The Malaysian Insight

INCREASING the minimum wage due to rising inflation would only push prices even higher as employers look to accommodate rising operational costs, experts have warned.

They said income growth would create a vicious cycle, unless labour productivity was also improved.

Moreover, inflation was only temporary and would reverse once the Covid-19 pandemic stabilises, they added.

Asia Business Centre’s head of tax and financial consulting Chua Tia Guan said he was surprised by the call to increase the minimum wage.

Chua said an increase in wages would in turn increase business costs, and consequently increase prices.

“Higher wages will stimulate more spending growth, which will tighten production capacity and push up corporate costs.

“The company will have to increase product prices when employees ask for a larger salary to compensate for the rising cost of living.

“The salary increase cannot offset inflation,” he told The Malaysian Insight.

He also doubted that employees who received extra income would use it for shopping.

“Employees will not consume because of the increase in prices. In other words, it will eventually evolve into a salary increase and be eaten by inflation,” Chua said.

He emphasised that current inflation was due to the disruption in the supply chain caused by the epidemic, and it may be short-lived.

He predicted that once the epidemic eases and the supply chain returns to normal, inflation may ease.

He believed inflation was around 2%, with most prices stable except for cooked food, transport and fuel.

Chua said employers should raise salaries only linked to the productivity of the company.

Becoming efficient

Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) SMEs committee chairman Koong Lin Loong said there was also difficulty in hiring employees during the epidemic.

He also said salary increments would add to inflation problems and companies should focus on increasing efficiency.

“When employees are efficient, the company’s gross profit will naturally increase,” he told The Malaysian Insight.

“Many companies are facing a shortage of reserves due to the epidemic, and it is not easy to obtain approval for loans from banks.”

He said that when the government encouraged enterprises to automate or digitalise, a large amount of capital was required for initial investment.

However, only by co-ordinating with the government can productivity be increased and profitability achieved, Koong said. 

“We called on the government not to impose licences on a whim, or to ban businesses from door-to-door trading, making it difficult for companies to stay afloat,” he said.

Recently, there have been a lot of calls for the government to raise the minimum wage to RM1,500 so that employees can cope with spiralling living costs.

Human Resources Minister M. Saravanan has said that the government was concerned with the impact of raising minimum wages on micro, small and medium-sized enterprises (SMEs).

He said any rise should be carried out in stages to relieve pressure on employers.

Attract investors

Chua and Koong believed that it was not suitable to raise the minimum wage during the epidemic.

Chua reiterated that raising salaries must be productivity-orientated, or it will aggravate inflation during the economic recovery period.

Koong wants the government to create a business environment allowing more foreign companies to invest in Malaysia.

“So that when the economy turns, costs will decrease and prices drop,” he said.

SME Association of Malaysia president Ding Hong Sing said that local wages has already exceeded RM1,500, and the average was between RM2,000 and RM3,000.

He also stated that many SMEs have introduced incentives to encourage locals to work hard, thereby increasing the productivity of enterprises.

“If employees come to work every day, they can get an additional RM200 reward,” he told The Malaysian Insight, while agreeing that increasing the minimum wage is counterproductive. – December 20, 2021.