MINIMUM WAGES POLICY: A GAME CHANGER FOR MALAYSIA... by

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1 MINIMUM WAGES POLICY: A GAME CHANGER FOR MALAYSIA... by T. SHANMUGAM SECRETARY NATIONAL WAGES CONSULTATIVE COUNCIL (NWCC) MINISTRY OF HUMAN RESOURCES, MALAYSIA shan@mohr.gov.my NATIONAL ECONOMIC OUTLOOK CONFERENCE : LABOUR MARKET AND INCLUSIVE GROWTH November 2017 Intercontinental Hotel, Kuala Lumpur

2 SCOPE OF PRESENTATION 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 2

3 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). 3

4 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 4

5 OBJECTIVES AND RATIONALE FOR A MINIMUM WAGES POLICY IN MALAYSIA 5

6 NEW ECONOMIC MODEL (NEM) 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 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. 6

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8 Low wage- A SIGNIFICANT PERCENTAGE LOW-INCOME WORKERS IN MALAYSIA 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. Sabah Peninsular Malaysia Sarawak Source: NER 2009 National Average = 33.8% 8

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10 FACTS IN THE LABOUR MARKET The slow growth of wages relative to labour productivity in Malaysia (wage rate increases about 2.6% annually compared to productivity rate of 6.7%) shows the suppression of wages, especially those of low skilled workers & inefficiencies in the labour market. World Bank

11 OBJECTIVES OF MINIMUM WAGES to ensure basic needs of workers and their families are met; to provide sufficient social protection to workers; Objectives 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. 11

12 MINIMUM WAGES FIXING CRITERIA CRITERIA JUSTIFICATION BASE Poverty Line Income (PLI) Median Wage Changes in Consumer Price Index (CPI) determine the basic needs of the worker and his / her family a point of reference for employers ability to pay An indicator to reflect changes of cost of living ADJUSTMENT CRITERIA Productivity Growth (P) Real Unemployment Rate (UE) Re-aligning productivity growth with wage increase to ensure wage increase do not hamper the market ability to create and retain employment 12

13 ENFORCEMENT INITIATIVES Labour Inspections (on Minimum Wages compliance) Up to 31 August 2017, a total of 150,525 labour inspections were done & out of this number, 148,072 employers or (98%) employers have paid the minimum wages as per the Order. 13

14 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. 14

15 WAY FORWARD Malaysia ratified ILO Convention 131 in June MW policy is an aspiration of Government to transform the economy by year 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. 15

16 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. 16

17 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) 17

18 THANK YOU