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How will this affect the economy?

A World Bank study concluded that a minimum wages rate of less than RM1,000 per month or RM4.88 per hour would not significantly affect firms, employment, foreign direct investment or migrant flow into the country. More money in the hands of private consumers should boost private consumption.

According to Bank Negara Malaysia (BNM), the minimum wages policy “is expected to have a positive impact on the Malaysian economy”. BNM anticipates that the impact on business costs will be minimal as it will be mitigated by improvements in productivity.

“Given that low-wages households tend to have a higher marginal propensity to consume, the increase in the incomes of the affected employees can be expected to result in higher consumer spending and economic activity.”

[Bank Negara Malaysia Annual Report 2012]

Nonetheless, the government recognises that Malaysian employers may face challenges as they adjust to the new wages policy. Despite this, the policy represents a step in the right direction for Malaysia as it joins the ranks of some 150 countries with minimum wages policies already in place.

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Why did Malaysia Implement a Minimum Wages Policy?

  • A study conducted in 2009 showed that 33.8% of workers in the private sector earned less than RM700 per month, relative to the country’s Poverty Line Income (PLI) level of RM800. One of the key goals of the Minimum Wages Policy is to ensure that all employees in Malaysia earn more than the PLI as the country transforms into a high-income nation.
  • The implementation of the Minimum Wages Policy supports Malaysia’s ambition to become a high-income nation by setting floor wages for all employees in Malaysia. Given the significant number of employees in the country who earn less than minimum wages, the new initiative is expected to boost gross national income.
  • The Minimum Wages Policy will also encourage employers to move up the value chain by increasing the productivity of their employees through the use of technology and other innovations.
  • The establishment of a floor wage for all employees in Malaysia will ensure that all layers of Malaysian society enjoy the fruits of development, which in turn will spur further consumption and economic activity.

For more information, please consult our FAQ.

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