so in the near future to adjust salaries to the rising costs of living and to provide the population with higher purchasing power. However, businesses and investors claim that the wage hikes were a blow to competitiveness and would make setting up new businesses in the countries unattractive. Also, small and medium businesses would face the highest disadvantages, they argue.

The ASEAN countries with notable minimum wage hikes are Thailand, Vietnam, the Philippines, Malaysia and Indonesia.

Thailand

Thailand has started to raise the minimum wage gradually in provinces from April 2012 with the target to achieve a nationwide daily minimum wage of 300 baht (approximately $10) by 2013 which would benefit around 6.9 million workers who are currently paid below 300 baht daily. For some regions in the country the new minimum wage means salary increases of up to 40 per cent. Government officials have tied the wage hike to the need to raise skill levels and attract more advanced industries to Thailand as rival countries seek to compete on labour costs, but critics say the wage policy will not help industry in the short term.

Vietnam

The Vietnamese Ministry of Labour in September has proposed to increase the monthly minimum wage from its current range of $67 – $96 to approximately $89 – $125, which would be an increase of around 33 per cent. The minimum wage increase proposal comes in light of the Vietnamese government calculations that current minimum wages only cover approximately 60 per cent of employees’ costs of living. Despite the extra financial burden of increasing the minimum wage, local companies have mostly supported the proposal.

This minimum wage increase proposal comes despite Vietnam’s current economic difficulties. As of August 2012, over 30,000 companies in Vietnam have declared bankruptcy. As a result, the minimum wage increase now has been postponed from its originally planned date of January 2013 to March 2013 to ease the burden on local businesses. However, if businesses continue to suffer financially through the end of 2012, the date for the wage increase may be pushed back as far as September 2013. Around 8.3 million people in Vietnam will receive the raise.

The Philippines

Starting this year, the Philippines has raised minimum wages by a cost of living allowance of about 15 per cent of the basic wage in Metro Manila, and other provinces are supposed to follow. Under the current system, daily minimum wages range from as low as $3.30 daily in retail or service establishments with 10 or less workers to as high as $10.37 daily for a non-agricultural worker in the national capital region.

Nevertheless, minimum wages in the Philippines are substantially below the poverty threshold. In the national capital region, the poverty line is $15 a day for a family of five, or 50 per cent higher than the existing regional wage rates. In addition, nearly 30 per cent of all businesses do not comply with the minimum wage rates.

The Philippine government has said it will dismantle the minimum wage system by 2013 and replace it with a two-tier scheme. This system will consist of a mandatory floor wage for new hires and low skilled workers as the first tier, and a productivity-based pay system as the second tier. A productivity-based pay system shall be issued in the form of wage advisories with industry-specific wage recommendations based on labour productivity growth, labour market conditions and business expectations, among others. The system will affect around 20 million workers.

Indonesia

Indonesia may boost the average minimum wage in 2013 as labour groups demand higher pay amid economic growth that has exceeded 6 per cent for eight straight quarters.

The Jakarta Wage Council decided on November 14 to recommend a massive 44 per cent increase in next year’s minimum wage for workers in the capital, much to the dismay of business representatives.  If approved, this would mean Jakarta workers should next year receive no less than $230 per month. For the whole country, the government may raise the lowest required compensation to $208 a month.

Malaysia

Malaysia has in May 2012 introduced a minimum wage for the first time in a move to support low income households. Private sector workers in Peninsular Malaysia will receive a minimum salary of $297 a month from January 1, 2013, and workers in the states of Sabah and Sarawak will get $264. Companies in labour-intensive industries, such as the rubber sector, have already asked the government to defer the new minimum wage as their labour costs would rise by 15 – 20 per cent.

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