The pros & cons of Malaysia’s RM1,500 minimum wage for employees & businesses

TLDR: Full video explainer available below!

As of May 1, 2022, the minimum wage in Malaysia is RM1,500, an increase from the previous RM1,200, which was the standard since February 1, 2020. This amendment applies to government-linked companies and private sector companies with a minimum of five workers. 

Since it may be challenging for micro, small, and medium-sized enterprises (MSMEs) to immediately adhere to the new minimum wage, they will be given extra time before having to comply with it.

According to Datuk Seri M. Saravanan, the Minister of Human Resources, the exemption for MSMEs will last for about two years. 

While the 25% jump is definitely cause for celebration, how does the increment really affect the local workforce, employers, and the economy? Here are some pros and cons of the RM1,500 minimum wage. 

Pros

1. Better quality of life

Based on government data released in January 2022, the local consumer price index (CPI) rose 3.2% in December 2021 compared to 2020, due to an increased price of food and fuel. 

Given these hikes, the increase in the minimum wage would provide a more balanced income for Malaysians. 

2. Better economic growth 

The increased minimum wage means employees will be able to keep up with the standards of living, since they’ll have more spending power.

This should then lead to higher consumption, which in turn leads to economic growth. 

Cons

1. Higher prices of goods and services

Not all employers would be able to meet that standard and pay an additional RM300 every month to each underpaid employee. Of course, there is still some time before businesses have to up their wages as per the new minimum wage, but it can still be a challenge. 

Employers might also have to offer increments to existing employees who may already be earning above the minimum wage as these employees may expect a boost in remuneration due to seniority and experience. 

Ultimately, this might lead to higher prices of goods and services to make up for the profit margin. 

2. Companies may downsize

If companies are unable to keep up with the increased wages, they may end up having to downsize and reduce labour costs.

This is worrying as it would contribute to the unemployment rate in Malaysia, which still hasn’t gone back to the pre-pandemic figure, which was 3.3% in 2019.

3. The jump might worsen the economy 

The Malaysian Employers Federation (MEF) said that the RM1,500 minimum wage would only benefit foreign workers. 

The argument is based on the assumption that the workers would end up sending more money back home instead of spending the earnings in Malaysia. 

The future of Malaysia’s minimum wage 

Some expressed confusion over the new nationwide minimum wage because the former minimum wage had stipulated a two-tiered approach.

While urban districts fell under the minimum wage of RM1,200, rural districts were given a minimum wage of RM1,100. 

Having a higher and standardised minimum wage of RM1,500 now will be beneficial, especially in a time where the price of goods and services seems to always be rising.

But, it’s still important to consider how the increase will impact the economy in the bigger picture. 

Watch our video where we go more in-depth on the pros and cons of the RM1,500 minimum wage here: