Examining the Effect of Minimum Wage on Employment in the Malaysian Manufacturing Sector

Sheikh Ahmad Faiz Sheikh Ahmad Tajuddin, Suriyani Muhamad, Jumadil Saputra (jumadil.saputra@umt.edu.my), Fauziah Abu Hasan and Nor Fatimah Che Sulaiman
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Sheikh Ahmad Faiz Sheikh Ahmad Tajuddin: Universiti Sultan Zainal Abidin
Suriyani Muhamad: Universiti Malaysia Terengganu
Jumadil Saputra: Universiti Malaysia Terengganu
Fauziah Abu Hasan: Universiti Malaysia Terengganu
Nor Fatimah Che Sulaiman: Universiti Malaysia Terengganu

A chapter in Corporate Management Ecosystem in Emerging Economies, 2023, pp 43-61 from Springer

Abstract: 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.

Keywords: Foreign workers; Minimum wage; Manufacturing sector; Wage policy; Malaysia (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/978-3-031-41578-4_4

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