DOSM/MBLS/1.

2022/Series 31

WAGES IN MALAYSIA:
THE STORY BEHIND THE STATISTICS
Prepared by: Malaysian Bureau of Labour Statistics

Introduction

After more than two years of mitigating multiple socioeconomic challenges following the global health
crisis, businesses have started to regain momentum towards recovery as Malaysia prepares to enter
into endemic phase. In terms of the labour market, among the challenges faced were surged in
unemployment following job losses and difficulties to secure jobs among new entrants; time-related
underemployment as businesses reduced operation hours; as well as reduction in salaries & wages
paid to employees. Department of Statistics, Malaysia (DOSM) as the national statistical office has
increased the effort to collect, analyse, compile and disseminate labour market statistics in terms of
frequency and granularity in response to the socioeconomic ramification of COVID-19.
This newsletter aims to illustrate the salaries & wages situation in Malaysia based on the availability of
socioeconomic statistics in DOSM.

Landscape of Malaysia’s Economy

For the period of 2011 to 2019, Malaysia’s economy remained positive with the Gross Domestic Product
(GDP) expanding between 4.4 per cent to 6.0 per cent. The year 2020 was an exception as GDP dived
5.6 per cent following social and economic restrictions to contain the fast-spreading COVID-19 pandemic
in the country.

In terms of share by the main economic sector, the Services sector remained with the largest share of
GDP at 57.7 per cent in 2020 while Manufacturing sector ranked second at 22.9 per cent. In the
meantime, Agriculture, Mining & quarrying and Construction sectors contributed 7.4 per cent, 6.8 per cent
and 4.0 per cent respectively. Further look on growth of GDP in 2020 compared to 2019 indicated decline
for all sectors whereby Construction and Mining & Quarrying posted double-digit fall of negative
19.4 per cent and negative 10.6 per cent respectively (Chart 1).
Chart 1: GDP at constant prices by economic sector (annual percentage change)

(%)

25.0 Total Agriculture Mining & Quarrying Manufacturing Construction Services

15.0 9.5
6.8 5.4 7.0 6.2
5.3 3.8
4.4 2.0 0.7 1.9
5.0 3.1 0.4
-0.2 -0.6 4.6
-5.2
-5.0
-2.2 -2.6
-5.6 -4.9 -5.5
-15.0 -10.6
-19.4
-25.0
2011
2013
2015
2011
2013
2015
2017
2019e
2021p
2011
2013
2015
2017
2019e
2021p

2011
2013
2015
2017
2019e
2021p

2011
2013
2015
2017
2019e
2021p

2011
2013
2015
2017
2019e
2021p

2017
2019e
2021p

Source: National Account, DOSM

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 Newsletter | Wages in Malaysia: The Story Behind the Statistics

With a more targeted mechanism to reduce the number of daily COVID-19 new cases in 2021, GDP had
rebounded by 3.1 per cent as all sectors improved. Nevertheless, the level of GDP has not returned to
pre-pandemic period.

Looking at the return to labour in Malaysia which was indicated by the compensation of employees (CE),
the time series from 2011 to 2019 had remained in a positive trend. However, CE registered a contraction
of 3.0 per cent in 2020. While the share of CE to GDP had reached the highest point at 37.2 per cent in
2020, it has yet to surpass the 40 per cent target (DOSM, 2021) (Chart 2). The increase in share of CE
to GDP in 2020 was partly due to a larger declined in gross operating surplus which was return to
businesses.

The share of CE for Malaysia is relatively lower than most high-income countries such as Singapore,
Australia and the United States of America, which posted shares of CE between 42.7 per cent to
55.0 per cent (Chart 3). The low share of CE could be associated with the current economic structure in
Malaysia, which is influenced by low value-added and labour intensive industries.

Chart 2: Compensation of employees (CE), Malaysia, Chart 3: Share of CE to total GDP for
2011 – 2020 selected countries, 2020

Percentage share (%) Annual change (%) Percentage share (%)

50.0 50.0
United States 55.0
40.0
40.0 35.8 35.9 37.2 United Kingdom
33.9 34.3 35.0 35.6 35.5 53.4
32.1 33.2 30.0
Canada 52.5
30.0 20.0
12.2 10.4
9.7 8.7 7.8 9.7 South Africa 51.0
4.8 10.0
20.0
Singapore 48.7
7.1 6.2 0.0
10.0 South Korea 43.7
-3.0 -10.0
Australia 42.7
0.0 -20.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Malaysia 37.2

Percentage share of CE to GDP Annual percentage change

Source: National Account, DOSM

As the major contributor to Malaysia’s economy, the Services sector generated 63.5 per cent of CE in
2020. The share of CE for Manufacturing sector encompassed 22.6 per cent while Construction
contributed 7.9 per cent. Meanwhile, CE in Agriculture and Mining & quarrying sectors accounted for
4.1 per cent and 1.9 per cent of share respectively.

Looking at the share of CE to value added, Construction sector registered the largest share at
72.7 per cent in 2020 considering the higher reliance of this sector on labour. The mean monthly salaries
& wages received by paid employees in this sector was RM2,388. Although CE share for Services sector
was 41.0 per cent, employees earned higher mean monthly salaries & wages of RM2,981. The share of
CE to value added for Manufacturing sector was 37.7 per cent while mean monthly salaries & wages
amounted to RM2,407. In Agriculture sector, the composition of CE was contributed 18.7 per cent with
mean monthly salaries & wages of RM1,491. The lowest share of CE to value added was registered by
Mining & quarrying sector at 10.3 per cent following the influence of capital intensive of oil & gas industry
in this sector. Mean salaries & wages recorded by this sector was RM4,835 per month, which was the
highest among the economic sector (Chart 4).

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 Newsletter | Wages in Malaysia: The Story Behind the Statistics

Chart 4: Compensation of employee and mean & median salaries and wages by economic sector, Malaysia,
2019 & 2020

2020 Compensation of employees Salaries & wages

2019
Share to CE (%) Share CE to value added (%) Mean (RM) Median (RM)

63.5 41.0 2,981 2,102

Services
62.5 39.4 3,322 2,529

22.6 37.7 2,407 1,753

Manufacturing
22.1 37.0 2,397 1,804

7.9 72.7 2,388 1,750

Construction
9.4 71.9 2,545 1,870

4.1 18.7 1,491 1,303

Agriculture
3.9 19.3 1,671 1,441

Mining and 1.9 8.9 4,836 3,093

quarrying 2.1 10.3 5,927 3,836

Source: National Account and Salaries & Wages Survey, DOSM

Box 1. Minimum Wage Implementation

“Minimum wage is the minimum amount of remuneration that an employer is

required to pay wage earners for the work performed during a given period,
which cannot be reduced by collective agreement or an individual contract”

International Labour Organization

The minimum wage is a legal requirement that requires employers to pay their employees at least
the minimum rate of wage that has been set. Approximately 90 per cent of nations in the world have
a minimum wage policy that is acceptable for their economic systems. Australia, for example, has
had a minimum wage policy in place since 1904, whereas the United States of America has had one
in place since 1983.

The nationwide implementation of minimum wages in Malaysia was announced for the first time
in July 2012 as one of the initiatives to support low income households. The Minimum Wage Order
2012 was formed and enforced on 1 January 2013 with monthly minimum of RM900 per month
for Peninsular Malaysia and RM800 in Sabah and Sarawak. This rate was eventually raised to
RM1,000 per month in Peninsular Malaysia and RM920 in Sabah and Sarawak in 2016.

Then in 2019, the minimum wage rate was increased to RM1,100 nationwide. The last amendment
to the minimum wage was on 1 February 2020 to RM1,200 after the introduction of the 2020 Budget.
The announcement of a new minimum wage came on 19 March 2022 and is scheduled to take
effect on 1 May 2022 (Exhibit 1.1).

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 Newsletter | Wages in Malaysia: The Story Behind the Statistics

Exhibit 1.1: Chronology of the implementation of minimum wage order in Malaysia

1 Jan 2013 - Malaysia

• RM900 (PM) 2019 1 May 2022
• RM800 (SS) • RM1,100 • RM1,500

2016 1 Feb 2020*

• RM1,000 (PM) • RM1,200
• RM920 (SS)

Source: Federal Government Gazzete, Minimum Wages Order

Note:
PM: Peninsular Malaysia;
SS: Sabah and Sarawak;
* New minimum wage order raised to RM1,200 per month in major cities under the administration of 57 city councils and municipal
council.

The Malaysia’s new minimum wage of RM1,500 (USD355) which is equivalent to RM7.80 (USD1.84)
per hour with a maximum of 48 working hours per week is still far behind when compared to other
countries (Chart 1.1).

Chart 1.1: The new minimum hourly wage of selected country (USD)

Australia 12.14
France 11.66
New Zealand 11.20
Germany 10.87
Netherlands 10.44
Belgium 10.38
United Kingdom 10.34
Ireland 9.62
Canada 9.52
United States 7.25
South Korea 6.84
Spain 5.83
Greece 4.98
Russia 2.27
Chile 2.25
Brazil 2.18
Turkey 1.93
Malaysia 1.84
Mexico 1.05

Source: https://worldpopulationreview.com/country-rankings/minimum-wage-by-country

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How Has Pandemic Affected Salaries & Wages in Malaysia

The COVID-19 pandemic was discovered as early as November 2019 and then spread to many countries,
including Malaysia. The virus was first found in the country on 24 January 2020. Therefore, some
businesses opted for unpaid leave or cut wages when their operations could not be conducted as usual.
However, as the new norm set in, creative business models were adopted to mitigate losses. In addition,
to cushion this impact, the Government rolled out several policies and initiatives, including the National
Economic Recovery Plan, the Wage Subsidy Programme and several grants and financing programmes.

Malaysia’s labour market experienced uneven momentum throughout 2020 following the economic
consequences of the health crisis. This had caused cancellation or freezing of new hires and
subsequently resulted job losses, decline of total employment and increase in unemployment. Besides,
strict COVID-19 containment measures adopted in this country also limited business operation hours and
led to reduced working hours.

Prior to the health crisis that is between 2011 to 2019, mean monthly salaries & wages received by
full-time equivalent of paid employee in the public and private sectors grew 5.9 per cent per annum. The
lowest increase was registered in 2011 at 1.0 per cent while the highest was in 2014 at 8.4 per cent.
However, the year 2020 saw the mean monthly salaries & wages received fell for the first time since the
series began in 2010. The mean value declined by 8.1 per cent to RM2,747 from RM2,989 in 2019.
During the same period, median monthly salaries & wages recorded a double-digit decrease of
13.3 per cent to RM1,894 (2019: RM2,185). Despite the reduction in terms of salaries & wages received,
the number of recipients remained on a positive growth, albeit at a slower rate of 0.2 per cent
(+16.7 thousand persons) in 2020 to record 10.97 million persons (Chart 5).

Chart 5: Number of recipients, mean and median monthly salaries & wages, 2011 – 2020

Salaries & wages recipients

Number of recipients (million) Annual change (%)
12.0 10.96 10.97 60.0
10.15 10.15 10.16 10.52 10.49
9.17 9.54
8.98
9.0 40.0

6.0 20.0
6.8 4.1 6.4 4.4
2.0 3.6
0.0 0.1 -0.2 0.2
3.0 0.0

0.0 -20.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mean monthly salaries & wages

RM Annual change (%)
5,000 8.4 10.0
7.6 7.2
6.1 6.5
5.3 5.5 5.2
4,000
5.0
1.0 2,842 2,989
3,000 2,650 2,747
2,312 2,463
2,023 2,193 0.0
1,809 1,906
2,000
-5.0
1,000 -8.1

0 -10.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

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 Newsletter | Wages in Malaysia: The Story Behind the Statistics

Median monthly salaries & wages

RM Annual change (%)
4,000 20.0
9.8 10.4 9.9
3,000 6.7 6.4 5.8 10.0
3.4
1.5 0.0 2,185
2,066
1,880 1,894
2,000 1,600 1,703 0.0
1,450 1,500 1,500
1,320

1,000 -10.0

-13.3
0 -20.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Salaries & Wages Survey, DOSM

Further analysis by citizenship indicated that the share of non-citizen recipients ranged from 15.0 per cent
to 17.8 per cent between 2011 to 2019. In 2020, the number of citizen recipients continued to increase
by 2.1 per cent (+195.5 thousand) to 9.39 million persons while, the number of non-citizen recipients
reduced by 10.2 per cent (-178.8 thousand) to 1.58 million persons. Thus, the share of non-citizen
recipients also declined to 16.1 per cent. The decrease of non-citizens was in line with recalibration of
foreign labour and international border closures in 2020.In overall, mean and median monthly salaries &
wages of citizens were higher compared to non-citizens since most non-citizens were employed in
semi-skilled and low-skilled occupation categories (Chart 6).

Chart 6: Number of recipients, mean and median monthly salaries & wages by citizenship, 2011 – 2020

Salaries & wages recipients

Number of recipients (million) Annual change (%)
12.0
18.4
9.39 20.0
10.0 9.20
8.42 8.68
7.78 7.90
8.0 6.2 5.0 10.0
2.5 0.9 2.1
6.0
0.0
2.0 1.5 3.0 1.5
4.0 -3.9

1.38 1.64 1.73 1.84 1.76 1.58 -10.0

2.0
-10.2
0.0 -20.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Citizen Annual percentage change for citizen

Non-citizen Annual percentage change for non-citizen

Mean monthly salaries & wages

RM Annual change (%)
4,000 25.0
3,224
12.6 13.9 2,879 2,933
3,000 2,657 10.1 15.0
8.4
2,186 6.8
2,052
2,000 6.5 1,765 5.0
4.7 1,518 1,570 1,644
1,086 1,237 4.4
3.5
1.0 -6.9
1,000 -5.0

0 -9.0 -15.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Citizen Annual percentage change for citizen

Non-citizen Annual percentage change for non-citizen

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 Newsletter | Wages in Malaysia: The Story Behind the Statistics

Median monthly salaries & wages

RM Annual change (%)
3,000
2,442
30.0
2,160 2,062
2,000
2,000 11.3
1,700
1,566 5.4 10.0
9.4 8.6 8.6 1,452
1,335 5.8 1,260
4.4 1,200 4.3
950 8.0
875 3.0 -13.2
1,000
-10.0

-15.6
0 -30.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Citizen Annual percentage change for citizen

Non-citizen Annual percentage change for non-citizen

Source: Salaries & Wages Survey, DOSM

Based on the profile of mean salaries & wages by economic sector for the year 2020, Mining and
quarrying sector registered the highest mean monthly salaries & wages at RM 4,835. In the meantime,
the services sector ranked second at RM 2,981. In the meantime, Agriculture sector recorded the lowest
mean salaries & wages at RM 1,491. The Manufacturing sector with mean monthly salaries & wages of
2,407 in 2020 was the only sector which posted increase in salaries & wages as compared to the previous
year. Meanwhile, the mean salaries & wages for the other sectors indicated decline from 2019.

As for the category of skill, the mean monthly salaries & wages of recipients in the skilled category stood
at RM4,635 in 2020, which was nearly 3 times higher than RM1,587 received by low-skilled employees
(Chart 7).

Chart 7: Mean monthly salaries & wages by sector and skill level, 2019 & 2020

Sector Skill level

4,835
Mining and quarrying
5,927 4,635
Skilled
5,111
2,981
Services
3,322

2,407 1,925
Semi-
Manufacturing
Skilled
2,397 2,095

2,388
Construction
2,545
1,587
Low-Skilled
1,491 1,613
Agriculture
1,671

2019 2020
Source: Salaries & Wages Survey, DOSM

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Box 2. Cost of Living

Cost of living is a measure of the cost required to meet basic needs as well as other needs in order to
maintain a certain standard of living. Generally, household consumption expenditure varies depending
on the income or salary received. In addition, the increase in the price of goods also affects the decision
of household expenditure. Thus, the cost of living is influenced by three main factors mainly individual
income, spending patterns, and price of goods.

According to Household Income and Expenditure statistics for 2019, households in lower income
bracket spend more on Housing, Water, Electricity, Gas & Other Fuels and Food & Non-Alcoholic
Beverages. For households with income less than RM1,999 per month, these two components
contributed more than 50 per cent of the expenditure. Unlike high income group, with income RM10,000
and above the share of the two categories ranged between 33.4 per cent to 37.1 per cent.

Chart 2.1: Composition of household consumption expenditure by income class, Malaysia, 2019

5.3 6.5 6.9 7.1 7.4 7.4 7.9 8.4 8.3 8.3 9.1 Miscellaneous goods &
services
10.5
11.7
13.1 13.9 14.0
0.5 14.6 14.8 14.8 13.2 Restaurants & hotels
15.0 15.0
2.3 0.7
3.5 3.0 1.0
1.1 1.2
3.2 1.3 1.4 2.1 Education
4.0 3.8 4.0 1.4 1.5 1.9
7.0 4.5 4.5 4.7 4.9 4.9 5.6 7.0 Recreation services &
4.7 5.0
2.0 9.7 5.3 culture
5.3 5.3 5.4
3.2 5.7
10.9 5.0 Communication
2.0 11.7
12.4
3.3 12.9
2.0 13.2 13.3 14.1
3.6 2.0 14.1
2.0 16.4 Transport
3.8 1.9
4.0 2.0
31.5 4.0 1.9 1.8
4.2 4.2 2.0
4.1
27.4 4.6 2.5 Health
24.8 5.6 Furnishings, household
23.9 equipment & routine
23.7
23.2 household maintenance
22.7
23.6 23.6
3.4 22.7
1.9 3.4 Housing, Water,
2.3 3.5 22.4
3.4 Electricity, Gas & Other
2.4 3.4 Fuels
2.6 3.3
2.6 3.2
2.5 2.9 3.0
2.5 3.5
2.4 2.4
2.2 3.3 Clothing & footwear
28.9
26.0 24.0 2.1 Alcoholic beverages &
22.0 20.3 19.1 18.1 tobacco
16.7 16.2 14.4
11.3 Food & non-alcoholic
beverages
&
atasabove
& ke
RM2,000 -

RM3,000 -

RM4,000 -

RM5,000 -

RM6,000 -

RM17,000 -

RM8,000 -

RM9,000 -

RM10,000 -
RM1,999

RM14,999
RM8,999
RM2,999

RM3,999

RM4,999

RM5,999

RM6,999

RM9,999
than
Kurang

RM7,999
RM1,999

RM15,000
RM15,000
Less

Source: Household Income, Expenditure and Basic Amenities Survey (HIES/BA), DOSM

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Does Raising the Minimum Wage Increase Inflation?

Theoretically, raising the minimum wage forces business owners to raise the price of their goods or
services, increasing the living standard whilst spurring inflation (Hayes, 2021). Basically, the rise of the
minimum wage would increase purchasing power, which favourably impacts the economy. The rise of
purchasing power pushes the demand curve towards the economic equilibrium, pushing the price to meet
the equilibrium whilst influencing inflation.

Box 3. Relationship Between Unemployment and Inflation

The relationship between inflation and economic activity is one of the cornerstones of
macroeconomics to see a country's economic stability. The Phillips curve theory claims that with
economic growth comes inflation, which in turn should lead to more jobs and less unemployment.

Chart 3.1: Phillips Curve Understanding Phillips Curve

The Phillips Curve is the graphical representation

of the short-term relationship between
unemployment and inflation within an economy.

According to the Phillips Curve, there exists a

negative, or inverse, relationship between the
unemployment rate and the inflation rate in an
economy.

Theory behind Phillips Curve

• Lower unemployment is associated with

higher inflation.
• Higher unemployment is associated with
lower inflation.

Source: Engemann, K. M. (2020). What is the Phillips Curve. Federal Reserve Bank of St. Louis.

Some Reviews

Tang & Lean (2017) Metasari & Erni (2020)

Phillips curve is one of the well-known terminologies Generally, we will see an inverse relationship
in economics to explain the relationship between between unemployment and inflation in the short-run
inflation and unemployment rates while such a relationship does not exist in long-run.

Daly, Hobijn, and Lucking (2012)

Downward nominal wage rigidity was an important factor that shaped the dynamics of inflation
during and after the last three U.S. recessions.

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Chart 3.2: Relationship of unemployment rate and inflation rate, Malaysia, January 2010 - December 2020
Inflation rate (%)

6.0

5.0

4.0

3.0

2.0
-4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0
Unemployment rate(%)
Source: Author’s calculation from Labour Force Survey Report and Consumer Price Index, Malaysia, DOSM

Preliminary analysis of the relationship between CPI and real wage in Malaysia indicated a year-on-year
positive growth of CPI the following year after implementation of minimum wage. After the implementation
of minimum wage in 2013, CPI grew 5.1 per cent in 2014. Later, with the 2016 Minimum Wage Order, it
was observed that CPI remained elevated at 3.7 per cent and continued to surge 6.2 per cent in 2018.
The effect of another rise in minimum wage to inflation cannot be identified base on this analysis
considering an unprecedented socioeconomic scenario in 2020. However, it can be seen that as real
salaries & wages declined in 2020, CPI dived 7.0 per cent immediately during the same year (Chart 8).
Chart 8: Mean monthly real salaries & wages against CPI growth, 2012 - 2020

RM Per cent (%)

3,000 10.0
6.2
5.1 4.5
2,500 3.7 4.0 4.3 3.7
3.3 5.0

2,000 3.7
3.2
1.6 2.1 2.1 2.1 0.0
1.0 0.7
1,500
-1.2
-5.0
1,000
-7.0 -10.0
500
1,817 1,889 1,985 2,050 2,138 2,218 2,355 2,460 2,287
0 -15.0
2012 2013 2014 2015 2016 2017 2018 2019 2020

Mean Real Wages CPI Growth (YoY) Mean Real Wage Growth (YoY)
Source: Author’s calculation from Salaries & Wages Survey Report and Consumer Price Index, Malaysia, DOSM

Further investigation to map the relationship of real wages, inflation and unemployment was done using
the annual statistics produced by DOSM. It was found that inflation rate trend line moves in tandem with
the real wage trend line. In the meantime, there is an inverse relationship based on the trend lines of
inflation rate and unemployment rate. A downward trend can be observed for inflation rate and an upward
trend can be seen on unemployment rate. Social and economic restrictions that took place in Malaysia in
2020 has resulting in slower economy recording a considerable decline of inflation rate by 1.2 per cent
while unemployment rate soared to 4.5 per cent. These initial findings corroborate with the Phillips theory
which states there is a trade-off between inflation and unemployment (Chart 9).

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Chart 9: Annual percentage change of mean real wage, inflation rate and unemployment rate, Malaysia,
2012 - 2020

Rate (%)

7.0 6.2
5.1
4.3 4.5
5.0 3.7 4.0 3.7
3.3 4.5
TL1
3.0 3.1 3.1 3.4 3.4 3.3 3.3
3.0 2.9 3.7
3.2
1.0 2.1 2.1 2.1 TL2
1.6
1.0 TL3
0.7
-1.0
-1.2
-3.0 2012 2013 2014 2015 2016 2017 2018 2019 2020

-5.0

-7.0
-7.0
Inflation Rate Unemployment Rate Real Wage Growth

Source: Author’s calculation from Salaries & Wages Survey Report, Labour Force Survey Report and Consumer Price Index, Malaysia, DOSM
Note:
TL1 – unemployment rate trend line; TL2 – real wage trend line: TL3 – CPI growth trend line

Potential Impacts of Implementing Minimum Wage

From the perspective of businesses, increasing minimum wage will incur additional labour cost. While
large and multinational companies may be able to absorb this cost, smaller businesses may find the
regulation challenging in managing their operation costs. However, willingness to increase wage rate
should go hand in hand with adoption of technology and automation in order to create skilled and high
value-added jobs. This can ultimately increase productivity and ensure skill retention for the employers.

As for the employees, minimum wage raises the employees’ living standards and lowers poverty through
promoting income redistribution. This approach had a huge impact on supporting low-paid workers.
Increases in the minimum wage will assist to close the income gap between the lowest and highest paid
workers as well as reducing wage inequality. The implementation of raising the minimum wage do have
better impacts, such as lifting people out of poverty and raising personal and family income.

While in-depth analysis may be able to provide insights into the empirical impact of implementing
minimum wage, this section will review some of the literatures on the matter.

Salleh, Talib and Rusly, 2007 Poh (2013)

The increase of the minimum wage will
enhance the wellbeing and welfare of low-
income bracket employees, influence their
motivation and hence, lead to an increase in
productivity.
Some firms, especially small and medium
enterprises (SMEs) may be forced to cease
their operation due to inability to absorb
increase in cost. In Thailand, 110,000 SMEs
were closed down due to minimum wage policy.

Dube, Lester and Reich (2016) Fang and Lin (2015)

A 10 per cent increase in the minimum wage
will reduce turnover for restaurant workers by
2.1 per cent while turnover for teenagers
declined by 2.0 per cent.
A study conducted in China shows that minimum
wage reduces the employment of low-skilled
employees. Thus, employees with low education
level such as below vocational school degrees
were directly and adversely affected by the policy
in terms of employment opportunity.

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Brochu and Green (2013) Neumark (2018)

In Canada, quits and layoffs of young Employers will substitute away from less-
workers with low education decline in the skilled workers towards more-skilled workers
year after a minimum wage increase. after a minimum wage increase.

Riley and Bondibene (2015)

Upon the introduction of National Minimum Wage (NMW) in Britain, low-paying companies
responded to the increase in labour costs from minimum wages by increases in the labour
productivity. They suggested that these labour productivity increases may have been associated
with decrease in employee turnover and improvement in training.

Box 4. Micro, Small & Medium Enterprises in Malaysia

While most businesses were impacted by the myriads of measures and regulations implemented to
contain the prolonged public health crisis, large businesses may be able to sustain by tweaking and
adapting business strategies as well as identifying emerging sources for growing their profits.
Nevertheless, this may not be the case for most micro, small & medium enterprises (MSMEs) as
they normally operated with limited resources and obtaining small profit margin through their
business activities. Additionally, MSMEs are usually more labour-intensive, hence would be
spending more on labour compensation. These are among the multitudes of issues faced by
SMEs in managing their cash flow especially during economic hardship, which make them more
vulnerable than the large companies.
In 2020, the GDP for MSMEs contracted 7.3 per cent which was lower than the national's GDP for
the first time over the past 17 years since 2003. The decline was also larger than decreased in the
GDP of non-MSMEs which posted a negative 4.6 per cent. Its contribution to national GDP shrank
to 38.2 per cent compared to 38.9 per cent in 2019. Comprising 97.2 per cent out of 1.18 million
registered establishments in Malaysia, the number of SMEs declined 2.6 per cent or equivalent
to 30.3 thousand to record 1.15 million during the year. SMEs owned 48.0 per cent of total
employment in the country, equivalent to 7.25 million persons. The number of MSMEs’
employment dived 0.9 per cent as compared to non-MSMEs which continued to trend up albeit at
a smaller rate compared to the year before. The lower numbers signalled challenges faced by the
MSMEs to sustain operation and retain employment as COVID-19 and all its consequences struck.
Corresponding to the MCO imposed in March 2020, multiple initiatives were introduced to date to
protect lives, ensure well-being, propel businesses and subsequently stimulate the national
economic growth. With the daily COVID-19 cases increasing further, social and economic restrictions
continue in 2021. This chain of events caused demand to dwindle and put businesses especially the
SMEs to exhaust their savings and resources, and subsequently resort to business closures.
Recognising the important roles of the SMEs in Malaysia’s economy and its vulnerability to uncertain
factors, unique initiatives and stimulus packages are continuously tailored by the government to aid
this segment of businesses.
As businesses start to regain momentum towards recovery towards the end of 2021, the number of
establishments rose by 6.3 per cent to record 1.26 million establishments. MSMEs accounted
for 97.4 per cent whereby the number increased 6.5 per cent to 1.23 million establishments.

Source: This information is updated based on the excerpt of a sub-topic in Labour Market Review, Second Quarter 2021 entitled
“Rebuilding SMEs in Mitigating the Impact of COVID-19 to Businesses”, published on 19 August 2021

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 Newsletter | Wages in Malaysia: The Story Behind the Statistics

Way Forward
Considering the role of labour in progressing the economy, wage is an essential motivational component
that will in turn influence the productivity. Thus, continuous upward revision of salaries and wages is
well-known practice whether or not regulation is in place. Having said that, setting up of a minimum
wage rate will actually ensure well-being of employees, especially in the low-skilled low income segment.

In ensuring increase in payment commensurate with employees’ performances, businesses may look at
emerging opportunities in automation and digitalisation as one of the solutions in creating skilled jobs.
Further to this, investment in technology will ensure increase in output and subsequent rise in revenue.
Next, continuous effort to re-skill and upskill employees will also be beneficial in the long run.
A significant rise in the minimum wage can alleviate poverty and subsequently raising the family earnings.
The higher earning may attribute to higher demand of goods and services, thus will also be a catalyst for
potential economic growth.

References
Brochu, P., & Green, D. A. (2013). The impact of minimum wages on labour market transitions. The
Economic Journal, 123(573),, 1203-1235.

Daly, M., Hobijn, B., & Lucking, B. (2012). Why Has Wage Growth Stayed Strong? Economic Letter
(Federal Reserve Bank of San Francisco).

Dube, A., Lester, T. W., & Reich, M. (2016). Minimum wage shocks, employment flows, and labor market
frictions. Journal of Labor Economics, 34(3), 663-704.

Engemann, K. M. (2020). What is Phillips Curve. Federal Reserve Bank of St. Louis.

Fang, T., & Lin, C. (2015). Minimum wages and employment in China. ZA Journal of Labor Policy, 4(1).

Hayes, A. (2021). Does Raising the Minimum Wage Increase Inflation?

Metasari, K., & Erni, P. K. (2020). International Journal of Scientific and Research Publications, Volume
10, Issue 4. ISSN 2250-3153.

Neumark, D. (2018). Employment effects of minimum wages. IZA World of Labor, 6.

Poh, S. C. (2013). Minimum Wage in Thailand caused 110,000 SMEs to close down.

Riley, R., & Bondibene, R. (2015). The impact of the national minimum wage on UK business. National
Institute of Economic and Social Research and Centre for Macroeconomics.

Rusly, F. H., Talib, Y. Y., & Salleh, D. (2017). The impact of minimum pay implementation on small
businesses operating cost and sustainability: A case of service business. SHS Web of Conferences.

Tang, C. F., & Lean, H. H. (2007). Is the Phillips curve stable for Malaysia? New empirical evidence.
Malaysian Journal of Economic Studies, 44(2), 95–105.

DISCLAIMER: The article is the initiative of DOSM officers based on ad-hoc observation and collection of various
information. The view expressed in this article do not necessarily represent the view of DOSM. Therefore, the content
of this newsletter cannot be interpreted as DOSM's official statistics.

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