Abstract
Before the minimum wage was introduced, foreign workers’ employment in Malaysia was among the highest in Asia. Cheap foreign labour has caused a high inflow of foreign workers to the Malaysian labour market, especially in low-skilled jobs. Nevertheless, this trend does cause not only unemployment for the local people, but also high dependency on low-skilled foreign workers would depress wages and distort the productivity in the industry. Under the Minimum Wage Order 2012, the government has introduced a minimum wage policy as one of the initiatives to reduce the number of foreign workers. Implementing such a policy also aims to attract local people to join the low-skilled jobs. However, with the minimum wage policy in place and expecting to achieve these objectives, implementing the minimum wage policy would affect overall employment in Malaysia. Higher labour costs that the firms will incur due to the minimum wage would cause employers to reduce their labour demand. The present study used a questionnaire survey and focused on the Peninsular Malaysian manufacturing firms registered with the Federation of Malaysian Manufacturers. A panel data covering 10-year periods was collected from 297 manufacturing firms and analysed using static panel data regression to examine the effect of the minimum wage on employment. The findings suggest that the minimum wage has significantly decreased employment. The higher labour cost incurred by the employers has reduced employment.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
References
Baek, J., & Park, W. (2016). Minimum wage introduction and employment: Evidence from South Korea. Economics Letters, 139, 18–21.
Brecher, R. A., & Gross, T. (2019). A minimum-wage model of unemployment and growth: The case of a backward-bending demand curve for labor. International Journal of Economic Theory, 15(3), 297–309.
Broecke, S., Forti, A., & Vandeweyer, M. (2017). The effect of minimum wages on employment in emerging economies: A survey and meta-analysis. Oxford Development Studies, 45(3), 366–391.
Christl, M., Köppl-Turyna, M., & Kucsera, D. (2018). Revisiting the employment effects of minimum wages in Europe. German Economic Review, 19(4), 426–465.
Department of Statistics Malaysia. (2018a). Labour force survey time series statistics. https://www.dosm.gov.my/v1/uploads/files/%0A3_TimeSeries/LFS_1982–2018/12.TABLE_12.pdf.%0A.
Department of Statistics Malaysia. (2018b). Malaysia economic performance fourth quarter 2018. https://www.dosm.gov.my/v1/index.%0Aphp?r=column/pdfPrev&id=aHRydmZMSmtNL0lTbW43SjVOSlZkQT09%0A
Fang, T., & Lin, C. (2015). Minimum wages and employment in China. IZA Journal of Labor Policy, 4, 1–30.
Gavrel, F., Lebon, I., & Rebière, T. (2010). Wages, selectivity, and vacancies: Evaluating the short-term and long-term impact of the minimum wage on unemployment. Economic Modelling, 27(5), 1274–1281.
Ghee, T. C., Mooi, S. K., & Sang, M. L. M. (2015). An initial review of the implementation of the Malaysian minimum wage order: A case for a win-win intention, implementation and enforcement. The Journal of Develo** Areas, 49(4), 313–324.
International Labour Organization. (2012). National Wages Consultative Council Act 2011. https://www.ilo.org/dyn/natlex/natlex4.detail?p_isn=89540&p_lang=en
International Labour Organization. (2016). Minimum wage policy guide. https://www.ilo.org/global/topics/wages/minimum-wages/lang%2D%2Den/index.htm
International Labour Organization. (2019). Minimum Wages Order 2020. https://www.ilo.org/dyn/natlex/natlex4.detail?p_isn=109409&p_lang=en
Karamanis, K., Ch, B., & Ioakimidis, M. (2018). Greek labour market: The evaluation of minimum wage and unemployment during the period 2000-2017. Journal of International Studies, 11(4), 93–105.
Khan, R. A., Liew, M. S., & Ghazali, Z. B. (2014). Malaysian construction sector and Malaysia vision 2020: Developed nation status. Procedia-Social and Behavioral Sciences, 109, 507–513.
Lee, D., & Saez, E. (2012). Optimal minimum wage policy in competitive labor markets. Journal of Public Economics, 96(9–10), 739–749.
Lemos, S. (2009). Minimum wage effects in a develo** country. Labour Economics, 16(2), 224–237.
Mastracci, S. H., & Persky, J. J. (2008). Effects of state minimum wage increases on employment, hours, and earnings of low-wage workers in Illinois. Journal of Regional Analysis and Policy, 38(8), 268–278.
Meer, J., & West, J. (2016). Effects of the minimum wage on employment dynamics. Journal of Human Resources, 51(2), 500–522.
Ministry of Home Affairs Malaysia. (2017). Official documents, national publication 2016. https://www.data.gov.my/data/ms_MY/dataset/%0Ajumlah-pekerja-asing-plks-aktif-mengikut-sektor%0A.
Nguyen, C. V. (2017). Do minimum wages affect firms’ labor and capital? Evidence from Vietnam. Journal of the Asia Pacific Economy, 22(2), 291–308.
Okey, M. K. N., Adjor, M. D., & Ketor, Y. E. (2020). How does minimum wage affect employment? Evidence from selected African countries. International Journal of Economics and Accounting, 9(2), 132–154.
Okun, A. M. (1963). Potential GNP: Its measurement and significance. Cowles Foundation for Research in Economics at Yale University.
Plosser, C. I., & Schwert, G. W. (1979). Potential GNP: Its measurement and significance: A dissenting opinion. Carnegie-Rochester Conference Series on Public Policy, 10, 179–186.
Robinson, J. (1969). The economics of imperfect competition. Springer.
Rogers, W. (1993). Regression standard errors in clustered samples. Stata Technical Bulletin, 13, 19–23.
Sabia, J. J. (2009). Identifying minimum wage effects: New evidence from monthly CPS data. Industrial Relations: A Journal of Economy and Society, 48(2), 311–328.
Senasi, V., & Khalil, S. (2015). Implementation of minimum wage policy in Malaysia: Manufacturing employers’ perceptions of training provision and fringe benefits. International Journal of Humanities and Social Science, 5(12), 87–94.
Starr, G. (1981). Minimum wage fixing: International experience with alternative roles. International Labour Review, 120, 545.
Van Klaveren, M., Gregory, D., & Schulten, T. (2015). Minimum wages, collective bargaining and economic development in Asia and Europe: A labour perspective. Springer.
Wang, J., & Gunderson, M. (2012). Minimum wage effects on employment and wages: Dif-in-dif estimates from eastern China. International Journal of Manpower, 33(8), 860–876.
Wei, A. J., Murugasu, A., & Wei, C. Y. (2018). Low-skilled foreign workers’ distortions to the economy. In Central Bank of Malaysia.
Yuen, J. L. F. (2013). Minimum wage policy in Malaysia: Its impact and the readiness of firms. World Applied Sciences Journal (Economic, Finance, and Management Outlooks), 28, 19–26.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2023 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Tajuddin, S.A.F.S.A., Muhamad, S., Saputra, J., Hasan, F.A., Sulaiman, N.F.C. (2023). Examining the Effect of Minimum Wage on Employment in the Malaysian Manufacturing Sector. In: Yamoah, F.A., Haque, A.u. (eds) Corporate Management Ecosystem in Emerging Economies . Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-41578-4_4
Download citation
DOI: https://doi.org/10.1007/978-3-031-41578-4_4
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-031-41577-7
Online ISBN: 978-3-031-41578-4
eBook Packages: Business and ManagementBusiness and Management (R0)