The Muamalat Newsletter Vol.1 2023

FEM Newsletter | June 2023 16 3. Foreign labour impact The new MWP has an impact on labour force, particularly in labour-intensive industries that rely on low-skilled workers, such as food and beverage, construction, and agriculture. In Malaysia, these industries predominantly rely on foreign laborers, including workers from Bangladesh, Nepal, and Myanmar, to supplement the low-skilled labour force. The increase in minimum wage can encourage businesses to hire more local workers and reduce their reliance on foreign workers, as demonstrated in 2016 (Tajuddin et al., 2021). However, attracting local workers to some industries, such as construction and agriculture, may prove difficult due to the nature of the work, which involves menial and highly labour-intensive tasks. 4. Productivity impact To compete effectively and ensure long- term viability, companies must focus on labour productivity, which is the value added per worker. According to Sabia (2015), simply raising wages does not guarantee an increase in value-added. Employers should instead consider restructuring their organization and implementing various human resource strategies to reduce waste and maximize resources. The institutional model suggests that companies should aim to improve operational efficiency in order to offset the impact of higher wages (Hirsch, 2011). Training and upgrading employees to perform a variety of tasks can increase productivity while also providing a sense of autonomy. Research has demonstrated a positive correlation between increased wages and productivity (Lee & Yuen, 2015). 5. Labour well-being impact The MWP can lead to higher earnings, especially for those who are directly affected by it, resulting in income stability and increased job commitment, according to the dynamic monopsony paradigm Hall (2012) andRerbov (2012). As theCOVID-19pandemic has caused an increase in the national poverty level to 8.4% in 2020 compared to 5.6% in 2019, an increase in minimum wage is seen as timely and necessary for employees to cope with rising living costs (MOHR, 2022). Households struggled to make ends meet under the old floor wage, especially with the quantum of price hikes in daily groceries. A higher income can also lead to workers staying with their employers longer, thereby increasing their sense of job security. 6. Labour competency impact According to some, the increasing labour costs may lead to a reduction in the training and development of employees by organizations. However, Nuemark et al. (2008) discovered that an increase in the minimum wage did not have a detrimental impact on employee development programs. In fact, companies may choose to increase training for low-wage employees to improve their skills and increase productivity. The Human Resources Development Fund (HRDF) in Malaysia collects a mandated contribution from all businesses to finance staff training and skill upgrades for Malaysian workers. Employers contribute 1% of their employees’ monthly wages to the government- administered HRDF and investment on employee training and development can be reimbursed by HRDF. Thus, an increase in the minimum wage will not harm employee training but will instead increase the amount of HRDF funds available for development purposes. 7. Price increase impact To adjust to an increase in the minimum wage, companies may opt to raise the prices of their products or services, according to Hirsch et al. (2015). Research conducted by Lemos (2006) and Neumark & Nizalova (2007) suggests that a 10% increase in the Region 2013 2016 2018 2020 2022 West Malaysia RM900/month RM4.33/hour RM1,000/month RM4.81/hour RM1,100/month RM5.29/hour RM1,200/month RM5.77/hour (applicable to urban areas- city council & municipal council areas only) RM1,500/ month RM7.21/hour East Malaysia RM800/month RM3.85/hour RM920/month RM4.42/ hour Table 1: Minimum wage in Malaysia over the years (MWO, 2022)