Setting and asjusting minimum wage levels


In the case of Malaysia, the minimum wages rate was set using a combination of several socio-economic indicators grouped as either base criteria or adjustment criteria. The base criteria were the Poverty Line Income (PLI) per worker and median wages. The PLI is used to account for the basic cost of living per worker in a household while median wages of the lower half of wage earners in the private sector reflects the firms’ ability to pay. These two elements were then averaged to represent the floor wage. This floor wage is then adjusted by the adjustment criteria. This second group of criteria includes: labour productivity growth, the percentage change in the Consumer Price Index (CPI) and real unemployment rate, as illustrated below:

MW = Minimum Wages (RM)
PLI = Poverty Line Income (RM)
P = Productivity growth (%)
CPI = Consumer Price Index (% change)
UE = Real Unemployment Rate (%) = (Unemployment rate – 4%)
i = Region (Peninsular Malaysia, Sabah and Sarawak)