Long overdue Labor Day gift: Malaysia enforces National Minimum Wage Policy

For the first time, Malaysia sets economy-wide minimum wages- MYR900 per month for Peninsular Malaysia and MYR800 per month for East Malaysia.

These will be rolled out over a period of 6-12 months. Analysts however see little impact on inflation as it will only affect 26% of workers. Furthermore, most companies and industries in Malaysia, especially those under the watch of analysts, are already paying above the minimum wages set.

Here's more from the research by Maybank IB: 

PM Najib announced the country's minimum wage policy on the eve of Labour Day. The National Minimum Wage Policy is part of the Strategic Reform Initiatives for Human Capital Development under the Economic Transformation Programme.

The minimum wage is set at MYR900 per month or MYR4.33 per hour for Peninsular Malaysia and MYR800 per month or MYR3.85 per hour for East Malaysia.

Impact on inflation should be gradual as the minimum wage is to be enforced over 6-12 months and will benefit only 26% of workers, i.e. 3.2m of 12.3m total employment, constituting only 2.4% of the economy's total production cost.

Gradual implementation will help manage the impact. The impact on other macroeconomic variables like employment and investment can only be gauged after some time since this is the first time an economy-wide minimum wage is being implemented. The Government is obviously trying to manage and mitigate any adverse impact by gradually implementing minimum wage. The 6-12 month enforcement timeframe means that the minimum wage will come around the time for Budget 2013, where there might be announcements of measures and incentives and assistances for employers - especially SMEs and micro-enterprises - to facilitate the implementation of the minimum wage.

Muted impact on corporate earnings to be expected. Channel checks with industries and companies under Maybank's research coverage reveal that the impact is either "marginal" or "nil", because the industries and companies are able to pass on, or adjust to any direct or indirect cost increases, and/or the lowest salaries in these industries and companies are already above the minimum wage, mainly due to specific skills and demand-supply factors.