OBG: Labour costs set to rise with minimum wage policy

KUCHING: The government’s decision to enact a minimum wage policy in Malaysia is set to propel labour costs ahead and could possibly affect the competitiveness of companies within the country.

Announced on Labour Day last year, the law sets the minimum salary at RM900 per month for workers in Peninsular Malaysia and RM800 a month for Sabah and Sarawak workers.

“With this law, Malaysia joins Cambodia, Hong Kong, Indonesia, Thailand and Vietnam in establishing some form of minimum wage in the region,” highlighted the Oxford Business Group (OBG) in its Malaysia Outlook 2012 Report.

“According to government estimates, 3.2 million workers will be affected by the legislation upon implementation, which is set for six months after the law is gazetted.

“Companies with five or fewer workers will be given an additional six months to comply.”

OBG noted that opinions were split on the merits of the move, with many employers expressing concern that the new law will cut into profit margins and make them less competitive globally.

“Some manufacturers could be tempted to leave. While nations such as Myanmar, Cambodia and Vietnam may have less-developed infrastructure and support services for industrial activities, a sudden spike in Malaysian wages could tip the scales in favour of locations with lower production costs,” it highlighted.

“Many industries will be relatively unaffected by the law, while others will find the going tougher,” OBG continued.

“The country’s large agricultural plantation industry is one that could feel the pinch, with thousands of low-income employees working largely unmechanised jobs.

“To compensate, some companies that are unable to absorb the higher operating costs may be tempted to look at the informal labour market to make ends meet.”

OBG went on to note that higher-end manufacturing companies, such as automakers, electronics producers and biotechnology firms, already pay wages exceeding the minimum wage on the average.

As the debate between the camps continues, the true repercussions of the law may depend on details that have yet to be made public.

“There is a question as to what will be included as part of the RM900 ($290): bonus payments, housing allowances, overtime and so on,”

Stewart Forbes, the executive director of the Malaysian International Chamber of Commerce and Industry, told OBG.

“The way the bill is worded is ‘basic wage’, which cannot be easily altered. The way to make changes is to redefine this term to include incentives, such as subsidised food and accommodation. There are many complexities, and there will not be a perfect solution.”

The services and hospitality sectors, for instance, could be tricky to navigate given that cash payouts are often fairly low, with compensation – for example, room, board and other payments –making up the difference.