Raising minimum wage every two years would reflect the economy, says IDEAS

KUALA LUMPUR: Raising the minimum wage every two years would reflect the economic situation on the ground, the Institute for Democracy and Economic Affairs (IDEAS) said.

Acting director of economics and business unit Dr Juita Mohamad said entry level wages have stayed at the same level for at least 15 years and wages are not growing organically since trade and workers associations do not have strong power to negotiate wages and non-wage benefits at the workplace.

"With no other ways to negotiate wages, the minimum wage law is our only device for wage growth in the country," she told Bernama in an email interview recently.

Human Resource Minister Datuk Seri M Saravanan recently announced that a minimum wage of around RM1,500 a month is expected to be implemented before the end of this year.

He said the new rate had yet to be finalised as the ministry was awaiting Cabinet approval and the issue needed to be resolved as soon as possible.

Juita said any review of the minimum wage needs to mirror inflation, as well as rising costs of living and standards on the ground.

"Wages should increase according to provinces or even occupations and sectors so that they account for demand and supply of a certain sector and mirror the living costs of a certain area. But the increase should be timely and periodic," she pointed out.

Juita noted that suppressing wages was not a sustainable way to keep costs of production and prices of costs low.

Other instruments and policies need to be deployed to ensure prices do not rise drastically, she said, adding that setting the price ceiling for selected goods and deploying subsidies may help.

Juita pointed out that the minimum wage should be a guideline for employers in terms of compensation but the employers need to keep in mind that this does not necessarily reflect the true cost of living and factors like inflation.

Minimum Wage in the Path of Economic Recovery

The proposed minimum wage increase has yielded brickbats from associations representing industries and employers.

The Malaysian Employers Federation reiterated that now is not the right time to increase the cost of doing business and the proposed RM1,500 new minimum wage implementation would derail economic recovery.

Meanwhile, the Federation of Malaysian Manufacturers expressed concern about the proposed increase in the minimum wage to RM1,500 a month from the current RM1,200, saying adjustments to wages must be done progressively.

President Tan Sri Soh Thian Lai said the proposed 25 per cent increase in the minimum wage to RM1,500 would have an undesirable impact on the economy, especially in the present circumstances.

Echoing the sentiment, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid told Bernama that should the minimum wage be implemented immediately, it will have an impact on the operating costs of businesses at a time when the economic recovery is still soft.

"I suppose the government needs to take a neutral stance in this respect and be granular in assessing the industry's capability to increase the minimum wage. Whatever the decision may be, it has to be fact-based," he added.

Inflationary Pressures

Malaysia's inflation, as measured by the consumer price index, increased 3.2 per cent in December 2021 from a year earlier, mainly due to the rise in food and fuel prices and on base effect.

The CPI's 3.2 per cent year-on-year increase in December 2021 partly contributed to the nation's leap into an annual 2021 inflation at 2.5 per cent compared to a 1.2 per cent deflation in 2020 due to various contending factors, including the Omicron variant and heavy-rain-driven food-supply shortage.

Juita said the current rise in inflation was a worldwide issue, stemming from stronger global demand and higher energy prices, after two years of battling the pandemic through the implementation of lockdowns.

"The pandemic and the lockdowns led to both demand and supply shocks at a global scale. As a small and open economy, Malaysia was not immune to the devastating aftermaths posed by the pandemic," she added.

Inflationary pressure is further compounded by the recent floods in the country, putting a strain in the supply of selected essential goods produced locally.

To minimise the negative effects of the price hikes on consumers in the short term, Juita suggested that the fiscal policies, including subsidies and price ceilings ought to be deployed by the government.

"However, in my view, these instruments and interventions need to be introduced in a timely fashion in light of the potential increase in the minimum wage threshold this year to RM1,500 per month," she said.

Bank Negara Malaysia has the power to adjust the interest rate to ensure that inflationary pressures are kept at bay, she added.

-- BERNAMA