Minimum wage increases undertaken every two years by the Malaysian government are doing more harm than good to the country’s low-skilled workers, an expert has warned.

Dr Carmelo Ferlito, senior fellow at Malaysia’s Institute for Democracy and Economic Affairs (IDEAS), argued that a higher minimum wage could help create a “higher unemployment rate among the low-skilled workers due to automation”.

After every such wage hike, it becomes more cost-effective for businesses to automate the work done by low-skilled workers, he said – effectively shutting them out of the job market. Dr Ferlito cited an example where “the shopping mall in front of my house replaced all the cashiers with auto-pay machines just after the latest minimum wage revision”.

Malaysia’s latest minimum wage hike came in July 2016. The current minimum wage is set at MYR1,000 (US$232) per month. It has proven effective at achieving compliance – Malaysians earning below this limit make up just 1.6 per cent of the population, according to the latest figures from 2014, Dr Fertilo said, quoting official data.

And it is quite likely that workers earning less than MYR1,000 a month do not currently have the necessary skills to “command” higher pay in terms of personal productivity, he said. What these workers need is not better wages but a skill upgrade, he stressed.

Dr Ferlito backed his arguments by citing a new August 2017 study entitled ‘People Versus Machines: The Impact of Minimum Wages on Automatable Jobs’ by the US-based National Bureau of Economic Research. It concludes that “higher minimum wages are likely to lower employment in manufacturing jobs that can be performed by robots, and hit older, black, and female workers particularly hard”.

The study, conducted by Grace Lordan, at the London School of Economics, and David Neumark, at the University of California at Irvine, includes data from 1980 to 2015 and found supporting evidence that “some workers are indeed vulnerable to job loss because of automation induced by minimum wage increases”.

But Roshan Thiran, CEO of Malaysian leadership firm Leaderonomics, argued that this job loss to automation is happening across the board and is not just limited to low-skilled workers.

The effects from the implementation of Artificial Intelligence (AI) and what’s being call the fourth industrial revolution are pushing a wide range of employees out of work, Thiran said. And as at every industrial revolution “there were growing pains” as changes took place in upskilling and educating a generation of workers, he said.

While we cannot control automation, we can work hard to up-skill and support low-skilled workers transition to new roles and capabilities, Thiran noted. And even senior leadership is not sage – “having to reinvent itself with big data changes decision-making requirements for executives”.

Thiran added: “My take would be to allow automation to thrive to force many to lose their jobs. As this takes place, they will be forced to learn new skills and capabilities to continue to survive and drive educational reforms to help develop the right skills needed for the future.”

Upskilling is indeed a priority for Malaysia. Quoting Organisation for Economic Cooperation & Development (OECD) data, albeit for 2010, Dr Ferlito noted that 58 per cent of the Malaysian labour force had only a secondary level education, 13.2 per cent a primary level education and 2.6 per cent no formal education at all.

Media Centre

If you’re a journalist or member of the press looking for more information or to speak to one of our experts, please contact our press team. 

Callout Image

Championing better work and working lives

About the CIPD

At the CIPD, we champion better work and working lives. We help organisations to thrive by focusing on their people, supporting economies and society for the future. We lead debate as the voice for everyone wanting a better world of work.