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.