The high cost of minimum wage

MEF talks on behalf of oil palm planters in Peninsular Malaysia, Sabah and Sarawak.

Planters, especially smallholders who depend on contractors hiring foreign workers to harvest fresh fruit bunches, are feeling the brunt of the minimum wage policy. This is because their income has dwindled as palm oil in the futures market continue to trade at a low price band of between RM2,200 and RM2,500 per tonne, in the last four months.


PETALING JAYA: Food inflation and higher outflow of money are the consequences of the implementation of the minimum wage law, which came into force four weeks ago.

From January 1, employers must pay a minimum wage of RM900 a month in Peninsular Malaysia and RM800 a month in Sabah, Sarawak and Labuan.

In an interview with Business Times here recently, Malaysia Employers Federation (MEF) executive director Shamsuddin Bardan estimated that foreign workers, on average, send back some RM700 each month, which is half of their take-home pay that include overtime claims.


"With a conservative estimate of two million foreign workers here, that works out to be RM1.4 billion flowing out of Malaysia to their home countries every month.

"Starting this year, with the blanket implementation of the minimum wage law, the outflow of money from Malaysia is likely to swell to RM2.1 billion every month," he said.

The government's decision to introduce the monthly minimum wage, as part of its efforts to propel Malaysia into a high-income nation, may also result in higher food bills.

Right now, employers in food and beverage businesses have yet to feel the brunt of the minimum wage law. 

"Come July 1, they will no longer be exempted. Small entrepreneurs such as restaurant hawkers, wet market and stall operators will then seek to pass on the extra cost by raising food prices. That is when we will experience costlier teh tarik and roti canai," Shamsuddin said.

Another side effect of the blanket implementation of the minimum wage law is that local workers' interests are being undermined. "A Malaysian gets the same basic wage of RM900 but a foreign worker enjoys free housing, water, electricity and transport. For the same minimum wage, a local does not enjoy these benefits," he said.

In view of this, the MEF is appealing to the government that such subsidies and benefits as provided by employers be included in the minimum wage to rebalance the interests of local workers.

Members of the Malaysia Corrugated Carton Manufacturers' Association (MCCMA), which are predominantly small and medium enterprises, have seen half of their profits shaved off as a result of the minimum wage law.

"We are at a crossroad. How are we going to survive? Those who are not financially strong will have no choice but to close shop and relocate to a more competitive and business-friendly environment like Myanmar," MCCMA chairman Henry Low reportedly said.

Similarly, the Malaysian Rubber Glove Manufacturers Association (Margma) said in a statement the minimum wage law had forced glovemakers to increase glove pricing by up to 7 per cent.

"The direct cost on labour will add another US$1.25 (RM3.80) per 1,000 pieces of gloves. We hope our overseas customers will be able to accept the costlier pricing," said Margma president Lim Kwee Shyan.

Shamsuddin said if the government allows employers to factor amenities costs into the minimum wage, the money will be spent in Malaysia instead of being repatriated to the foreign workers' home countries.

Apart from easing employers' burden, the move will have a multiplier effect on Malaysia's economy as it will generate higher domestic demand for house rentals, food and beverages, and public transportation, he said.

Shamsuddin noted that since April 2009, employers have been made to pay foreign workers' levy to the government. "The government imposes foreign worker levy as a form of income tax it is entitled to collect. Since local workers pay income tax, it is only right that foreign workers do the same, too," he said.

Separately, the Malaysian Trades Union Congress (MTUC) Sarawak Division secretary Andrew Lo, in a statement, said "the proposal to include amenities costs would encourage unscrupulous employers to continue to employ more foreign workers at huge social, security and cost to the country." The MTUC is the umbrella body representing workers in the private sector.