Who gains from the minimum wage hike in Malaysia?

Authors: Kevin Zhang and Tham Siew Yean, ISEAS-Yusof Ishak Institute

Malaysia’s low-wage workers ostensibly saw a big boost to their salaries in May 2022 when Prime Minister Ismail Sabri announced that the country’s minimum wage would rise by as much as 36 per cent. While the minimum wage is revised every two years, the recent hike marks the largest jump since it was first introduced in 2013. The new monthly salary of RM1,500 (A$475) replaces the previous two-tier wage floor of RM1,200 ( A$380) for cities or municipal districts and RM1,100 (A$348) for rural districts.

New Malaysian Prime Minister Ismail Sabri Yaakob waves from a car, as he leaves after the inauguration ceremony, in Kuala Lumpur, Malaysia, 21 August 2021 (Photo: Reuters/Lim Huey Teng)

Granular income data reveals that low-wage workers in certain states are set to reap significant income gains from the wage hike while those elsewhere stand to gain little. The benefits of the wage hike are highly skewed and unevenly distributed, with indications that the move may have electoral consequences.

In Malaysia, workers are divided into three skill categories. Skilled workers are managers, professionals, technicians and associate professionals. Semi-skilled workers are those in clerical support, sales, machine operators and skilled laborers in the agricultural sector. Low-skilled workers are cleaners, helpers, and labourers.

Based on the Department of Statistics’ 2020 Salaries and Wages Report, the median income for high-skilled, semi-skilled and low-skilled workers in Malaysia was RM4,011, RM1,593 and RM1,274 respectively in 2020. The RM1, 500 wage floor provides the largest wage increase for low-skilled workers based on the national median income, who comprise 8 per cent (about 750,000) of Malaysia’s 9.4 million employees in paid employment.

But the RM1,500 wage floor impacts low-skilled workers differently across states. The median wage for this group in Johor, Selangor, Melaka and Kuala Lumpur is close to or already exceeds RM1,500. Given that the above four states constitute about one-third of all low-skilled workers, a ballpark estimates that only two-thirds of the nation’s 750,000 low-skilled workers stand to benefit from the wage hike.

It is Sabah and Sarawak that stand to gain most from the minimum wage increase. Likewise, states in the Peninsula, such as Kelantan and Terengganu on the east coast and Perak, Kedah and Pahang also stand to gain as their median salary for low-skilled workers is below the new minimum wage.

Even though the RM1,593 national median wage for semi-skilled workers is marginally above the revised RM1,500 wage floor, the largest beneficiaries of the wage hike are semi-skilled workers as this group comprises the largest component (55 per cent) of the Malaysian salaried workforce at about 5.2 million employees.

Once again, Selangor and Johor — the states with the largest share of semi-skilled workers — stand to benefit little from the wage hike as their median income for this category already exceeds RM1,500. Similarly, six other states in the Peninsula will reap few benefits from the wage hike as their median incomes for semi-skilled workers are on par with or exceed the revised wage floor. In Peninsular Malaysia, only the four northern ‘Malay belt’ states of Kelantan, Terengganu, Kedah and Perlis will gain significant benefits, along with semi-skilled workers in East Malaysia. In the above six states, the median salary for semi-skilled workers is between RM1,237 to RM1,380.

Prime Minister Ismail Sabri from the United Malays National Organization (UMNO) appears determined to claim credit for the minimum wage hike, as the details of RM1,500 wage hike were first announced a few months ago at his party’s General Assembly. The wage hike is occurring at a time when a snap general election is widely anticipated in the next few months. Based on historical voting patterns, electoral support for UMNO is higher among lower-income Bumiputras than middle and upper-income Bumiputras. At the grassroots level, UMNO has a formidable machinery that dispenses benefits to its voters through financial assistance.

As highlighted, income data illustrates that low-wage workers in the ‘Malay belt’ states and East Malaysia stand to gain the most from the minimum wage hike. These six states have the highest share of Bumiputra voters across Malaysia. Perhaps not coincidentally, separately from Kelantan, the remaining five states were governed by UMNO/Barisan Nasional (BN) until 2018.

That year, UMNO/BN lost Terengganu, Kedah and Sabah to the opposition while the Sarawak state government left the BN coalition shortly after the general election. The minimum wage hike, with much of its positive impacts skewed in the above regions, could swing the political pendulum in these states back to UMNO/BN’s favour. Of equal importance is that at the national level, the discourse for the wage hike is framed by UMNO/BN as a genuine attempt to uplift Bumiputras and low wage workers across malaysia.

The move sets the foundation for BN to claim credit in fulfilling a goal first proposed by the opposition Pakatan Harapan (PH) in their 2018 election manifesto. Despite promising a RM1,500 merely minimum wage, in the months after gaining power the PH government increased the minimum wage by RM50 (A$16) with then-prime minister Mahathir Mohamad claiming that a larger hike would increase Malaysia’s debt level while reducing its economic competitiveness. The recent minimum wage hike could therefore cement political support among BN’s core supporters in the upcoming general election while wooing back Bumiputra and low-income Malaysians who had previously supported the opposition.

Kevin Zhang is Senior Research Officer at the Malaysia Studies Program and Tham Siew Yean is Visiting Senior Fellow at the ISEAS-Yusof Ishak Institute.

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