MALAYSIAN businesses will still prosper despite the minimum wage hike as the economy is almost at full capacity and as industries continue to grow, so, too, will the demand for labour, said an economist.

Centre for Public Policy Studies senior policy analyst Jarren Tam said the effect of the RM1,050 minimum wage on businesses in the short term would likely be minimal.

“The economy is at almost full capacity and industries continue to grow, hence labour is always in demand and will fulfil itself through the market forces of supply and demand,” Tam told The Malaysian Insight.

“The only variable would be foreign workers, which is an external factor that is not influenced by the minimum wage but rather by our national policy on immigrants.”

The government should implement a schedule, such as a five-year staggered plan, and minimise the number of times the minimum wage is raised because it will cause an inflationary shock to the economy every time this is implemented, he said.

Business interest groups should also be ready to face higher minimum wage, as the economy has shown a healthy trend over the past few years and profits are expected to be stable, he said.

Putrajaya is expected deliver its minimum wage pledge of RM1,500 via a staggered plan, with the amount of hike dependent on growth.

Economists, however, described next year’s RM50 wage hike as a token amount with little appreciable effect on employers.

The RM50 hike was also criticised as too low by several of Pakatan Harapan’s pro-reform lawmakers, such as DAP’s Charles Santiago and PKR’s Maria Chin Abdullah, while the Malaysian Trades Union Congress, representing half a million workers, called it a “betrayal” of a campaign pledge by the ruling coalition.

Pro-reform lawmakers said productivity growth has outpaced wage growth since the 1970s, pointing to recent government data that showed wage growth of 2.6% while labour productivity growth at 6.7%.

At the same time, industry players said the country faced economic uncertainty and that the new wage would mostly benefit foreign workers and not locals, with the SME Association of Malaysia saying that only 10,000 local workers would benefit from the hike.  

“I’m more inclined to side with the reformers who said that the increase is too little,” Tam said.

“Since the PH government has committed in their manifesto to raise the minimum wage to RM1,500, I strongly believe in transparency and structure if this promise is to be achieved.”

Malaysia began implementing a minimum wage in January 2013, with the rate first set at RM900 for the peninsula and RM800 for Sabah and Sarawak. The rate was revised to RM1,000 and RM920, respectively, in July 2016.    

The RM50 hike to RM1,050 rate will be standardised nationwide on January 1, 2019.

“RM50 is too little to make any impact to the wage-earner,” said Berjoyai Bardai of Universiti Tun Razak’s Graduate School of Business.

“It’s a token amount, just to show some progress in fulfilling their promises. It’s in the spirit of honouring their word, but it has no impact on the living costs, which is at least RM2,500 in urban centres.”

Berjayoi also believes that only foreign workers would benefit from the wage hikes.

“What we’ve seen is that those employers who have market power, they’ll just shift the burden to the consumer and prices would go up.

“I don’t think minimum wage is the answer. The ones who will benefit most are unskilled foreign workers as Malaysian companies cannot hire locals because no local worker wants to work in the construction and retail sectors.”

Berjayoi proposed “structural changes” by raising job skills among Malaysian low-income earners.

“We need to re-skill our own workers so that they would have higher productivity and they would be compensated at a higher rate.”

Institute for Democracy and Economic Affairs economist Adli Amirulla believes the RM1,500 target is the “right figure” but said there is little else in data on its effects.

“The minimum wage should be 40% of the nation’s median salary. If you look at the numbers right now, it is RM2,700. It is around the right figure.

“Whether this increment is the right move, I do not now have the answer because as of right now the government has yet to give a full report or cost-benefit analysis of raising minimum wage.

“If we increase too much, it will affect the economy. The ones that will feel the pain are the small and medium businesses. The backlash, I imagine, would be that SMEs would have to increase prices to compensate.”

Fitch Ratings said last month that Malaysia’s gross domestic product growth was expected to slow to 5.2% this year and 4.8% next year, given its narrower revenue base. – September 9, 2018.