Minimum Wage Reduce the Low-Skilled Foreign Workers in Malaysian Manufacturing Sector

Abstract

The paper emphasizes on the implementation of minimum wage in Malaysia and subsequent increases of the minimum wage to estimate the minimum wage’s effect on the low-skilled foreign workers. High dependency towards the foreign works has been one of the major reasons for the Government to introduce the minimum wage policy in 2012. The study used questionnaire survey and focused on the manufacturing firms in Peninsular Malaysia that are registered with the Federation of Malaysian Manufacturers. We have conducted a panel analysis study covering periods of 2008 to 2017 to analyze the effectiveness of the minimum wage policy in reducing the low-skilled foreign workers. The findings suggested that the employers reduced their low-skilled foreign workers to respond to the implementation and the increase in the minimum wage. The higher statutory wages have caused the firms to reduce their less productive workers. Based on the analysis, we suggest that the companies tend to retain and hire more skills and productive workers in order to cope with the increase in the labour cost. Not only reducing the inflow of foreign workers, the minimum wage policy would have a significant impact towards productivity. Forging ahead with the fourth industrial revolution, productive workers are the key instruments for the firms to remain competitive in the industry as well as to accelerate their productivity and profitability.