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0 INTRODUCTION OF MINIMUM WAGES POLICY

Wage is a compensation or in other word financial payments made to employees for

the exchange of their time and labour. The payments made by the employers as a salary for

the amount of work done by employees or in return for their services. According to the

Ministry of Human Resource, before the implementation of minimum wage, it is found that

33.8% of private sector workers were paid below RM700 per month relative to the Poverty

Line Wage (PGK) RM800.

Therefore, our Prime Minister, Datuk Seri Najib Tun Razak announced the Minimum

Wages initiative for Malaysia in his Budget Speech on 15 October 2010. The Minimum

Wages is one of the Government’s policy instruments that will ensure inclusiveness by

transforming the economy from a middle-income to a high-income economy by the year

2020. Besides that, the policy is also meant to ensure the employees can meet their basic

needs and at the same time they can create the necessary environment for industries to move

up their value chain by increasing the productivity of their employees through the use of

technology or other innovations.

Minimum wages exist in more than one hundred countries, both industrialized and

developing. The first country that enforced the minimum wage law was New Zealand in 1894

and spread to United Kingdom in 1909. Minimum wage is defined as the lowest hourly, daily

or monthly salary that employers legally pay to workers or in simplest term, it is the

minimum amount of pay an employee should receive according to the government

legislation. It is the basic wages, excluding any allowances or other payments. The Industrial

Labour Organisation (ILO) refers minimum wage as the ‘safety net’ that meant to secure

employees a reasonable basic standard living. Furthermore, through the implementation of

minimum wage, it may protect especially the low-skilled employees against exploitation and

it is also one of the government’s tools to reduce poverty and inequality in the labour market.

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2.0 THE IMPLEMENTATION OF MINIMUM WAGES IN MALAYSIA

2.1 MINIMUM WAGES RATE

Malaysia implemented a Minimum Wages Policy on 1 January 2013, thereby joining

more than 150 countries that already implement minimum wage laws. The policy sets a

minimum wages of RM900 per month or RM4.33 per hour for Peninsular Malaysia and

RM800 per month or RM3.85 per hour for Sabah, Sarawak and the Federal Territory of

Labuan, covering both the local and foreign workforce, except for domestic helpers and

gardeners. The Minimum Wages Policy also applies to employees who paid on piece-rates,

tonnage, trip or commission-based.

MINIMUM WAGES RATE

Daily
(As per the Guidelines on the
Implementation of the Minimum
Wages Order 2012)
Territory Monthly Hourly
Number of days worked in a week

6 5 4

Peninsular Malaysia RM900 RM4.33 RM34.62 RM41.54 RM51.92

Sabah, Sarawak
RM800 RM3.85 RM30.77 RM36.92 RM46.14
and Labuan
Source : Ministry of Human Resource (MoHR)

According to World Bank, a minimum wage rate of less than RM1,000 per month or

RM4.88 per hour would not significantly affect firms, employment, foreign direct investment

or migrant flow into the country because the more money in private consumers will boost

private consumption.

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2.2 THE SETTING OF MINIMUM WAGE

To determine the minimum wage rate, the National Wages Consultative Council

(NWCC) has taken into consideration the Poverty Line Income Level (RM800 as at 2009),

employer’s ability to pay, the Consumer Price Index, the Real Unemployment Rate and

Productivity Growth.

The Minimum Wage formula used by National Wages Consultative Council (NWCC)

is specified as follows :

Base criteria Adjustment criteria

PLi Pi CPI
MW = Average (Average workers/household + Median wage) x [1 + (100) + (100) −
UEi
(100)]

where, MW = Minimum Wage (MYR)

PL = Poverty Line Income (RM)

P = Productivity growth (%)

CPI = Consumer Price Index (% change)

UE = Unemployment Rate (%) : actual Unemployment Rate minus

Natural Unemployment Rate (4%)

i = Region

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2.3 EMPLOYER’S AND EMPLOYEE’S RESPONSIBILITIES

In the implementation of Minimum Wages Policy, all employers are requires to make

necessary adjustments with regard to payment of wages to the employees. However,

employers need to keep in mind that the implementation of Minimum Wages Policy will give

benefits to all stakeholders in order to let the government more productivity and to raise

national level of income.

As an employer, all employees are to be paid at least RM900 or RM800 per month

basic wages depends on the territory they serve either in Peninsular Malaysia or Sabah,

Sarawak and Labuan. For the first six months of employees’ probation period, employers are

allowed to reduce a probationer’s basic wages rate by a maximum of 30%. For example, a

maximum reduction in Peninsular Malaysia is RM270 while in Sabah, Sarawak and Labuan

is RM240. However, according to the Government’s decision through the Cabinet Committee

on Foreign Workers and Illegal (JKKPA-PATI) on 1st July 2013, no reduction of basic wages

is allowed for a foreign workers.

While, as an employee working in Malaysia, they should know their rights to receive

minimum basic wages which is RM900 in Peninsular Malaysia and RM800 in Sabah,

Sarawak and Labuan. However, under Section 2 of the Employment Act 1955 (Act 265),

Section 2 of the Sabah Labour Ordinance (Cap. 67) and Section 2 of the Sarawak Labour

Ordinance (Cap. 76), this policy does not apply to domestic servants such as maid, personal

driver or gardener.

As an employee, they should know that the employer is required by law to pay

minimum wages as your salary. However, if you as the employee agree to received less than

minimum wages, the employer still punishable as per the stipulations of the law he pays you

less.

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3.0 ADVANTAGES OF THE IMPLEMENTATION OF MINIMUM WAGES

POLICY?

The implementation of Minimum Wages Policy gives many benefits especially for the

employees and the economy. According to the Annual Report 2012, the minimum wage affects

close to one third of the workforce. It is estimated to benefits about 27% of workers nationally.

On average, the affected workers in Peninsular Malaysia are expected to receive a 33%

increase in wages, while in Sarawak, Sabah and Labuan would be given 38% increment. The

agriculture industry is expected to be the most affected because 43% of workers in agricultural

sector received wages below minimum wage.

By introducing the minimum wage, it will reduced the poverty levels. The minimum

wage is one of the anti-poverty tool that used over 100 countries and have been implemented

over a century in certain countries such as Australia and Canada. At first, minimum wage is

used to ensure that the employee gets higher salary than what they receive. However, recently it

is used for the purpose of helping all people who are considered poor. It is because since there

is a minimum amount that has to be paid to every worker, therefore, those workers would have

the opportunity to enjoy higher paid and this will reduce their poverty.

According to Dube, Naidu and Reich (2007), the introduction of minimum wage raised

the bottom amount of salary for workers, which increases their income level and thus have

more spending ability. When the income level increase, workers will be able to spend more

money for goods.

Therefore, the implementation of Minimum Wages in Malaysia will increase the lowers

income earners especially in rural areas. Even slight increase in the wage can make a

significant impact on the living standards of poor families and individuals, who can better

afford basic necessities like food, rent and clothing. There will be no protection without a

minimum wage for lower income employees as no guarantee is imposed that the companies

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will pay their workers fairly. Without government oversight, the companies could refuse to pay

reasonable wage.

The implementation of minimum wage also will increase workers productivity. It is

ideal to assume workers should workers would be motivated by the higher paid since money is

one of the motivations to encourage people to work. Efficient wage theory stated that, higher

wages will motivate workers to work harder and increase their productivity level. We believe

that workers that are paid a higher amount will feel compelled to work and will give the best

performance because they fear to losing the job. Besides that, increase in productivity gives

good effect to the Minimum Wages Policy, as the workers morale is increased due to higher

salary which results in less employee absenteeism and hence increasing productivity.

When there is minimum wage policy, the producers will seek alternative way to reduce

the number of employees such as trade in new machine and new technological in order to save

the cost of production in long-term basis. For example, there are two equally productive

workers assigned to clear a wooded lot. The first worker is given a shovel an axe, the second,

bulldozer. Thus, the second worker is more productive compare with first worker because hard

work cannot compete with better technology (Matthew B. Kibbe, 1998)

Employee plays an important role to facilitate transformation of the economy.

Through the implementation of Minimum Wages Policy, it will cover the inefficiencies of

workers in the labour market, and in improving the social welfare of low-paid workers. When

the minimum level of wages was set, it will maximise the efficiency of labour usage in the

economy. However, if the government has set the minimum level of wages below productivity

levels, it would lead to low labour participation rates in the economy, as workers have less

incentive to take part in the labour market. Due to this situation, local workers were been

displaced by low-wages of foreign workers. Therefore, the government should implement the

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Minimum Wage Policy because it is expected to encourage greater participation in the labour

market and improve the utilisation of labour in the economy.

Besides that, the minimum wage will be an additional incentive for the unemployed

to find and accept a job. As the minimum wage will increase the difference between benefits

from employment, it will help to increase the participation rate of employment. These changes

would facilitate the transformation of Malaysia into a high-value added and high-income

economy. It will also encourage people to earn money legally and join the workforce as the

minimum income is guaranteed.

Minimum Wages Policy also aids workers with law bargaining power particularly

in tough economic times. Most the young and unskilled workers who usually acquire

minimum wage jobs, does not has the ability to demand for a certain level of income from their

employers due to lack of experience and expertise. Hence, the government establishes the

minimum wage to prevent the employers or companies from taking advantage of the

individuals.

Furthermore, Minimum Wages Policy will help to close the income gap between the

rich and the poor. Although the society still has a significant difference, the minimum wage

will slowly close the gap so it does not develop wider. Narrowing this gap is important to

maintaining a population with equal freedoms. In the short term, minimum wage is not

effective to reduce the income gap between the poor and rich. But in long term, due to the

implementation of Minimum Wages Policy, employees can satisfy their basic standard living,

thus their children also can concentrate on their studies. Then, they will not be low-tech

employees who will fight for more wage and position. Therefore, their family will be out of

poverty level.

Finally, the most important objective of the Government by implementing Minimum

Wages Policy is to transforming Malaysia into high-income economy. The minimum wage

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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 2020. In order for Malaysia to become a high-income nation, wages at the bottom have

to be lifted up. In other hand, the minimum wage policy provides incentives to both firms and

workers to undertake productivity-enhancing measures. This will result in more high-skilled

workers and investments in automation and newer technologies that could enhance production

capacity, instead of relying on low cost labour.

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4.0 DISADVANTAGES OF THE IMPLEMENTATION OF MINIMUM WAGES

POLICY?

The Minimum Wages Policy may cause inflation of the price as the increase of money

supply available the workers will cause price to increase. Business will try to increase the

prices of goods as the available money supply for spending has increased through minimum

wage. It is because the workers already have money to spend, business tend to take advantage

of this situation to undo the wage increase by raising the price of goods. The worker will lose

the wage gain to inflation because prices on the market are higher and require more money to

buy the same amount of goods.

Inflation happens when the government set higher minimum wages policy, the

producers are unable to cope with costs of production. It will cause the prices of all products to

increase tremendously. Thus, the population, especially the low income class, would finf it

more difficult to stay in the high living expenditure society.

Besides that, Minimum Wage Policy also increased unemployment rate. Based on

simple economics of supply and demand, the imposition of minimum wage will cause low-

skilled labourer to lose their jobs and thus creating unemployment. The unemployment

problems will indirectly cause social problems if not rectified such as creating more jobs or

subsidising the unemployed until they get jobs again. Reports suggest that up to four million

jobs are threatened due to cutbacks and closure following the implementation Minimum Wages

Policy. Thus as the government imposes minimum wage, there are more people who are willing

to work with higher wage. However, they are unable to find the jobs provided because the firms

demand less workers. Therefore, local people will suffer unemployment due to the minimum

wage and when they are high possibilities that high foreigners might replace them under

minimum wage.

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5.0 CONCLUSION

Therefore, I strongly agree with the implementation of Minimum Wages Policy in

Malaysia. As we know, the implementation of minimum wage will reduce poverty level in a

country and increase the average income. As a result, the Minimum Wages Policy would bring

more advantage to Malaysia especially to the population. Thus, to reduce the effects of

disadvantages of minimum wage such as inflation and unemployment, the Malaysian

government need to work out the most effective way on reducing the disadvantages of

minimum wage policy so that the government and population can gain as much as benefits as

hoped.

In conclusion, Malaysia should implement minimum wage not only because of the

benefits which gives several reimbursements to workers whether local or foreign but the

implementation of the Minimum Wages Policy is because a reasonable and fair income

distribution that should be practised in every country. For example, there are many people

work more than 8 hours per day and their paid is still low because some of the employers are

not paying for contributions, but paying for experiences and name recognitions. Injustice also

occurs when the employers take advantage over their employees. With the help of minimum

wage, every worker will get the same minimum amount of wage, no overstated nor

understand in order to practise a fair income distribution in labour market.

Recently, during the tabling of Budget 2016, our Prime Minister, Datuk Seri Najib

Tun Razak announces that effective from 1 July 2016, the national minimum wage will

increased from RM900 to RM1,000 per month for Peninsular Malaysia and from RM800 to

RM920 for Sabah, Sarawak and Labuan. As far as I am concerned, government should

implement suitable amount of wages for workers to be motivated to produce more and also

for them to have better life in Malaysia.

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6.0 REFERENCES

1. David Neumark & William Wascher (2006), Minimum Wages and Employment; a

review of evidence from the new minimum wage research, British Library PNQ.

2. Ministry of Human Resource, Retrieved on 05 March 2016 from

http://minimumwages.mohr.gov.my/employees/about-minimum-wages-policy/

3. Bank Negara Malaysia, Retrieved on 05 March 2016 from

http://www.bnm.gov.my/files /publication/ar/bm/2012/cp04_005_rencana.pdf

4. The Star Online, Retrieved on 05 March 2016 from http://www.thestar.com.my/news

/nation /2014/01/09/malaysia-implements-mininum-wages/

5. The Malaysian Insider, Retrieved on 07 March 2016 from

http://www.themalaysianinsider .com/features/article/how-minimum-wage-affect-you

6. Malaysian Trades Union Congress, Retrieved on 07 March 2016 from

http//www.mtuc.org.my/highlight-full-impact-from-minimum-wage/

7. The Star Online, Retrieved on 08 March 2016 on http://www.thestar.com.my

/news/nation /2014/01/09/malaysia-implements-mininum-wages/

8. International Labour Organization, Retrieved on 08 March 2016 from

http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:13100:0::NO::P13100_CO

MMENT_ID:3175038

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