The Muamalat Newsletter Vol.1 2023

15 FEM Newsletter | June 2023 In order to improve workers’ basic needs and social security, Malaysia implemented the minimum wage policy (MWP) in 2013, which aimed to reduce reliance on unskilled foreign labour and move towards capital-intensive structures (Ghee et al., 2015). Since then, the policy has undergone several revisions, with the latest being a 25% increase effective May 1, 2022 (see Table 1). The response to this news has been mixed, with low and middle- income families, particularly those in the B40 income bracket, welcoming the decision as it will help lift them out of poverty. However, micro, small, and medium enterprises (MSMEs), who were already struggling due to the Covid outbreak, were surprised by the increase, with some stating that it would lead to significant cost increases and hinder the positive recovery for 2022 (Azmi, 2022). The industries and other stakeholders appear to be unprepared for this unexpected hike in the minimum wage. Upward revision of minimum wage can bring both positive and negative impacts to businesses and the labour force. Based on past empirical studies, the 2022 MWP hike is likely to result in the following outcomes: 1. Employment impact Research has produced mixed findings on the employment effects of raising the minimum wage (Seow, 2023). Since MSMEs rely more heavily on labour, they are likely to be most affected by a minimum wage increase (MBLS, 2022). Some argue that higher labour costs will eat into the profitability of MSMEs andmay even threaten their survival, resulting in employee layoffs. However, data from the Ministry of Human Resource (MOHR) for the year 2013, when the MWP was implemented, does not show a significant increase in unemployment rates (MOHR, 2013). Similarly, the revision of the minimum wage in 2018 did not result in an increase in MSME layoffs, but rather a steady growth of employment from 6.889 million to 7.106 million in 2018 (DOSM, 2021). According to the March 2023 report from the Department of Statistics Malaysia (DOSM), both the service and manufacturing sectors are experiencing an upward employment trend (DOSM, 2023). 2. Labour competitiveness impact Despite not having the lowest labour costs in Southeast Asia, Malaysia is still an attractive choice for investors due to its political stability, multilingual competence, and skilled workforce. However, the new minimum wage rate is likely to reduce Malaysia’s competitiveness in the low-skilled labour market. In comparison, Jakarta has the highest monthly minimum payment of USD324.80, while the lowest monthly minimum wage in Indonesia is USD126.70 in Middle Jawa. Laos pays only USD88/month for regular staff, whereas Cambodia pays USD194/month (ESCAP, 2022). To ensure business competitiveness, organizations that rely heavily on low-skilled labour may move to other neighbouring countries to better manage their production costs. Impacts ofMinimum WageHike inMalaysia Authors: Flora Anthonysamy & Richard Seow Pole Paris Alternance Business School The minimum wage hike may result in an improvement in labour productivity, well-being, andcompetencyacrossdifferent sectors. “ “