Pros and cons for employees and companies

Pros And Cons For Employees And Companies

Pros And Cons For Employees And Companies

TLDR: Full explainer video available below!

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

As it can be a challenge for micro, small and medium-sized enterprises (MSMEs) to immediately adhere to the new minimum wage, they will have extra time before complying with it.

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

While the 25% jump is definitely cause for celebration, how does the increase 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 rising food and fuel prices.

In the face of these increases, raising the minimum wage would provide a more balanced income for Malaysians.

2. Better economic growth

The increase in the minimum wage means that employees will be able to keep up with living standards as they will have more purchasing power.

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

cons

1. Higher prices for goods and services

Not all employers would be able to meet this standard and pay an additional RM300 every month for every underpaid employee. Of course, there is still some time before companies will have to raise their wages in line with the new minimum wage, but it can still be a challenge.

Employers may also have to offer increments to existing employees who are already earning above the minimum wage, as these employees can expect an increase in pay due to seniority and experience.

Ultimately, this can lead to higher prices for goods and services to offset the profit margin.

2. Companies can downsize

If companies cannot keep up with salary increases, they may end up having to downsize and reduce labor costs.

This is worrying as it would contribute to the unemployment rate in Malaysia, which has yet to return to its pre-pandemic level of 3.3% in 2019.

3. The jump can make the economy worse

The Malaysian Employers Federation (MEF) said the minimum wage of RM 1,500 would only benefit foreign workers.

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

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The future of Malaysia’s minimum wage

Some expressed confusion about the new national minimum wage because the old minimum wage had stipulated a two-tiered approach.

While urban districts fell below the minimum wage of RM1,200, rural districts received a minimum wage of RM1,100.

Having a higher, standardized minimum wage of RM 1,500 will now be beneficial, especially at a time when the price of goods and services seems to be constantly rising.

But it is still important to consider how the increase will affect the wider economy.

Watch our video where we delve into the pros and cons of the RM1,500 minimum wage here:

  • Read other salary-related articles we’ve written here.

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