Economists doubt predicted layoffs from minimum wage

Under the Minimum Wage Order 2016, the minimum wage rates in the private sector for Peninsular Malaysia will go up from RM900 to RM1,000 on July 1, while the rates for east Malaysia will be increased from RM800 to RM920. — AFP pic
Under the Minimum Wage Order 2016, the minimum wage rates in the private sector for Peninsular Malaysia will go up from RM900 to RM1,000 on July 1, while the rates for east Malaysia will be increased from RM800 to RM920. — AFP pic

KUALA LUMPUR, May 10 ― Economists have questioned the Malaysian Employers Federation's (MEF) claim that 30,000 workers could lose their jobs when minimum wage is increased this July.

Universiti Malaya's (UM) Dr Lee Hwok Aun pointed out that unemployment figures were not severely affected when the minimum wage policy was first introduced between 2013 and 2014, despite the “dire predictions of employment losses” then.

“We still do not know much about the possible consequences of minimum wage, in terms of job loss, shift from full-time to part-time employment, compliance with the law, and so on, but unemployment data show modest effects overall.

“I do not see the basis for fears this time, moreover when it is an adjustment, not a major change or introduction of something new,” the senior lecturer at UM’s department of development studies told Malay Mail Online when contacted.

Under the Minimum Wage Order 2016, the minimum wage rates in the private sector for Peninsular Malaysia will go up from RM900 to RM1,000 on July 1, while the rates for east Malaysia will be increased from RM800 to RM920.

According to the Statistics Department of Malaysia’s website, the unemployment figures were 391,400 or 3.1 per cent in 2011, 396,300 (3 per cent) in 2012, 424,600 (3.1 per cent) in 2013, 411,100 (2.9 per cent) in 2014 and 450,300 (3.1 per cent) in 2015.

Dr Zakariah Abdul Rashid, executive director of the Malaysian Institute of Economic Research (MIER), said the predicted 30,000 retrenchment figure has “yet to be substantiated”, noting that the National Wages Consultative Council had been careful to take into account the avoidance of job losses in negotiations on the minimum wage rate.

Zakariah expects this July's minimum wage revision to have minimal impact on job losses, pointing out that there are many other factors that may contribute to retrenchments or businesses shuttering.

“To say that because of minimum wage, they have to close shop, I think it's quite difficult to substantiate that claim because close shop or if they want to stop production, it's not because of minimum wage alone, it's because of some other factors,” he said, citing the current economic conditions, low orders or low competitiveness as other possible factors.

Academic Dr Yeah Kim Leng said, however, that the minimum wage hike amid the weak economy may see employers struggling to cope with the increased cost, possibly leading to higher unemployment as existing businesses retrench workers and less jobs are created.

“Given the more than 12 million employed in the country, the 30,000 cited may not be too far off the mark,” the professor of economics at Sunway University Business School said.

He stressed the importance of a government-kept database on the number of workers earning below the minimum wage rate in order to verify such figures and to determine the impact of the minimum wage level on unemployment.

Yeah also said it was important to allow businesses to adjust to rising costs and to avoid closures by gradually increasing the minimum wage in line with general inflation, productivity increases and business profitability.

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