Is Malaysia’s minimum wage too low?

Understanding the Minimum Wage

Started in May 2022, workers have been entitled to the minimum wage of RM1,500 per month. The minimum wage simply means that the price floor or the least a company is obligated to pay its workers for their work output. Employers may face heavy fines if they pay below the set rate. The concept of minimum wage was first introduced in Malaysia around 2012 with a rate of RM900 in peninsular Malaysia and RM800 in East Malaysia. The idea is aimed at protecting workers, especially vulnerable groups, to ensure everyone receives a fair pay. This article will explain the concept of the minimum wage and discuss why the wage rate is so low in Malaysia and how factors such as underemployment affected it.

The increase to RM1,500 represents a 25% jump from the previous level may suggest to benefit the workers but might turn out to be a burden for the employers. As Malaysia experiences a rapid rise in the cost of living, workers' salary has to reflect the pace of the hike in the prices of goods. According to a report by Bank Negara in 2018 suggested that the living wage or the amount of salary required to live comfortably in Kuala Lumpur is at a much higher level of RM2,700 per month (Singh, 2023), where the median wage in Kuala Lumpur is only slightly higher at RM3,050 (DOSM, 2022).

Now the question is why can't the government set a minimum wage above the living wage? By doing so, it will cost employers a huge burden and especially the micro, small and medium enterprises (MSMEs) who suffered heavy losses during the pandemic and are in the stage of recovery. If the minimum wage is increased abruptly, it will threaten these partially surviving firms that are facing multiple difficulties from price increases in raw materials to labourers. In such a scenario, firms may be motivated to lay off employees in order to cut costs which can lead to an unintended backlash.

Underemployment

Underemployment, specifically skill-related underemployment (SRU) refers to workers with tertiary education who are involved in low or semi-skilled jobs (Lee, 2020). The situation of SRU is particularly critical in Malaysia as it stands at 37.4% in the fourth quarter of 2022 (DOSM, 2023). In simpler terms, more than a third of the working population is underutilised. The Malaysian economy has an increasing trend in engaging the gig economy, such as ride-hailing and e-commerce delivery, which can be seen as a type of underemployment. Participation in the gig economy hinders the maximum capabilities of the workforce, especially among the youth (Shakir and Rodzi, 2022). We often hear stories such as students or engineers delivering Grab Food or Foodpanda when they can be contributing to the skilled workforce. However, it is argued that participating in the gig economy provides a side income, especially in the uncertainty during the lockdown. Undoubtedly, underemployment will lead to a below-average wage since skills are not maximised.

Grabfood and Foodpanda drivers waiting patiently at a junction

Source: CompareHero

Policy to Higher Income

An article by Chin Tong (2022) suggested governmental efforts to increase the productivity of workers and the creation of relevant and skill-matching jobs, as that will translate into higher wages. The idea of enhancing productivity and pairing labourers with the right skills for the right job should be a close collaboration between the ministry of higher education and the ministry of trade, which has a thorough understanding of the industrial needs. As Malaysia is transforming into a developed nation, it has to be supported by a strong foundation of high-value-adding and impactful industries. As stated in the Twelfth Malaysian Plan, the government did point out a few sectors, such as the electrical & electronics (E&E) and global service (GS) sectors. The shift from labour-intensive to capital-intensive will certainly help workers to earn higher wages due to their valuable skills and knowledge being put into use.

Production line of an Electrical & Electronics (E&E) company

Source: The Malaysian Reserve

Suggestions such as technical & vocational education & training (TVET) to train or upskill the workforce is a good option. For many reasons, a person looking for a job may not possess the right technical skills and hence TVET should close up the gap. As industries and firms are becoming more dependent on the use of artificial intelligence (AI), digitalisation and the internet of things (IoT), this training should allow the trainees to grasp the latest technology and be applied to their work routine. Increasing productivity is portrayed as a great way in boosting income as higher productivity often comes with higher output and profits. As often neglected, the stress on primary and secondary education will be essential as well in shaping the future youth and setting a direction for teenagers.

Vocational & Education Training (VET) and apprenticeship in Europe

Source: European Trade Union Committee for Education

Conclusion

The policy to increase the minimum wage has provoked a debate and ultimately the winners and losers of the policy will depend on their role either as an employee or an employer. As the economy faces challenges from high cost of living, employees must make their way through with the ‘low wage’ they receive. Hence, the government should intervene by using measures to increase the productivity of labourers as it will boost their wage rate. As such, education and retraining programs will be vital in reaching a higher-income nation.

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About the Author

Khor Zher

Khor Zher is a first year Economics student at the University of Nottingham Malaysia. He is passionate and dedicated to research and writing on topics related to Economics & Finance.

References

DOSM (2022). Department of Statistics, Malaysia. [online] www.dosm.gov.my. Available at: https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=157&bul_id=SzNvU0ZhaGpCMUROVlpCdTU1WWJSdz09&menu_id=Tm8zcnRjdVRNWWlpWjRlbmtlaDk1UT09 [Accessed 16 Feb. 2023].

DOSM (2023). Department of Statistics Malaysia Official Portal. [online] www.dosm.gov.my. Available at: https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=149&bul_id=ZHFiN04rZUk1aGVTM2dnVnRtT0lWZz09&menu_id=Tm8zcnRjdVRNWWlpWjRlbmtlaDk1UT09 [Accessed 17 Feb. 2023].

Lee, E. (2020). Cover Story: High skill-related underemployment reveals structural issues in labour market. [online] The Edge Markets. Available at: https://www.theedgemarkets.com/article/cover-story-high-skillrelated-underemployment-reveals-structural-issues-labour-market [Accessed 16 Feb. 2023].

Liew, C.T. (2022). My Say: Ending low pay. [online] The Edge Markets. Available at: https://www.theedgemarkets.com/article/my-say-ending-low-pay [Accessed 15 Feb. 2023].

Shakir, S.A. and Rodzi, R.M. (2022). My Say: TVET as a catalyst for economic growth. [online]

The Edge Markets. Available at: https://www.theedgemarkets.com/article/my-say-tvet-catalyst-economic-growth#:~:text=TVET%20is%20an%20education%20and [Accessed 17 Feb. 2023].

Singh, R. (2023). 50% of Malaysians unable to earn minimum living wage. [online] www.thesundaily.my. Available at: https://www.thesundaily.my/home/50-of-malaysians-unable-to-earn-minimum-living-wage-NG10616847 [Accessed 15 Feb. 2023].