Minimum Wage in Malaysia

Minimum Wage in Malaysia was announced by the Prime Minister Najib in the 2011 Budget Speech on 15th October 2010.

Prior to that, research in 2009 found that 33.8% of private sector employees in Malaysia made less than RM700 a month (The Poverty rate back than was RM800, currently it is RM960 for peninsular Malaysia). Median salary in 2010 was RM1480 (RM2160 in 2017).  

First Minimum Wage Order - Effective 1st January 2013

The first minimum wage order was gazetted on July 2012 to be effective from 1st January 2013(except for employers with less than 6 workers, it start on July 2013). The last deferment expired in 31st December 2013.

The first minimum wage stipulated minimum wages for base salary should be as following:

RM900 - Peninsular

RM800- East Malaysia- Sabah & Swak& labuan 

Second - Minimum Wage Order 2016 Effective July 1 2016, the minimum wage would be as following: RM1000- Peninsular RM920- East Malaysia The second minimum wage order was delayed by 18 months. The minimum legislation stipulates that review should be done once every two years. Hence the calculation is already outdated by 18 months. Third Minimum Wage Order Effective 1st January 2019 RM1100 - for entire Malaysia (initially gazetted at RM1050 on October 2018 before it was amended on November 2018) At RM1100, the minimum wage increase by measly 3.4% per year since 2013's RM900. Despite average economic growth of approx. 5% a year since 2013.  The govt sidestepped the National Wages Consultative Council (NWCC) in making this decision. The National Wages Consultative Council is governed by National Wage Consultative Council Act 2011(NWCC Act). It was set-up among others to provide recommendation to the government on new minimum wage level. However the Council hasn't reach consensus on the rate yet. In doing so, the government contravened the National Wages Consultative Act (NWCC) The NWCC Act stipulates that NWCC will provide the government recommendation on minimum wage. Of which if the government disagree, it can redirect the NWCC to provide fresh recommendation. Only upon receiving the fresh recommendation from the NWCC, only then the govt can decide on the minimum wage on its own if it disagreed with the recommendation. The rates proposed to the Council for the 3rd Minimum Wage Order: ·         Technical Committee appointed by National Wages Consultative Council prescribed the following: (RM1270 - Peninsular  RM1170 - Sabah & Sarawak) ·         Malaysian Employer's Federation proposed RM1100(for peninsular) & RM1000 (Sabah&Swak) ·         Malaysian Trades Union Council proposed RM1500 in line with the ruling coalition's manifesto  Robust minimum wage as catalyst for more sustainable growth Robust minimum wage act as insulation against weaker global growth. The first minimum wage was instrumental in ensuring higher than otherwise economic growth in 2013. Despite global economy growth of 3% in 2013 , Malaysian economy registered 4.3% growth on the back of growth in private spending.  Source : BNM Annual Report 2013  In fact, employment grew ordinarily in 2013 and unemployment remained the usual 3%-3.1% during the year. BNM report 2013 observed higher employment growth along with higher wages growth for 2013. Whilst inflation remained modest at 2.1% in 2013 with food inflation at 3.6% (higher food inflation in 2013 mainly due to disruption to food supply due to weather such as flood in east coast of peninsular Malaysia)  BNM Annual Report 2013.  Household income increased by 11.7% per anum before 2013 to after 2013 as indicated below. Source DOSM Household Income & Basic Amenities Survey 2014 DOSM HIS & BA 2014  The first minimum wage order in 2013 is most instrumental in debunking the myth that robust minimum wage would lead to massive job retrenchment and therefore lower economic growth. Apart from the usual boogeyman of unsustained significant price increase. In fact reality is consistent with general economic sensibility whereby higher minimum wage benefit the poor which tend to have higher Marginal Propensity to Consume(MPC). They also tend to spend at SMEs. both increases the size of the multiplier effect. Higher spending increases demand for resources including jobs.

The first minimum wage is also the most. this happen at the time where 1/3 of private sector employees had salary less than RM800. Within one year , 1/3 of private sector employees salaries had to be revised to RM900. Such systematic changes produced positive net effect within short and long term to Malaysia.