Malaysia’s minimum wage hike comes at the wrong time, businesses say
The significant raise of Malaysia’s minimum wage by May 1 predictably does not find favour among businesses in the private sector, but some economists say they might have a point.
Malaysia’s government decided to increase the national monthly minimum wage in the private sector from May 1, 2022, by 25 per cent from 1,200 ringgit ($275) to 1,500 ringgit ($344) in 57 major cities and by 35 per cent from 1,100 ringgit ($252) to 1,500 ringgit elsewhere after its obligate two-year review. The last time the minimum wage was reviewed and increased was on February 1, 2020.
While low-income earners are naturally excited about the raise, businesses have voiced concerns beyond their normal discontent with wage raises.
The government argued that it is lifting the minimum wage again to support people suffering from economic pain inflicted first by the Covid-19 pandemic and then aggravated by Russia’s invasion of Ukraine and its effects on global supply chains and commodity prices.
Drag for economic recovery
However, the higher working capital requirements from the wage raise could erode corporate profits and investment readiness at a time when the economic recovery is expected to set in, effectively slowing down the country’s recovery from the pandemic, experts fear.
Businesses, particularly manufacturers and small and medium-sized enterprises, have argued that the increase in Malaysia’s minimum wage is too soon and too steep as many companies have yet to fully recover from the pandemic to absorb the inflicted costs.
Given the rising external risks emanating from the lockdowns in China, the Russia-Ukraine crisis, labour shortages and surging raw material and commodity prices, the wage increase is “ill-timed,” business representatives said. Further, many businesses, especially small and medium ones, are still dependent on government subsidies, and once these end, paying increased wages would be an additional burden.
Wage increase foreseeable, says minister
In turn, Malaysia’s human resources minister Saravanan Murugan said that the 1,500 ringgit minimum wage is “indeed timely” and companies should have anticipated such a move as the law says the pay floor must be reviewed at least once every two years.
He said that several factors were considered, namely the increase in poverty line income, cost of living trends and inflation. The minister also reminded businesses that the median monthly salary in Malaysia in 2020 dropped 13 per cent to 1,894 ringgit ($434) from 2,185 ringgit ($501) in 2019 as an effect of the pandemic, and the increase in the minimum wage is “expected to restabilise the wages of workers at the bottom of the pay scale.”
Critics of the government say the planned minimum wage increase has political motives as the government of Prime Minister Ismail Sabri Yaakob is expected to hold general elections at the end of 2022. The government, however, denies a political motive.
The significant raise of Malaysia’s minimum wage by May 1 predictably does not find favour among businesses in the private sector, but some economists say they might have a point. Malaysia’s government decided to increase the national monthly minimum wage in the private sector from May 1, 2022, by 25 per cent from 1,200 ringgit ($275) to 1,500 ringgit ($344) in 57 major cities and by 35 per cent from 1,100 ringgit ($252) to 1,500 ringgit elsewhere after its obligate two-year review. The last time the minimum wage was reviewed and increased was on February 1, 2020. While low-income earners...
The significant raise of Malaysia’s minimum wage by May 1 predictably does not find favour among businesses in the private sector, but some economists say they might have a point.
Malaysia’s government decided to increase the national monthly minimum wage in the private sector from May 1, 2022, by 25 per cent from 1,200 ringgit ($275) to 1,500 ringgit ($344) in 57 major cities and by 35 per cent from 1,100 ringgit ($252) to 1,500 ringgit elsewhere after its obligate two-year review. The last time the minimum wage was reviewed and increased was on February 1, 2020.
While low-income earners are naturally excited about the raise, businesses have voiced concerns beyond their normal discontent with wage raises.
The government argued that it is lifting the minimum wage again to support people suffering from economic pain inflicted first by the Covid-19 pandemic and then aggravated by Russia’s invasion of Ukraine and its effects on global supply chains and commodity prices.
Drag for economic recovery
However, the higher working capital requirements from the wage raise could erode corporate profits and investment readiness at a time when the economic recovery is expected to set in, effectively slowing down the country’s recovery from the pandemic, experts fear.
Businesses, particularly manufacturers and small and medium-sized enterprises, have argued that the increase in Malaysia’s minimum wage is too soon and too steep as many companies have yet to fully recover from the pandemic to absorb the inflicted costs.
Given the rising external risks emanating from the lockdowns in China, the Russia-Ukraine crisis, labour shortages and surging raw material and commodity prices, the wage increase is “ill-timed,” business representatives said. Further, many businesses, especially small and medium ones, are still dependent on government subsidies, and once these end, paying increased wages would be an additional burden.
Wage increase foreseeable, says minister
In turn, Malaysia’s human resources minister Saravanan Murugan said that the 1,500 ringgit minimum wage is “indeed timely” and companies should have anticipated such a move as the law says the pay floor must be reviewed at least once every two years.
He said that several factors were considered, namely the increase in poverty line income, cost of living trends and inflation. The minister also reminded businesses that the median monthly salary in Malaysia in 2020 dropped 13 per cent to 1,894 ringgit ($434) from 2,185 ringgit ($501) in 2019 as an effect of the pandemic, and the increase in the minimum wage is “expected to restabilise the wages of workers at the bottom of the pay scale.”
Critics of the government say the planned minimum wage increase has political motives as the government of Prime Minister Ismail Sabri Yaakob is expected to hold general elections at the end of 2022. The government, however, denies a political motive.
