Economist: Minimum Wage Rise Isn’t a One-Size-Fits-All Solution

According to an economist, increasing the minimum wage for workers now could be "tricky," as it depends on living costs and the economy's recovery, which the pandemic has slowed.

 

"Not a one-size-fits-all solution"

Dr. Aimi Zulhazmi Abdul Rashid, an economist at UniKL Business School, said that raising the minimum wage is not a one-size-fits-all solution because it depends on the variable of expenses adopted for the cost of living, such as transportation mortgage, rental, and the price of food items.

He went on to say that the expense of living in urban regions such as the Klang Valley, Johor Baru, Penang, and other large cities is well known to be higher on average and rising year after year.

Although it is widely assumed that the cost of living in a city is higher than in a rural location, this may not be the case in some places.

In terms of economics, Dr. Aimi Zulhazmi explained that the increased income against the higher cost of living results from demand versus supply.

The MPGN will release its report on Minimum Wage Order to the public early next year.

Rising living costs vs. wage

The minimal household income in metropolitan areas has been surpassed by rising living costs, which can be linked to various factors such as soaring inflation rates and the weakening of the local currency, which has resulted in a price spiral.

He stated that although the issue is widespread, the economic impact of the pandemic is reflected in wage levels, since unemployment rates have risen and businesses have shuttered.

According to data from the Department of Statistics Malaysia (DoSM), there was an additional 12.5% of households in Malaysia with a monthly income of less than RM2,500 in 2020.

He said the DOSM data highlighted the unequal distribution of living costs in tandem with higher wage levels associated with urban vs. rural areas.

He added that the first course of action is to address the living costs.

 

National Wages Consultative Council on minimum wage

Last Friday, Human Resources Minister Datuk Seri M Saravanan said that the National Wage Consultative Council (MPGN) is still debating whether to retain or increase the minimum wage rate before presenting it to the Cabinet.

At the MPGN meeting last Thursday, he said the National Wage Legislative Technical Committee presented the findings and recommendations of the Impact Study and Review of the Minimum Wages Order 2020.

Among the topics covered during the meeting was the employers' proposal to keep the present minimum wage rate, while the employees recommended an increase.

Based on the National Wages Consultative Council Act 2011 (Act 732), the government must review the Minimum Wages Order at least once every two years.

On February 1, 2020, the Minimum Wage Order went into force.

 

MEF: minimum wage increase will slow down economic growth.

According to the Malaysian Employers Federation (MEF), raising the minimum wage will hinder economic growth.

It said that any increase in minimum wages would sabotage economic recovery efforts and derail the 12th Malaysia Plan's programmes.

It went on to say that the pandemic's enormous reduction in performance across all economic sectors led to a 5% contraction in Malaysia's economy in 2020.

MEF president Datuk Dr. Syed Hussain Syed Husman said that due to various cost-cutting measures implemented by companies, median salaries fell to RM1,988 in 2020 from RM2,442 in 2019, and average wages fell 9% to RM2,933 in 2020 from RM3,224 in 2019.

He said the bleak economic outlook leaves no room for an increase in existing minimum salaries at this time.

 

Source: The Malaysian Reserve

 

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