An initial review of the implementation of the Malaysian minimum wage order: A case for a win-win intention, implementation and enforcement

This paper revisits the issues and concerns associated with the implementation of the Malaysian Minimum Wage Order (MWO), 2012 and its impact on the various stakeholders on the cost of doing business. While it is aimed to facilitate the transformation of the Malaysian economy to become a high-income nation, it has generated multifaceted issues. There is a dilemma in MWO implementation if it not applicable to foreign workers, there is notion that employers would have more incentive to displace local workers with foreign labor. In compliance with International Labour Organisation’s convention, the minimum wage policy covers all workers, and with the definition of wages which excludes most of the allowances, businesses were impacted by rising cost of doing business. Using results of two surveys undertaken by two trade associations, this paper revisits the issues and concerns associated with the minimum wage (MW) order and its impact on the various stakeholders on the cost of doing business. Based on the Small and Medium-sized Enterprises (SMEs) Survey 2013 conducted by the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) in 2013 with 772 respondents and the impact assessment survey conducted by the Malaysian Plastics Manufacturers Association (MPMA) in early 2014. This study focuses on the impact of the increase in the labor cost, a major component of production cost, as a result of MW implementation. Malaysia has among the highest minimum wage rates in the ASEAN region, along with Philippines and Thailand. The multiplier effects of the minimum wage that poses upside risk to another cost-push factor, leading to higher cost of living, hence defeating the goals of the minimum wage policy. It is timely to re-address the dilemma issue of minimum wage setting from the real business situation. Malaysian Government should establish some benchmarks or studies on the minimum wage effects on the cost of doing business and its interaction with other policies or fundamental changes such as the implementation goods and sales tax (GST) in 2015, the rationalisation of subsidies and the cash hand-outs schemes to reduce the people’s burden of subsidy reductions. Review or readjustment of minimum wage rate should be actual evidence, or substantiation from reliable industry findings and with more balanced approach taking into cognizance the productivity and readiness of the business sector to comply with the minimum wage mandate.