INDUSTRIES that rely heavily on foreign labourers will feel the pinch in the sudden raising of the minimum wage effective May 1, experts said.

The increase in minimum wage will only benefit foreign workers as most locals already earn more than the minimum wage of RM1,500, they said.

They said the government should find a way to limit the outflow of money from the remittances of foreign workers.

SME Association president Ding Hong Sing said Putrajaya has not been able to solve the labour shortage issue.

“SMEs need foreign workers to increase production and efficiency,” he told The Malaysian Insight.

Ding said to minimise the impact of the the new minimum wage, trade unions have proposed charging foreign workers an RM300 accommodation fee and making these workers pay the levy themselves.

“Currently, locals earn more than RM1,500 inclusive of allowance. Data show that foreign workers account for 70% of the workforce in SMEs while locals make up 30%.

Locals typically earn around RM2,000 to RM3,000 after overtime and incentives.

The minimum wage will only benefit foreign workers which will see an outflow of the ringgit, he said.

“Almost 85% of their salaries are remitted to their home countries; in other words, we are losing about RM10 billion yearly.

“If the number of foreign workers increases, this outflow will be even bigger.”

“SMEs have only now started to get back on their feet. And with the Regional Comprehensive Economic Partnership (RCEP) kicking in, many MSMEs will fail as they cannot meet the obligations laid out.”

Driving out manufacturers

Malaysian Furniture Council president Khoo Yeow Chong meanwhile asked that the minimum wage be postponed until next year to avoid a series of adverse economic reactions.

Khoo said many do not agree with the new minimum wage as the furniture industry has had to deal with rising cost of transport and shortages of containers and manpower, which has led to many orders not being fulfilled.

“A 10% increase would be acceptable. If this helps solve unemployment, we are willing to cooperate.”

According to a report by the Economic Planning Unit (EPU), only 2.2% of national salaries were below RM1,500 in 2019.

“As such, raising the minimum wage will not benefit the B40, he said.

Instead, the 25% salary increase will impact operating cost, disrupt business and cause inflation, Khoo said.

“In the past, many manufacturers set up shop in China. When the minimum wage there increased, they moved to Vietnam.

“It all comes down to operating costs. If other countries can provide a more favourable investment environment, manufacturers will move there,” Khoo said.

Semi-conductor industry underserved

Malaysian Semiconductor Industry Association Wong Siew Hai said government should have increased the minimum wage over the course of three years instead. 

“This increase is too much, too soon. Electrical and electronic companies do not have sufficient time to make adjustments to the wage structure and productivity improvements to remain competitive,” he said.

According to IC Insight, the global semiconductor market is expected to grow 11% this year.

Many E&E companies in Malaysia are in the midst of expanding and constructing new facilities, Wong said.

In 2021, Malaysia received RM148 billion of new investments in the E&E sector, which made up 48% of the total investments in Malaysia. This will create more than 28,000 new jobs, he added.

“The tight labour market is going to get worse. The natural market forces of demand and supply will invariably push wages up.

“The gross monthly income of most employees would have exceeded RM1,500, once you include the various allowances, such as meal and shift allowances and incentives such as attendance bonuses, retention bonuses and 13th month contractual bonuses.

 “The government’s decision to increase the minimum wage to RM1,500 could drive some companies to include these allowances and incentives into the basic pay.

“Any increase in the minimum wage and various wage levels should also be linked to increase in productivity.”

Previously, the Federation of Malaysian Manufacturers (FMM) said a drastic increase in the minimum wage could derail businesses that were just getting back on their feet following pandemic-induced lockdowns.

FMM president Soh Thian Lai said it was disappointing that that the government did not heed advice to increase the minimum wage in stages.

Soh cited an FMM and Malaysian Institute of Economic Research survey which showed that many agreed a RM100 hike would be acceptable given the current economic condition.

The survey found that businesses were affected by the emergence of the Covid-19 Omicron variant, global supply chain disruption, rise in commodity prices and sea freight charges, labour supply shortage, as well as high electricity cost.

Prime Minister Ismail Sabri Yaakob on Monday announced that the minimum wage would be raised from RM1,200 to RM1,500 effective on May 1.

He said small and micro businesses are allowed to delay raising wages as they could lack the means to pay. – March 25, 2022.