Minimum Wage Implementation in Malaysia and the Effects on Smes

Minimum wage could ‘kill SMEs’ With reference to newspaper article by Liz Lee titled ‘Minimum Wage could kill SMEs’, the author writes about the dangers or implementing minimum wage. However, the author only focuses on the down side of minimum wage towards SMEs and not on the benefits of it in the long run. The minimum wage in Malaysia has been set to RM 900 per month or RM 4.33 per hour. Why do governments implement minimum wage? The main aim of a minimum wage is to reduce poverty and the exploitation of workers who have little or no bargaining power with their employees. When minimum wage is implemented in a country, the labour cost within that company will increase. Therefore, depending on the size of the company, the implementation of minimum wage will affect production and may lead to unemployment. In Malaysia, the amount of small and medium-scale enterprises (SME) is plentiful. Based on the nature of Malaysian operations, most of the SMEs consist of labour-intensive production. With that said, it is obvious that the implementation of minimum wage would affect SMEs drastically. The ratio of labours to machineries used is large and therefore a slight increase in labour cost would have a huge impact on the production cost of an enterprise. This will force SMEs to shut down and stop production due to unbearable costs. In addition, SMEs only obtain a net profit of 3 per cent to 5 per cent. An increase in salaries paid to workers will take up a large proportion of profits gain. At this rate, SMEs would only be able to make ends meet or shut down completely due to the higher manufacturing cost. Besides that, SMEs should be protected because they are the supporting industry to many multi-national companies. Therefore a chain reaction between these enterprises will lead to a further increase in prices. In contrast, before minimum wage is implemented, the government should first spread awareness to the people about the true definition of minimum wages