New wage hike puts more pressure on East Malaysian firms

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Jonathan Chai Voon Tok

KUCHING: The new minimum wage price hike may dampen the economic growth in labour dependent industries such as plantation, construction and manufacturing, all while putting Sabah and Sarawak in a less competitive position compared to Peninsular Malaysia.

The government has standardised the minimum wage for workers in Peninsular Malaysia, Sabah, Labuan and Sarawak at RM1,050, which will be effective come January 1, 2019.

Under the new government’s manifesto, the new minimum wage level is expected to see a growth of 50 to 63 per cent from the level of RM1,000 and RM920 per month in Peninsular and East Malaysia to a standardised level of RM1,500 per month over the next 5 years.

Secretary-general of the Kuching Chinese General Chamber of Commerce and Industry (KGCCI) and Sarawak Business Federation, Jonathan Chai Voon Tok hailed the move as a negative development as he expects it to impact growth and competitiveness of local companies.

“Honestly, I cannot see the rationale for standardizing the minimum wage for the whole country given the fact that we have varying standards of costs of living in different parts of the country.

“The spending power of RM1,050 in Klang Valley is definitely incomparable with that of places like Kota Bahru, Kuantan or other towns in East Malaysia.

“Likewise, with the relatively more expensive materials after taking into the transportation costs, the standardised minimum wages will make the products from Sarawak less competitive,” said Chai, who expected SMEs and traditional family-run businesses in rural areas to be the most impacted by the change.

Concurring with this view, analysts at Public Investment Bank Bhd (PublicInvest Research) pointed out that the effect of the minimum wage hike and standardisation would be different when comparing Peninsular Malaysia to East Malaysia.

“The new minimum wage policy would see negligible impact on plantation players’ operating costs as they are currently providing higher minimum wage levels for their labours – ranging at RM1,200 to RM1,350 per month for basic salary and allowances.

“However, plantation companies that are purely based in East Malaysia is expected to see more pressure as the wage hike locally is significantly higher than their counterparts in Peninsular Malaysia.

“The first tranche of the wage increase due in Jan 1, 2019 represents a 5 per cent or RM50 increase to wages in Peninsular Malaysia and a 14.1 per cent or RM130 increase in East Malaysia.

“In addition, there could be a ripple effect on the entire company workforce as the more senior ranking officers might also demand similar wage growth,” added the research arm.

Besides this, Chai also pointed out that the wage hikes might reduce employment opportunities locally as employers would be slower in getting additional staff with increased cost of business operations in a prevailing deteriorating economy.

Expansion and growth rates in larger companies would likely not be impacted as much, but Chai predicts that they will probably expedite their automated process of production in order to cut labour costs in the long run.

While increased automation would reduce the number of employment opportunities available, some analysts have pointed out that this would not be an entirely negative development as the reduction of jobs would only be to the jobs that are low-skilled with a high percentage of foreign workers.

The reduction of such jobs is expected to reduce our reliance on foreign labour and in turn increase the number higher-skilled jobs available.

While not against an overall increase in minimum wages, Chai argued that the approach that the government has taken might too aggressive in the short-term and very considerate of the different economic circumstances in different regions in Malaysia.

“Ideally, I think there should not be any drastic change in the minimum wage at least for the next couple of years. In addition, the minimum wage should be regionalize and sectorial, having regards to the different costs of living in different areas and different levels of expectations from the employees in different sectors of employment.

“You cannot compare an administrative staff with a factory worker for example,” Chai argued.