Beware ripple effect of minimum wage increases

KUCHING: A local economist has cautioned that the RM2,102 minimum wage proposed by the United Nations Children’s Fund (Unicef) will have a ripple effect across various sectors.

While the intention behind the policy is to ensure fair wages and improve the standard of living for workers, Dr Dzul Hadzwan Husaini stressed that the reality is more complex.

The senior lecturer at the Faculty of Economics and Business in Universiti Malaysia Sarawak (Unimas) warned that increasing the minimum wage to RM2,102 could inadvertently raise the cost of production for businesses.

“Minimum wage laws, though well-intentioned, may not accurately reflect the value of certain positions or the productivity of individual workers.

“In some industries or regions, the mandated minimum wage may surpass the prevailing market rate for certain jobs, compelling businesses to pay wages that do not correspond to the actual value added by employees,” he said to New Sarawak Tribune.

Dr Dzul noted that small and medium-sized enterprises (SMEs) are likely to face particular challenges, as they often operate on narrower profit margins.

These businesses, he said, may lack the resources or bargaining power to negotiate lower prices for inputs or pass on increased labour costs to consumers.

“As a result, they may be forced to absorb additional expenses or reduce their workforce, neither of which is conducive to long-term sustainability,” he added.

On the same note, he asserted that the ripple effect of minimum wage increases can extend beyond direct labour costs.

He said suppliers and service providers to affected businesses may raise their prices to compensate for higher wages paid by their clients.

This, he added, leads to an overall inflationary impact on the cost of goods and services throughout the economy.

While minimum wage policies aim to uplift workers and reduce income inequality, Dr Dzul cautioned that they can contribute to price pressures in the market.

As such, he suggested that policymakers consider implementing measures to support affected businesses, such as targeted subsidies or tax incentives.

“Additionally, efforts to enhance workforce productivity and skills development can help ensure that wage increases are accompanied by corresponding improvements in output and efficiency, thereby minimising the inflationary impact on prices.”