Labour market reforms needed with RM1,500 minimum wage

 

From Ong Kian Ming

The announcement by Prime Minister Ismail Sabri Yaakob that the minimum wage would be increased to RM1,500 a month starting on May 1 was strange for many reasons.

Firstly, it was done at the Umno general assembly rather than at an official government event.

Secondly, it was announced without the presence of the human resources minister, who is responsible for the setting of the minimum wage under the National Wages Consultative Council Act 2011.

Thirdly, it was lacking in important details such as whether this minimum wage would apply across the board in the entire country or only in the cities.

Fourthly, the announcement did not come with other much needed labour market policy reforms such as introducing a multi-tiered levy as part and parcel of reopening the market to bring in foreign workers.

Fifthly, it did not come with any announcement of assistance to smaller firms that would be unduly burdened by this jump in the level of minimum wages.

Rather than making this type of piecemeal announcement, I suggest that the prime minister, together with the human resources minister and other relevant ministers, come up with a more comprehensive package of labour policy reforms to accompany this increase in the minimum wage. This package should include the following:

Lower minimum wages in non-city areas with lower cost of living

The Pakatan Harapan (PH) government increased the minimum wage from RM1,100 to RM1,200 effective from Jan 1, 2020 in 57 town and city areas across the country but left the minimum wage in the non-city and town areas at RM1,100.

Most companies in the big cities on the west coast and southern Johor and probably in Kuching, Sarawak and Kota Kinabalu, Sabah are likely paying close to the proposed RM1,500 a month to their workers. But for the rural areas in Pahang, Kelantan and Terengganu in Peninsular Malaysia, and in Sabah and Sarawak, many of the smaller firms probably cannot cope as well with the sudden increase in the minimum wage. As such, a lower minimum wage of RM1,400 should be considered for the non-town and city areas.

Minimum hourly wage rates in addition to the minimum monthly wage rate

At RM1,500 a month at a maximum of 48 hours worked a week, the minimum hourly wage works out to RM7.80 an hour. The government may want to give the choice to employers to pick between a monthly minimum wage of RM1,500 or a minimum hourly rate of RM7.80 an hour so that the employer can have some flexibility to discuss the number of hours worked with their employees.

Both employer and employee can agree to the total number of working hours suitable for all parties involved. Small companies which may not be able to afford this sudden jump in the minimum wages would then have the option of adjusting the number of hours worked per employee to keep their businesses sustainable.

Reopen the market to bring in foreign workers but start using the multi-tiered levy system in a transparent and open manner

Many companies are willing to pay their workers a higher salary, but they are only able to adequately cover the costs of these salary increases if they were allowed to hire some foreign workers for their business operations.

Many manufacturers are not able to fulfil their order books, especially in the E&E sector and, as such, many have also had to turn away profitable orders from overseas because of the shortage of workers.

Palm oil growers are also suffering because despite the high crude palm oil (CPO) prices. Many of them don’t have sufficient foreign workers to collect the fresh fruit bunches (FFBs) in the plantations.

The human resources minister recently announced that it had received more than 300,000 applications for foreign workers across different sectors of the economy. These applications are being processed via the Foreign Workers Central Management System or FWCMS. But the approval of these applications will likely take some time, especially since the department of manpower (JTKSM) in Peninsular Malaysia has to approve the total number of foreign workers per company.

Rather than put the burden of deciding how many foreign workers to approve for each company, the government should immediately implement the multi-tiered levy system by industry/sector so that if a company wants to hire more foreign workers, it has to pay a progressive higher levy for an extra X% of foreign worker staffing.

This proposal was already on the table during the PH government and can be utilised immediately for the purposes of determining how much this levy will be for each tier of % of foreign workers per company.

Such a policy will also allow the government to earn some much-needed revenue from employers. The reopening of the labour market to foreign workers will not have any significant impact on the unemployment rate among Malaysians since many of the jobs have not and cannot be filled currently by Malaysians.

Allow only companies to hire foreign workers directly

The current policy allows for foreign worker “agents” or employment agencies to apply for permits to bring in foreign workers who they will then hire out to companies from different sectors.

This practice allows for the possibility that many companies push the responsibility of taking care of such contract workers to their employment agencies rather than taking up the responsibility themselves. When this happens, these companies, including some multinationals, can plead ignorance if foreign workers working at their premises are not treated properly since they can always shift the blame to the employment agencies.

This practice was recommended to be stopped when the multi-tired levy system is introduced because companies will no longer have to “borrow” foreign workers from employment agencies so that they do not run afoul of any foreign-to-local labourer ratios that is set by JTKSM.

This does not mean that these employment agencies will go out of work under this arrangement. Such agencies still can provide the service of processing the necessary documents to bring in foreign workers on behalf of companies rather than for themselves.

Ensuring companies who bring in new foreign workers provide proper accommodation quarters

Rather than to set hard limits on the number of foreign workers which a company can apply for directly, the government should instead focus on the fulfilment of various conditions as part as parcel of the process of bringing in new foreign workers, the most important of which is the Workers Minimum Standards of Housing and Amenities Act 1990 or Act 446 (2019 Amendment).

Right now, most manufacturers, especially those in the SME classification, do not comply with Act 446. But if this is made a precondition for bringing in new foreign workers, these companies have no choice but to meet these conditions.

New centralised labour quarters (CLQs) can be built and existing shop lot units in underutilised commercial centres can also be converted to accommodation for foreign workers in compliance with Act 446.

Allowing refugees with UNHCR cards to work

There are currently more than 150,000 refugees with UNHCR issued documents living in Malaysia. Rather than “waste” this human resource, they should be allowed to apply for temporary work permits so that they can work and take care of themselves and their families.

This is not an unprecedented move as pilot programmes were started under the previous BN government which allowed a small number of Rohingya and Syrian refugees to work in Malaysia.

Think tanks such as IDEAS have made a strong case for the positive economic impact of allowing refugees in Malaysia to work. ISIS, a prominent government-funded think tank, issued a comprehensive paper on granting the right to work to refugees which touches on some of the national security concerns as well as addressing the “floodgates” argument. This 2019 paper recommends allowing refugees in Malaysia the right to work, noting that the right to work does not mean the right to naturalisation.

Waiving the condition that vacancies for expatriate level jobs must be advertised through MyFutureJobs for 30 days

In a parliamentary reply to one of my questions, Perkeso found that of more than approximately 10,000 job openings advertised on MyFutureJobs, only 81 (0.8%) were filled by locals. The rest of the talent had to be brought in from other countries.

When more EP1, EP2 and EP3 positions are filled quickly by expatriates, the companies who hire these expatriates are also able to expand their business operations and then hire local staff at different positions within the organisation. This can also help with the overall profitability of these companies which will allow them to better absorb the cost of the minimum wage going up to RM1,500 a month.

Consider wage subsidies for smaller companies

The government launched the Jamin Kerja wage subsidy and hiring incentive scheme under Perkeso in January 2022 for companies making new hires. For example, companies which filled new positions with workers between the ages of 18 and 30 were given a wage subsidy of RM900 per worker for a period of six months. The same kind of wage subsidy should be considered for smaller companies (with less than 10 employees) which may not be able to cope with the increase in the minimum wage.

There may be more suggestions from the relevant stakeholders, including unions, employers’ federations, business chambers and others to improve and enhance existing labour market policies in conjunction with the increase in the minimum wage.

It does not seem that the prime minister nor the human resources minister had consulted these stakeholders as part of the process of thinking through current labour market policies.

It is still not too late to do so. As the economy moves towards living with Covid-9 in our midst, it is all the more important that we use this opportunity to introduce meaningful changes to the labour market policies beyond merely increasing the minimum wage. -FMT

Ong Kian Ming is the MP for Bangi.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.