MINIMUMWAGESPOLICY:AGAMECHANGERFORMALAYSIA

.......................................................by

T.SHANMUGAMSECRETARY

NATIONALWAGESCONSULTATIVECOUNCIL(NWCC)MINISTRYOFHUMANRESOURCES,MALAYSIA

shan@mohr.gov.my

NATIONALECONOMICOUTLOOKCONFERENCE2018-2019:LABOURMARKETANDINCLUSIVEGROWTH

21-22November2017IntercontinentalHotel,

KualaLumpur

�  Introduction

�  Background of Minimum Wages (MWs) in

Malaysia

�  Objectives & Rationale for MWs in Malaysia

�  NWCC Act 2011 & Minimum Wages Order

�  Challenges and Issues

�  Way Forward

�  Conclusion

SCOPE OF PRESENTATION

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INTRODUCTION

"   More than 90% countries in the World have MWs in various forms;

"   In ASEAN all countries have MWs, except Brunei & Singapore;

"   No single same definition of MWs; "   MWs is not a new phenomenon in Malaysia;

"   Previous Legislation – Wages Council Act 1947;

"   Replaced by the National Wages Consultative Council Act 2011 (Act 732).

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NWCC Act 2011 (Act 732)

"   Establishment of a Council

"   Functions & Role of the Council;

"   Making of the Minimum Wages Order;

"   Investigation & Enforcement aspects

"   Offences & Penalties

"   Cabinet is the final decision-making body with regard to MW in Malaysia

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OBJECTIVES AND RATIONALE FOR A MINIMUM WAGES

POLICY IN MALAYSIA

Malaysia aims to become a high-income nation that is both inclusive and sustainable by 2020

High-income •  A high-income economy is defined by the World Bank as a country

with a Gross National Income per capita of $12,196 or more in 2009.

Inclusiveness

•  No groups will be marginalized and the essential needs of the rakyat will be satisfied.

•  Minimum wages will help the working poor which including those under the category of bottom 40% household earned less than RM1,500 per month.

Sustainability

•  The minimum wages implementation seeks to improve the labour market efficiency where employers now have an upper hand in bargaining power than workers in determining wages.

•  With minimum wages, workers and employers will have a more balanced in bargaining over wages, leading to a economically sustainable wages growth.

NEW ECONOMIC MODEL (NEM)

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…

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Low wage- A SIGNIFICANT PERCENTAGE LOW-INCOME WORKERS IN MALAYSIA

National Average = 33.8%

Sabah

Sarawak Peninsular Malaysia

Source:NER2009

The National Employment Returns 2009 study conducted by the MoHR shows that 33.8% of the private sector workers earned wages less than RM700 per month, well below the 2007 POVERTY LINE INCOME of RM720 per month.

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FACTS IN THE LABOUR MARKET

The slow growth of wages relative tolabour productivity in Malaysia (wagerate increases about 2.6% annuallycompared to productivity rate of 6.7%) –shows the suppression of wages,especially thoseof lowskilledworkers&inefficienciesinthelabourmarket.

WorldBank2011

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OBJECTIVES OF MINIMUM WAGES

•  to ensure basic needs of workers and their families are met;

•  to provide sufficient social protection to workers;

•  to encourage industry to move up the value chain by investing in higher technology and increase labour productivity; and

•  to reduce nation’s dependence on unskilled foreign labour.

Objectives

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MINIMUM WAGES FIXING CRITERIA

CRITERIA JUSTIFICATION

BASE

Poverty Line Income (PLI)

determine the basic needs of the worker and his / her family

Median Wage a point of reference for employers ability to pay

ADJUSTMENT CRITERIA

Changes in Consumer Price Index (CPI)

An indicator to reflect changes of cost of living

Productivity Growth (P) Re-aligning productivity growth with wage increase

Real Unemployment Rate (UE)

to ensure wage increase do not hamper the market ability to create and retain employment

ENFORCEMENT INITIATIVES

Labour Inspections (on Minimum Wages compliance)

Up to31August2017,atotalof150,525labourinspectionsweredone&outofthisnumber,148,072employersor(98%)employershavepaidthe

minimumwagesaspertheOrder.

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CHALLENGES

§  Separate MWs for Foreign Workers.

§  MWs in SMEs & Micro-enterprises.

§  Same MWs rate throughout the country.

§  MWs increases labour cost/ operation cost for employers, esp. labour intensive employers.

§  Ripple effect on other workers-mid management.

§  Opposite extreme between workers and employers demands.

§  Shortage of enforcement officers.

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WAY FORWARD

§  Malaysia ratified ILO Convention 131 in June 2016.

§  MW policy is an aspiration of Government to transform the economy by year 2020.

§  Short term – higher cost of doing business are expected.

§  Medium & Long term - will augment the transformation of the economy.

§  C r e a t e d M y M P G N I d e a i n http//:minimumwages.mohr.gov.my – to obtain ideas and views for next review.

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CONCLUSION

§  Minimum wages is new in Malaysia.

§  Challenges / Hiccups are inevitable.

§  Businesses, especially SMEs need to revisit their business model and wage structures.

§  Government is committed to ensure success of the MWs policy – taking stock of strong tripartite arrangements in Malaysia.

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QUOTE

“ Minimum wages is here to stay for good and there is no turning back”

by

YB Dato’ Sri Richard Riot Anak Jaem, Minister of Human Resources

Malaysia (25 June 2013)

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THANK YOU