Malaysia to set first minimum wage

Minimum wage set at 800 to 900 ringgit ($265 to $298) per month
By Niluksi Koswanage
||Last Updated: 03/12/2012

KUALA LUMPUR (Reuters) — Malaysia's cabinet has approved a national minimum wage for the first time in the country's history, two government sources said, as Prime Minister Najib Razak looks to shore up incomes and votes ahead of widely expected elections this year.

The minimum wage comes as Asia increasingly turns to such social safety nets to counter widening income gaps and the related political repercussions, while debt-laden Europe struggles to keep these policies afloat.

Malaysian government sources, who declined to be identified because of the sensitivity of the issue, told Reuters that the cabinet had approved setting the minimum wage at 800 to 900 ringgit ($265 to $298) per month, depending on location.

The minimum compares with 760 ringgit per month, which according to a government survey roughly represents the poverty income line in Malaysia and the gross pay that workers take home in the key manufacturing sector of this trade-reliant country.

"The cabinet approved (the minimum wage) about two weeks ago and the government has explained this to industry groups," said a source with direct knowledge of the matter on Monday. "There is some reluctance, but we are moving on with it. The prime minister could announce it either this week or next week."

The move is a major part of Najib's new economic model launched in 2010 to transform the country from a middle-income economy to developed nation status by 2020 via market reforms and greater focus on services.

Malaysia's basic wage policy coincides with moves by China, the world's manufacturing hub, to raise minimum wages by at least 13 per cent in the five years to 2015.

A Malaysian government spokesman declined to comment on the matter.

The minimum wage has faced heavy opposition from Malaysian employers, who have said imposing the policy too quickly will erode competitiveness in a country that has kept costs low for decades to hold onto investments from Dell and Intel.

Even former premier Mahathir Mohamad has weighed in, saying the move would bankrupt Malaysia, once known as Southeast Asia's electronics hub.

The Malaysia's Employers Federation painted an even bleaker picture, forecasting that the minimum wage would wipe out four million jobs and 200,000 companies.

Yet in recent years Malaysia has fallen off the investor radar as it struggles to compete with Indonesia with its ample, cheap labour and South Korea with its highly developed electronics sector and skilled workforce.

The minimum wage would also pave the way for Najib's other delayed reforms, the second government source said, which could help Malaysia reduce its budget deficit. The government aims to cut the fiscal gap to 4.7 per cent this year.

The reforms include a goods and services tax that would widen Malaysia's narrow tax base, which largely relies on revenue from state oil company Petroliam Nasional Bhd, and rolling back some food and fuel subsidies.

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