How The M’sian Minimum Wage Was Created Just 9 Years Ago & What’s Changed Since Then

Did you know that our national, sector-wide minimum wage was actually introduced more recently than we would’ve expected?

The Malaysian government announced the nationwide implementation of minimum wages in July 2012, and in the same year, the Minimum Wages Order 2012 came to being. The law was then enforced on January 1, 2013. That was barely a decade ago. 

At that time, the minimum wage rates for West Malaysians were RM900/month and RM4.33/hour, whereas for East Malaysians, they were RM800/month and RM3.85/hour.

What Was Before The Minimum Wage Order?

Prior to this, Malaysia only had the Wages Councils Act 1947 which was established for workers who were vulnerable with low pay and had inadequate collective bargaining arrangements.  

According to this Act, the government may establish Wage Councils for certain non-unionised sectors of the workforce, and they’ll be made up of government, workers’ and employers’ representatives, and not more than three individuals.

These Councils would discuss and submit Wage Regulations Proposals which the government may choose to enact in a Wage Regulation Order.

Wage rates of unionised sectors of the workforce are then determined through a collective agreement and set through decentralised collective bargaining, according to the Industrial Relations Act 1967. 

Hence, 6 Wage Regulations Orders were enacted (and some amended the years after):

• Catering and hotel
• Cinema worker
• Stevedores (a person employed at a dock to load and unload ships) and cargo handlers
• Shop assistants
• Shop assistants (Sarawak)
• Private security guards

To help you gauge the rate of minimum wages paid to workers back then, cinema workers had to be paid RM155 per month in cinemas normally showing 4 films a day, and shop assistants aged 21 and above had to be paid RM250 per month in certain urban districts, according to the International Labour Organisation.

Failure to pay minimum wage rates as established by the Wages Regulation Orders may result in the employer being ordered to pay the worker the remaining sum of what they should’ve been paid and a potential fine not more than RM500 for each offence.

Realising Our National Productivity Increased But Wages Didn’t Catch Up

Now, there were several setbacks under the Wages Councils Act. 

The process to establish Minimum Wage Orders were long, tedious, and ad-hoc, minimum wage rates weren’t regularly revised, and many other large workforces were left out since only those 6 were established. Moreover, the act also didn’t state how frequently minimum wage rates should be adjusted.

Moreover, in 2009, the Ministry of Human Resources conducted a National Employment Studies and found that 33.8% of private-sector workers were paid below RM700 per month, relative to the Pendapatan Garis Kemiskinan (PGK) RM800, according to Prof. Siti Marshita from MMU, an expert in Labour Law, in her paper here. 

Additionally, the World Bank found that for the past 10 years, wages in Malaysia was only a flattening of 2.6% per year while productivity increased on average by 6.7% in the same period.

Realising that Malaysians aren’t paid fairly for their labour plus the increased costs of living, the government then decided to introduce a national minimum wage starting with the founding of the National Wages Consultative Council in 2011.

From there, the council was responsible for studying all things minimum-wage related like speaking with the relevant stakeholders and learning from other countries to make recommendations to the government. 

Once that was over, the Minimum Wages Order was finally announced and enforced the year after, setting a national, sector-wide minimum wage rate for all Malaysians.

Not Everyone Was Happy, Though

To help you gauge the value of the first minimum wage rate, RM900 back then in 2013 would mean RM1,037.68 in today’s ringgit value, according to the Malaysian inflation calculator. So not too big of a difference, but not close to our current minimum wage rate of RM1,200 as well. 

Initially, RM1,200 per month was the amount asked for by the Malaysian Trades Union Congress, but later revised their demand to RM900 to meet the government halfway, according to the New York Times.

Though this was deemed enough for the time being by the government and the union back then, the Socialist Party of Malaysia didn’t share the same sentiments.

They rallied in KL calling for RM1,500 per month and criticised the government for being discriminatory in setting different rates for workers in different parts of the country.

However, the PM at the time, Najib Razak just responded that the different rates were a reflection of regional variations in salaries and cost of living.

As for employers, some of them were against paying the minimum wage because it would reduce the companies’ profit margins, and that some companies with a small amount of employees could be forced out of business.

A UM Economics lecturer, Professor Terence Gomez, also shared in the interview that the introduction of a national minimum wage could hurt customers as well, if companies passed on the increased cost of exports onto their customers. 

“I see this more as a political move rather than an attempt to deal with the problem of unjust wages for workers,” he shared in the interview with the NY Times. 

He also added that these wages may be more beneficial for workers in the rural area rather than the urban ones, and the “the rural vote is what puts the government in power.” 

The national minimum wage rate didn’t stay this amount, of course, as over the years it was changed 3 more times to come to the RM1,200 it is today.

Our Minimum Wage Is Increasing, But Does It Benefit Everyone Equally?

While having a national, sector-wide minimum wage cushioned the wage inequality in the country, we are still compensated quite unfairly for our productivity across most workforce sectors, according to Bank Negara Malaysia’s 2018 annual report.

While there’s been an incline in tertiary education graduates into the market, the real minimum monthly basic salary for fresh graduates has declined. 

However, the starting salary for those without tertiary education have been seeing an incline, thanks to the national minimum wage increases.

According to BNM, this could suggest that our economy has not created sufficient high-skilled jobs to absorb the number of graduates entering the labour force, resulting in 50% of those in low-skilled manual jobs overqualified for these occupations, as found by Khazanah Research Institute.

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The next time you hear anyone criticising millennial or Gen Z adults for being “picky” with jobs, you’ll be better informed as to why.

While it’s a good thing that our national minimum wage is increasing and benefiting those that need it most (as it should), it’s still important that a similar protective policy is put in place before the brain-drain issue becomes detrimental to the country’s economic growth.

• You can read more salary-related articles we’ve covered here.