This article first appeared in The Edge Malaysia Weekly on May 14, 2018 - May 20, 2018

MINIMUM wage has been a hot topic in the country, especially after it was revised to RM1,000 in Peninsular Malaysia and RM920 in Sabah and Sarawak in 2016.

According to Pakatan Harapan’s manifesto, one of the things the coalition will do in the first 100 days of its administration is to raise the minimum wage to RM1,500 across the country and review it every two years.

Barisan Nasional had also proposed a minimum wage of RM1,500 if it remained in power.

The RM500 increase set to come their way is good news for minimum wage earners but not for their employers who will be bracing for additional business costs.

Perhaps a small relief for employers is that Pakatan Harapan has also promised in its manifesto to help alleviate the burden of employers by subsidising half the additional wage cost.

How much would the RM500 increase in minimum wage cost employers and the new government?

Based on the Salaries and Wages Survey Report 2017 by the Department of Statistics Malaysia, a total of 2.37 million employees receive a monthly salary or wage of less than RM1,500. Some 545,300 of them are Malaysians with primary education or no formal education. The median wage for those without formal education is RM1,100 and RM1,400 for those with primary education.

Some 1.83 million of the 2.37 million employees earning less than RM1,500 are foreign workers with a median wage of RM1,335.

A rough calculation shows that the additional cost would be RM2.23 billion a year each for employers and the new government.

In a statement issued in January, the Federation of Manufacturers Malaysia called a raise of RM500 “excessive”. It added that a minimum wage of RM1,500 is too high for a basic salary, especially for unskilled workers and new entrants to the market.

The federation pointed out that in manufacturing, workers are paid allowances on top of the basic salary, implying that take-home pay is often higher than the minimum wage.

“A high basic salary affects overtime, increments and bonus payments. There are also knock-on effects on wages across the board, all of which could force companies to restructure, including possibly reducing employment opportunities, to address the strong wage push and the spiralling cost of doing business.”

The statement came in response to calls by several parties in January to raise the minimum wage.

Another promise that Pakatan Harapan pledged is to reduce the number of foreign workers in the country from six million to four million during its first term. It added that the high number of foreign workers is the reason for suppressed wages for local labour.

But can the gap be filled by Malaysians who may not necessarily want to do the jobs associated with foreign labour?

While the reason for reducing foreign labour is to help create quality and higher-paying jobs in the country, it also means the cost of doing business will increase. This is often overcome by passing on some of the cost to consumers who are expected to partially compensate businesses for the additional cost.

However, say economists, in a growing economy, higher wages fuel domestic consumption, which bodes well for the overall economy.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.