The cabinet has recently approved a national minimum wage between RM800-RM900 per month for local and foreign workers in the country. The move, which has been proposed by the Malaysian Trades Union Congress since 2000, has been hotly contested by employers who claim that a hasty implementation of the policy will erode trade competitiveness and force 80% of SMEs to go out of business.

Minister of Human Resource Datuk Seri Dr S Subramaniam says the government decided to revisit the issue of minimum wage in 2009 after seeing that wage increase in Malaysia is not in tandem with the increase in cost of living. "So the real net wage increase for a lot of people, partcularly in the lower (income) group, a wage increase by approximately 2.6% a year for the last 10 years, whereelse inflation was much higher than that, so there was no wage increase, as far as workers are concerned," he tells BFM in a recent interview in Kuala Lumpur.

"The argument by employers has always been, wage should be determined by market factors. So we have allowed that for a long time, but eventually we came to the point that probably market factors were not stabilising or giving wage inceases that were reasonable, for workers to have reasonable remuneration as far as wages go," he says, adding that the World Bank was consulted to do a comprehensive study on the best way forward.

Subramaniam says that minimum wage is not a tool to transform Malaysia into a high income nation, as that is the purpose of the Economic Transformation Programme (ETP). "Definitely, minimum wage is not the answer to a high income economy... that's what the ETP and 12 NKEA and areas of growth that are identified, which put impetus on skill, knowledge and as the basis of the transformation of our economy. This will push us to high economy."

"Higher income nation is increasing per capita income from US$7000 to US$14000, and that's not what the minimum wage intends to do. It's actually a social security scheme to the bottom 30% who are receiving exceedingly low wages so that they receive wages that are consistent with the cost of living and the way things have changed over the years, and to compensate them for fact that theyr're working," says Subramaniam.

He says that the minimum wage is the basic cost of labour, and is "unrelated to comparison between good or not so good worker". "Those are things which have to be taken care by the management in a different scheme on and and above this (minimum wage). This is the minimum pay to any worker who comes to work for you for the amount of work he does for you."

Subramaniam says the Prime Minister is set to announce the actual minimum wage figure soon, which will be differentiated across Peninsular Malaysia, Sabah and Sarawak and by sectors. He adds that the minimum wage will be implemented in stages.

In the following interview, Subramaniam also addresses the criticism levied against minimum wage, concerns that companies will take in illegal workers to cut costs, as well as why companies need to change their mindset that Malaysia can no longer operate as a low-cost labour hub.

[In Part 2 of Current Affairs' Minimum Wage series, we spoke to Malaysian Plastics Manufacturers Association president Lim Kok Boon and the SMI Association vice-president Michael Kang. Check out the interview here]

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