COMMENT: Minimum wage and wage theft: A dilemma

ACCORDING to the International Monetary Fund (IMF), wages are critical for boosting consumer purchasing power, supporting economic growth, and ensuring fair wealth distribution.

Wages play a vital role in meeting workers’ basic needs, reducing poverty, and encouraging labour participation.

Malaysia’s current minimum wage, set at RM1,500 in 2022, lags behind rising living costs, thus Unicef’s May 2024 report, ‘Living on the Edge’, called for an increase to RM2,102.

Budget 2025 falls short of this recommendation, however, opting instead to raise the minimum wage to RM1,700 commencing on Feb 1, 2025. Micro-enterprises (with less than five employees) will receive a grace period for compliance.

Positive impacts

The increase in Malaysia’s minimum wage to RM1,700 under Budget 2025 is expected to bring significant benefits to workers, particularly in improving their standard of living and alleviating poverty.

With higher wages, workers will have more disposable income, which are predicted to boost consumer spending and stimulate the domestic economy.

The wage hike also aims to narrow income inequality and enhance social mobility by ensuring that even the lowest-paid employees earn enough to meet rising living costs.

Additionally, this move may promote greater workforce participation and productivity, contributing to the nation’s broader economic growth.

Moreover, the minimum wage increase could contribute to greater gender equality. Women are often overrepresented in low-wage sectors such as retail, hospitality, and care services, where minimum wage policies play a crucial role in their income levels.

By raising the minimum wage, Budget 2025 could help reduce the gender pay gap, as many women in these industries would see an immediate boost to their earnings.

Additionally, improved wages could lead to better economic independence for women, enhancing their participation in the workforce and supporting their career progression.

Over time, this may contribute to greater financial and social equity between genders.

Negative impacts

While a wage increase aims to improve workers’ livelihoods, there are concerns about its broader impact.

One immediate consequence is the likelihood of higher costs for consumers.

Small businesses, unable to absorb the costs of the wage increase, may pass this increase to their customers through higher prices for their goods and services.

Another potential consequence is a shift towards casual and part-time labour, as employers may turn to temporary workers to sidestep the higher minimum wage.

Casual workers, though less committed to long-term roles, provide businesses with flexibility and help reduce costs associated with permanent employees, such as paid annual leave and other benefits.

This strategy would allow employers to manage staffing expenses while avoiding the full financial impact of the wage increase.

More troubling is the potential issue of wage theft, a phenomenon seen globally in connection with minimum wage policies.

Wage theft involves the underpayment of both remuneration and entitlements, such as the Employees Provident Fund (EPF).

Recently, ‘cash-back’ schemes have been uncovered in countries like the USA and the UK.

And in Australia, where the minimum weekly salary was raised to $915.90 in July 2024, authorities have discovered that some employers have forced workers to return part of their wages following the mid-year wage hike.

This cash-back effectively strips the intended benefits of the employees’ wage increase.

The extent of wage theft in Malaysia remains unclear, but experts who have studied such practices estimate that this could amount to tens of millions of ringgit annually, weakening both the livelihood of the employees concerned and the national economy overall.

While in Australia, there are federal and state government agencies that actively investigate and prosecute such activities, Malaysia is yet to introduce a specialist body with these powers.

Concluding thoughts

The minimum wage hike to RM1,700 under Budget 2025 brings both opportunities and challenges.

On the positive side, it promises to boost workers’ incomes, improve living standards, and stimulate consumer spending, which could drive economic growth. It may also help narrow the income gap.

However, small businesses may struggle with higher payroll costs, potentially passing these costs on to consumers through price hikes.

Some employers may decide to employ casual or part-time workers to cut costs.

Additionally, the issue of wage theft, where employers underpay staff or enforce illegal ‘cash-back’ schemes, could increase. Balancing these pros and cons will be key to the success of this policy.

* Donna Barclay is a law lecturer in the Faculty of Business, Arts and Design of Swinburne University of Technology Sarawak Campus.