THE Malaysian Trades Union Congress has proposed raising the minimum wage from RM1,700 to RM3,100 a month, but it is much easier said than done.
Workers may have strong reasons to seek higher incomes, but employers may also face difficult choices when the legal wage floor moves so far.
It is not just about raising wages, but also about the complex balance in the workforce.
What happens inside a firm when the law moves the wage floor that far?
Consider two workers whose basic wages are now RM1,700 and RM2,500. Suppose the second earns more because his role requires greater experience, skills or responsibility.
If the minimum wage becomes RM3,100 and both workers are covered, the wages of both must rise to at least RM3,100.
What happens after that is less straightforward. Should the second, more experienced, worker still earn more? If so, how much more?
One employer might raise the first worker’s salary to RM3,100 and the second to RM3,300, judging that a RM200 difference is enough once the floor has absorbed most of the previous gap.
Another might raise the second worker’s salary to RM3,900, judging that the old RM800 differential reflected something real about responsibility or the cost of losing that worker to a competitor.
The new floor has therefore done more than increase two wages. It has displaced an existing relationship between them. How that relationship is rebuilt becomes an economic decision for the firm.
Scale matters. Japan has just approved what is reported as its second-largest annual minimum-wage increase on record. Yet its national average hourly rate will rise by 5%, from 1,121 yen to 1,177 yen.
In percentage terms, MTUC’s proposed increase from RM1,700 to RM3,100 would exceed 82%.
The point is not that Japan’s circumstances should determine Malaysia’s wage policy. It is that a historically large increase can still be very different, in proportional terms, from a single adjustment that moves the legal floor by more than four-fifths.
The Federation of Malaysian Manufacturers, which opposes the RM3,100 proposal, warns that firms may come under pressure to revise pay levels above the statutory minimum in order to maintain distinctions based on skill, experience, performance and responsibility.
Pay differentials are only one part of the adjustment. Jobs themselves need not remain exactly as they were. A firm can reorganise tasks, change how work is divided or alter the number of workers assigned to particular activities.
Consider the difference between an electronics assembly line and a restaurant kitchen. The assembly line may perform the same repetitive motion thousands of times a day. If a machine can be taught to do it, the investment may be spread across thousands of units.
A kitchen does not offer the same opportunity for automation. Its tasks change by the hour, the order and the customer. Plating one dish is not the same as plating the next, and the repetition may be too limited to justify the same investment.
Where technological substitution is difficult, adjustment may occur elsewhere. Research on minimum wages increasingly examines how firms respond alongside employment effects.
The mix depends on each firm’s circumstances: how exposed it is to competitors facing the same wage floor, how easily its output can be automated, how much it produces, how much room exists in its margins before the increase arrives, and whether it has the power to raise prices.
Timing matters as well. Compressing salary bands or raising prices may happen quickly.
Redesigning production, investing in technology or changing jobs may take longer. Short-run labour adjustments and longer-run capital substitutions may coexist, with their effects appearing at different points.
Responses to a higher statutory floor will therefore vary.
What a large manufacturer can do may not be feasible for a small restaurant, cleaning company or other labour-intensive service business.
RM3,100 makes this question unusually urgent, but the underlying issue arises whenever the statutory floor is raised.
Whether workers need higher incomes, whether existing wages provide a decent standard of living and whether employers can afford higher wages all remain important. But when the statutory floor rises, it encounters firms with different wage structures, technologies, production methods and market conditions.
The question therefore becomes more than where the new floor should be set. It is also about what existing arrangements will be disturbed by a higher floor.
Much of what happens above the statutory floor will emerge from decisions made inside firms. While those decisions should not be used to dismiss workers’ claims, neither can they be ignored when assessing the effects of a wage increase.
Policymakers should thus ask two questions together: what incomes do workers need, and how would firms across the Malaysian economy respond when the statutory floor rises?
The first concerns the purpose of the wage floor. The second concerns the adjustments a higher floor would set in motion.
While minimum-wage debates naturally focus on workers who would earn more and employers who would have to pay more, they also need to consider how firms adjust once the statutory floor rises.
The longer-term effects of an increase will be shaped by how firms rebuild wage structures, redesign jobs, alter prices, absorb costs or pursue other adjustments.
Policymakers and the public should not overlook that part of the story.