early effects & challenges of minimum...

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National Minimum Wage: Symposium & Policy Round Table

Johannesburg, South Africa 2 – 4 February 2016

Ministry of Human Resources Malaysia

EARLY EFFECTS & CHALLENGES OF MINIMUM WAGES IN MALAYSIA: SHARING OF PRE & POST ECONOMIC & SOCIAL INDICATORS by T. Shanmugam Secretary National Wages Consultative Council Malaysia

MoHR

Outline of Presentation

Part 1: Summary on Malaysia & Minimum Wages (MWs) in Malaysia Part 2: Economic Indicators (Pre & Post MWs)-

a.  Salaries & Wages b.  Mean Wages c.  Share of CE to GDP d.  Unemployment Rate e.  Labour Force Participation Rate f.  Productivity Growth g.  Poverty Line Income h.  Income Inequality (Gini Coefficient) i.  Consumer Price Index j.  Foreign Direct Investments (FDI) (k-n) Insolvent Companies, etc (o-s) Complaints, Claims, Trade Disputes, etc

Part 3: Challenges of Implementing MWs in Malaysia Part 4: Summary Part 5: Conclusion Part 6: Moving Forward & Suggestions 2

3

Part 1: Summary on Malaysia (2015) Political System : Parliamentary Democracy with Constitutional Monarchy Economy : GDP: RM877.2 billion GDP Growth: 6.0% Unemployment rate: 3.0% Labour Force: 14.4 million Inflation Rate : 3.0% Per Capita Income : US$9,914 Climate: Tropical, annual monsoon Area: 330,290 km2

Religion: Islam, Buddhist, Hindu & Christian Ethnic Groups: Malay, Chinese, Indians & Others

Population : 30.6 million Capital : Kuala Lumpur Admin Capital : Putrajaya Official Language : Bahasa Malaysia

4

OBJECTIVES OF MINIMUM WAGES

•  to ensure basic needs of workers and their families are met;

•  to provide sufficient social protection to workers;

•  to encourage industry to move up the value chain by investing in higher technology and increase labour productivity; and

•  to reduce nation’s dependence on unskilled foreign labour.

Objectives

1.   Minimum Wages (MWs) is “basic wages”.

2.   MWs does not include allowances & value of non-‐monetary benefits.

3.   Handholding employers throughout year 2013.

4.   MWs Order 2012 consists of:

5.   SMEs given blanket deferment in 2013 (for foreign workers only).

6.   July 2015-‐ GazeQe of addiRonal tax rebate for SMEs for addiRonal cost for payment of minimum wages in 2014.

Summary on MWs in Malaysia

Later commencement date for micro employers @ 1 July 2013

ApplicaRon for deferment

Clause for restructuring of wages

(with consent) from union/workers

Reduced rate for probaRoners

Non applicaRon for DomesRc Worker

Commencement for non-‐micro employers on 1 January 2013

RM900 (US$217) for Peninsular Malaysia RM800 (US$193) for

states of East Malaysia

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6

MINIMUM WAGES FIXING CRITERIA

CRITERIA JUSTIFICATION

BASE CRITERIA

Poverty Line Income (PLI)

Determine the basic needs of the worker and his / her family

Median Wage A point of reference for employers ability to pay

ADJUSTMENT CRITERIA

Changes in Consumer Price Index (CPI)

An indicator to reflect changes of cost of living

Productivity Growth (P) Re-aligning productivity growth with wage increase

Real Unemployment Rate (UE)

To ensure wage increase do not hamper the market ability to create and retain employment

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MINIMUM WAGES FIXING FORMULA FOR MALAYSIA

MW = Minimum Wages (RM) PLI = Poverty Line Income (RM) P = Productivity growth (%) CPI = Consumer Price Index (% change) UE = Real Unemployment Rate (%)

= (Unemployment rate – 4%) i = Region (Peninsular Malaysia, Sabah and

Sarawak)

Part 2 : Economic Indicators (Pre & Post MWs)

8

1100

1200 1206

1300

1000

1050

1100

1150

1200

1250

1300

1350

2011 2012 2013 2014

Malaysia

Source : Department of Statistics Malaysia (DOSM)

Ringgit Malaysia (RM)

(a) Salaries & Wages: Malaysia

Minimum Wages 1.1.2013

9

(b) Mean Wages : Malaysia

Source : Department of StaRsRcs Malaysia (DOSM)



0

500

1 000

1 500

2 000

2 500

2011 2012 2013 2014

1 814 1 916 2 052 2 231

10

(c) Share of Compensation of Employees to GDP (%) : Malaysia

Source : Department of StaRsRcs Malaysia (DOSM) and Economic Planning Unit (EPU), Malaysia


(%)

11

(d) Unemployment Rate : Malaysia

2.8

2.85

2.9

2.95

3

3.05

3.1

20112012

20132014

3.1

3.0

3.1

2.9



(%)

12

Source : Department of StaRsRcs, Malaysia (DOSM)

(e) Labour Force Participation Rate : Malaysia

Malaysia

62.0

64.0

66.0

68.0

20112012

20132014

64.4 65.5 67.067.5


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Source: Malaysian ProducRvity CorporaRon (MPC)

(f) Productivity Growth : Malaysia

1.9 1.8

0.9

3.5

0

0.5

1

1.5

2

2.5

3

3.5

4

2011 2012 2013 2014

Malaysia


14

Source : Economic Planning Unit, Malaysia (EPU)

(g) Poverty Line Income : Malaysia


Years


753

800

861

950

0 200 400 600 800 1000

2007

2009

2012

2014

15

(h) Income Inequality (Gini Coefficient) Malaysia’s Gini coefficient series shows a clear downward trend in

household income inequality from 2004 to 2014. In 2014, Income Inequality plunged to the lowest level which reflects a positive trend.


3.2

1.6

2.1

3.2

0

0.5

1

1.5

2

2.5

3

3.5

2011 2012 2013 2014

Malaysia

Malaysia



Years

( % )

(i) Consumer Price Index : Malaysia

17


(j) Foreign Direct Investment : Malaysia


Malaysia 0

10 000

20 000

30 000

40 000

2011 2012 2013 2014

37 325

28 537

38 175 35 344 Million


18

(k) Insolvent Companies : Malaysia

Source: Department of Insolvency


19

(L) New Foreign Company Registered : Malaysia

47

75 72

59

0

10

20

30

40

50

60

70

80

2011 2012 2013 2014

Source: Companies Commission of Malaysia (SSM)

Total


20

(m) New Local Companies Registered : Malaysia

45,408 45,366

46,289

49,144

2011 2012 2013 2014

2011 2012 2013 2014



21

(n) Companies Closed Operation & Left Malaysia



0

5,000

10,000

15,000

20,000

25,000

30,000

2011 2012 2013 2014

20,121 20,38018,161

26,966

Total

22

1 389

453

0

200

400

600

800

1 000

1 200

1 400

1 600

1 2 2015 2014 Year

(o) Complaints Relating to Minimum Wages (2014 & 2015)

Source : Secretariat, NWCC

Reduced by 67.38 %

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No. of Complaints Filed

1 111

618

0

200

400

600

800

1 000

1 200

1 2 2014 2015 Year

(p) Claims Relating to Minimum Wages at Labour Court (2014 & 2015)


Reduced by 44.37 %

24

No. of Claims Filed

No. of Cases Filed 46

10

0 5 10 15 20 25 30 35 40 45 50

1 2 2014 2015 Year

(q) Trade Dispute Cases Relating to Minimum Wages (2014 & 2015)


Reduced by 78.26 %

25

81 200 80 028

1 172 0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

90 000

No. of InspecRon No. of Compliance No. of Non-‐Compliance

99% complied No. of Companies

1% not complied

(r) Minimum Wages Statutory Inspection (2014 & 2015)

Source : Secretariat, NWCC 26

(s) Prosecutions Relating to Minimum Wages (2014 & 2015)

Source : Secretariat, NWCC 27

Part 3: Challenges of Implementing MWs in Malaysia

1.   MWs for micro employers.

2.   Separate MWs for foreign workers.

3.   MWs for disabled workers.

4.   MWs for workers in Non-‐Profit EnRRes (NPEs), Welfare Homes and Senior CiRzen.

5.   MWs for hotel workers @ service charge components.

6.   MWs for workers in privaRzed government contracts.

7.   MWs increases cost of labour for employers.

8.   MWs is too low from Workers point of view!

9.   MWs is too high from Employers point of view!

10.   MWs should also apply equally to DomesRc Workers!

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PosiRve Vibes: Increase in Wages & Salaries; Increase in Mean Wages; Increase in CE share to GDP; Reduced Unemployment Rate; Increase in LFPR; Increase in ProducSvity growth; Increase in PLI; Reduced Gini Coefficient Indices; Lesser number of companies become Insolvent; Increase in number of local companies RegistraSon; Reducing trend of complaints, claims from Workers and etc….

NegaRve Vibes: CPI increased; FDI reduced; Drop in registraSon of foreign companies; Increase in companies closing down and leaving Malaysia.

cont….

Part 4: Summary

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1.   MWs is to transform the Malaysian Economy / Labour Market by 2020.

2.   MWs is sRll new in Malaysia beginning January 2013.

3.   Challenges and hiccups are inevitable – addressed in triparRte manner.

4.   Short term effect– higher cost of doing business.

5.   Long term effect – will augment in transforming the economy.

cont….

Part 5: Conclusion

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6. Government of Malaysia is commiQed to ensure success of the MWs policy-‐ taking stock of exisRng triparRte arrangements in Malaysia.

7. SMEs (including micro employers) need to revisit their business model/ wage structure.

8. No significant negaRve effect of 2012 MWs Order.

9.   2016 & 2017? -‐ Global Economic gloom?; depreciaRon of Ringgit Malaysia (RM) against US Dollars (US$)?; China’s economy slowdown and DepreciaRon of oil price in world market?

Conclusion (cont…)

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1.   REVIEW OF THE MWO 2012: January 2016 – Completed review of 2012 MWs Order @ New Order expected by March 2016 to take effect on 1 July 2016.

New MW rate (pending GazeQe soon): (i) From RM900 (US$217) in Peninsular Malaysia to RM1,000 (US$241)

(11% increase) and from RM800 (US$193) in East Malaysia to RM920/ (US$222) (15% increase).

(ii) Removal of deferment applicaRon clause; clause on reduced rate for

probaRoners and clause on restructuring of wages.

(iii) DomesRc workers remain excluded.

(iv) Introduced MW for piece rated, task work, trip, commission and tonnage based paid employees.

Part 6: Moving Forward & Suggestions

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2. Success of MWs policy lies in effecRve enforcement.

3. Capacity building of enforcement officers. 4. Increase in number of enforcement officers.

5. Get professional / External advice (i.e. World Bank / ILO etc)

6. No ‘one size fits all’ model on Minimum Wages.

7. Advisable to adopt a ‘balanced approach’ for first Rme implementaRon.

8. MWs should be based on empirical data and reality of economic indicators.

cont… Part 6: Moving Forward & Suggestions

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“Minimum wages is here to stay for

good and there is no turning back”

Commitment by Hon. Richard Riot Anak Jaem

Ministry of Human Resources Malaysia

on 25 June 2013

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Commitment b

THANK YOU Email add.: [email protected]

http://minimumwages.mohr.gov.my/

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