Sector-based minimum wage hard to implement, say experts


The government’s plan to implement a sectoral-based minimum wage policy to replace the existing blanket regulation may be unfeasible, according to experts.

Last week, Human Resources Minister M Kulasegaran said sectoral- based minimum wages would be more realistic than the current standard minimum of RM1,100 across all sectors, and that a revision on the proposed policy would commence soon.

Institute for Democracy and Economic Affairs director Laurence Todd said the implementation of a complex minimum wage system poses an information and communication challenge.

“The mechanism to set sectoral wages will be complicated. How many different rates will there be? For example, will cafés have to pay more than retail stores? Enforcement will also be very difficult as the government would only be able to audit in some cases,” he told The Malaysian Reserve.

He said the new mechanism may also create distortions as the government would artificially alter the cost of doing business by incentivising investment in some sectors and not others.

“My understanding is that the government will lower the minimum wage in some sectors, in response to concerns from the industry on the pace of the recent increase. I understand that the government is still considering the mechanism, it may be that they (the authorities might go back) to the previous structure,” Todd said.

The government had standardised the minimum wage for the private sector across the country as of Jan 1, 2019. The new minimum wage is set at RM1,100 per month (about RM5.29 per hour) from RM1,000 for Peninsular Malaysia and RM920 for Sabah, Sarawak and the Federal Territory of Labuan.

The new mechanism is enforced via the National Wages Consultative Council (NWCC) Act 2011. Prior to the NWCC Act, the minimum wage concept was guided by the Wages Council Act 1947.

Under the earlier legislation, several wages regulation orders were gazetted for selected occupations such as minimum wages for employees in catering, hotels and cinemas; stevedores and cargo handlers; shops; and security guards.

The amount of minimum remuneration also varied based on locality with Penang, Selangor, Southern Johor and the Federal Territories of Kuala Lumpur and Putrajaya given the highest basic wage bracket.

However, the mechanism under the Wages Council Act 1947 was described as long, tedious and generally ad hoc in nature. It was eventually replaced with the NWCC Act 2011.

According to Sunway University Business School economist Prof Dr Yeah Kim Leng, a reversion to the previous practice of minimum wage setting may be beneficial to strike a balance between wage level and unemployment, as well as wage income and cost of living at the local level.

“There are pros and cons of a national versus sectoral- and geographical-based minimum wages to cater for on-the-ground economic variation.

“It is likely that the minimum level will go down to accommodate those regions or sectors where the cost of living is lower and wages can be reduced to spur employment, business growth and investment,” Yeah said.

Meanwhile, Malaysian Employers Federation (MEF) ED Datuk Shamsuddin Bardan opined that employers are still grappling with the recent wage hike.

He said the move had forced many businesses, especially micro-enterprises in non-urban areas, to cease operations.

“The minister was right when he said that some sectors will not be able to survive with the RM1,100 minimum fee, but the challenge is, how are you going to introduce a lower minimum wage now that you’ve set RM1,100 as a basic minimum?” he asked.

The MEF is involved in the government’s tripartite meetings which also include the Malaysian Trade Union Congress.

Shamsuddin said there is a possibility that some of the categorisation in the Wages Council Act 1947 could be reimplemented.

“This is something that the minister is thinking of having. If you look at other countries in the region — Indonesia, the Philippines and Thailand — they go on that basis. For example, Metro Manila has a different rate compared to Cebu,” he added.