World Bank’s Report on Malaysian Minimum Wages
In view of the near-nonsensical discussion in the media on minimum wage by Barisan Nasional elected representatives, I decided to release my copy of a confidential report by the World Bank to the Malaysian Government entitled “Optimal design for a minimum wage policy in Malaysia.”
I am encouraged to do so by Kota Belud MP Abdul Rahman Dahlan, who on twitter claimed that he had “checked wt Ministry of Human Resources thru @PKamalanathan. WorldBank report on min wage is not classified as u alleged!”
Pakatan Rakyat had repeatedly called on the Government to release the World Bank report but to no avail.
The World Bank document shows that the impact of a minimum wage, whether it is at RM900 or RM1,100, on most sectors is minimal, except in the low-end manufacturing (Pg.12), which the Government should assist through other means such as facilitation to move from labour intensive to technology and skills intensive operations.
The Report also shows that the implementation of a minimum wage has very little impact on the decision of investors as labour cost is but a small fraction of total investment. “Location-specific characteristics such as infrastructure and the regulatory environment are the main drivers of FDI (Pg. 13),” according to the report.
The Report suggests that a minimum wage reduces the relative attractiveness of foreign unskilled workers to the employers. Demand for foreign workers declined when a minimum wage policy, especially at levels above RM900, is adopted (Pg. 69).
“Firms will be inclined to substitute (with) medium-skilled native workers since the wage gap between the natives and migrants will have narrowed considerably with the implementation of minimum wage legislation (Pg. 72)”
The Report shows the simulated impacts on the economy when minimum wage is implemented at various levels (Pg 97) and on various sector (Pg 100). The conclusion is loud and clear: that the negative impact of a minimum wage at RM1,100 on the economy is almost nil while such policy helps reduce dependence on unskilled foreign labour.
That calls into question why the Barisan Nasional Government is not setting minimum wage at RM1,100, as proposed by Pakatan Rakyat.
Liew Chin Tong