PETALING JAYA: The implementation of minimum wage in Malaysia will eventually automate certain industries because employers will start finding alternative methods of production to reduce reliance on labour. Also, the higher wages will in turn support the move to transform Malaysia into a high-income nation.

“Industries that are highly reliant on low-cost labour will move away from their reliance on manpower to carry out these labour-intensive jobs,” AMResearch director of economic research Manokaran Mottain toldStarBizWeek.

“This is a good development economically, and employers will find more productive and efficient methods such as buying machines and automation to do the work and be less dependent on labour. This automates the supply chain promoting efficiency and productivity,” he said.

As a result, Malaysia would indirectly gradually reduce its reliance on foreign low-cost labour while moving to more efficient methods of production, consistent with the country's aspirations to eventually become a high-income nation, he added.

Although this will in the short term incur higher labour costs for employers that are not paying the minimum wage yet, analysts opine that the move is positive for workers and are also expecting the affected companies to eventually pass down the additional costs to their customers.

“The potentially higher pay for these workers will benefit the Malaysian economy as a whole, as they will have more spending power, reducing the concentration of wealth on just a few people, thus ensuring stability of the country,” another economist with a foreign research house said.

“I largely expect most if not all companies affected by this to eventually pass down these costs to the end-consumer,” he added.

Hong Leong Investment Bank Research said in a recent report the minimum wage policy would generate an additional disposable income of RM1bil, which could potentially translate into an additional 0.1% of gross domestic product (GDP) growth.

In the near term, Hong Leong analyst Low Yee Huap said that the higher disposable incomes of the potential beneficiaries of 3.5 million workers were expected to help boost domestic demand.

Maybank Investment Research, meanwhile, in a report said that the policy would have little impact on the companies under its coverage because they would be able to eventually pass on the extra cost.

“Our channel checks with companies under our research coverage reveal that the impact is either marginal' or nil', because industries/companies are able to pass on, or adjust to, any direct or indirect cost increases,” Suhaimi Ilias, Ramesh Lankanathan and William Poh wrote in the report, referring to companies in the construction, property development, consumer, automotive sectors.

They said the lowest salaries in these industries/companies were already above the minimum wage, mainly due to specific skills and demand-supply factors.

For glove makers based in Malaysia, Maybank Research said they were eventually expected to pass on the higher incurred costs to their customers.

“The only sector that has a higher proportion of average wages below the minimum wage is the glove industry. It employs 2,500-5,000 workers at around RM700 per month average wage,” they said.

“The impact from the minimum wage implementation is an estimated RM6mil-RM12mil per year, or 5%-10%, on the bottom line. But, as this is an industry-wide cost inflation, and given that the implementation of the minimum wage is not immediate, the industry should be able to pass on the higher costs,” they added.

The minimum wage policy is also not expected to impact Malaysia's competitiveness much as a growing number of countries in the region have also recently raised their minimum wage rates as well.

Hong Leong's Low said some countries, especially China and Thailand, had recently raised their minimum wage levels aggressively.

“For instance, Malaysia's minimum wage level will be only slightly higher than Thailand's after the latest minimum wage hike. China has also recently raised its minimum wage in coastal cities to 1,450 yuan (RM703) per month,” he added.