This article first appeared in The Edge Malaysia Weekly on January 20, 2020 - January 26, 2020

COME Feb 1, the official minimum wage will be boosted to RM1,200 per month in 56 city and municipal council areas following the gazetting of the Minimum Wage Order 2020.

Released by the Ministry of Human Resources on Jan 10, the gazette sets the minimum wage rate payable to employees of the 16 city councils and 40 municipal councils at RM5.77 per hour or RM1,200 per month. Rates payable for four, five and six workday weeks were also tabulated in the gazette.

It is worth noting that the latest increase in the minimum wage is for the second consecutive year, with the rate having risen to RM1,100 in January 2019.

At the current rate of RM1,200 (US$295), where is Malaysia placed in the world rankings?

Certainly, it tops the list of countries with a minimum wage policy in Southeast Asia. Thailand comes next but it is noteworthy that there is a huge gap between its minimum wage and Malaysia’s. The Thai rate is US$257 per month, assuming a six-day work week. The minimum wage in the country is calculated on a daily basis and varies widely between the provinces — Phuket and Chonbori offer the highest rate of US$11.12 per day while Narathiwat, Pattani and Yani offer the lowest of US$10.36.

The country with the lowest minimum wage in the region is Myanmar, at US$3.29 for eight hours of work. Assuming a worker completes a six-day work week of eight hours per day, the monthly minimum wage would amount to only US$79.

Singapore does not have a minimum wage policy but has in place a Progressive Wage Model that serves as a wage structure for workers in the cleaning, security and landscape sectors. The city state also has an income supplement scheme called Workfare that helps its citizens aged 35 and above and earning less than S$2,300 to save for their retirement.

Malaysia may boast the highest minimum wage in Southeast Asia but it is low down the list in US dollar terms. According to International Labour Organization (ILO) data, Australia has the highest minimum wage at US$2,165.30 per month, followed closely by Luxembourg at US$2,127.09.

Next come New Zealand, Canada, Ireland, the Netherlands, Belgium, France, Germany and the US, whose minimum wage is more than US$1,000 per month.

Naturally, each country has a different cost of living, which plays a key role in the setting of the minimum wage.

Judging by recent developments in Malaysia, it is not surprising that employers are unhappy with the recent increase in the minimum wage. The announcement of the revision during the tabling of Budget 2020 caught employers unawares as they were expecting it to take place much later, given that the minimum wage had been increased to RM1,100 only at the beginning of 2019.

In a statement last week, the Federation of Malaysian Manufacturers (FMM) urged the government to implement the increment on a pre-planned and pre-announced basis. “The industry is not against the increase in the minimum wage but the government must come up with a clear and certain roadmap for the phases of increases, including the areas of coverage, to provide clarity and certainty to the business community for their respective budgeting and planning purposes.

“At the same time, the minimum wage policy must tie in with the national productivity agenda for Malaysia to become an advanced country with a highly productive economy,” it said.

Employers have always argued that a higher income should correlate with higher productivity. Based on ILO data, Luxembourg has the highest labour productivity of US$221,452.92 per worker. It is noteworthy that the top 10 countries with the highest labour productivity are high-income nations. The same set of data shows Malaysia’s labour productivity hovering at US$60,187.38 per worker.

It is a known fact that Malaysia’s productivity level lags behind that of advanced economies, although it is comparable with other middle-income countries. This often lends support to the argument that Malaysian wages are in line with productivity.

However, in a study done by Bank Negara Malaysia in its 2018 annual report titled “Are Malaysian Workers Paid Fairly?: An Assessment of Productivity and Equity”, the findings show that Malaysian workers are still being paid less than workers in benchmark economies, even after accounting for the different productivity levels across the countries. The benchmark economies were the US, the UK, Australia, Germany and Singapore.

“This suggests that Malaysia’s current wage productivity levels are misaligned,” the report said.

That said, Malaysia’s labour share of income has inched up in recent years — from 31.7% of GDP in 2010 to 35.2% in 2017 — while global labour share of income trended downwards — from 52.21% of GDP in 2010 to 51.41% in 2017.

The Bank Negara study notes, though, that Malaysia’s labour share of income lags behind that of advanced economies. In other words, a larger portion of national income goes to the capital owners rather than the workers.

Nevertheless, for the next few years, employers will have to brace themselves for more minimum wage increases as the Pakatan Harapan election manifesto promised that the minimum wage would be bumped up to RM1,500 per month in the first five years of the coalition’s administration.

Some will remember that PH also pledged to share 50% of the proposed rise in the minimum wage with employers in a bid to reduce their burden. However, that is unlikely to happen, considering the government’s strained finances.

A 50% cost-sharing of basic salary based on the estimated number of 1.65 million workers in the manufacturing sector would set the government back by RM4.95 billion a year.

The Malaysian Employers Federation estimates the increase in the minimum wage to add RM2.5 billion yearly to remittances to home countries, given that it is usually the foreign workers who benefit from the minimum wage.

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