Minimum wage’s benefits are plenty
I
HAVE been waiting for a reason to talk about a pizza delivery man I met
in a lobby of an condominium while waiting for a lift to arrive. It was
in the evening and he was delivering pizza to one of the residents. I
struck a conversation about his job, his
salary and his aspirations, and
got enough from the chat to get his views that the decent salary he was
making was insufficient.
The young man claimed he was making
RM2,200 a month whizzing through traffic, despite the weather, to send
piping-hot pizzas to customers from between 10am and midnight.
He
said that after sending back money to his parents in Pahang and paying
for his lodging and expenses to live in
Kuala Lumpur, the salary was
just not enough. Furthermore, the job was wearing him down and he wants
to do something else, but is finding it hard to get a new skill with the
demands of his current job and the obligations he has.
His story
will resonate with many others who are struggling to make ends meet,
and whatever little assistance they get will surely be welcome. That
small bit of help though came for millions of
Malaysians by way of a new
minimum wage
the Government announced on April 30.
Workers in
Peninsular Malaysia were promised a floor wage of RM900 a month and
those in Sabah, Sarawak and Labuan RM800 a month. The minimum wage will
take effect six months from the time the law is gazetted to allow
industries to make adjustments to comply with the new law.
Non-professional services companies with fewer than five employees will
be given a further six months to make their adjustments.
The
higher minimum wage will benefit a reported over three million
private-sector employees and the net effect economists have calculated
is a negligible increase in unemployment and a small drop in
investments.
Economic growth and the investments that will take
place and the promise of new jobs will be more than enough to offset
those small impediments.
One drawback many can expect is higher
prices. You can bet employers will pass on the higher staff costs to
customers, but the quantum should be kept in check given the competition
that exists in business.
The benefits, though are plenty.
The
higher wage that almost a third of the workforce will benefit from will
be a boost to the economy, which in recent years has been driven by
consumption.
The higher wages will also manifest in other
benefits for workers. A higher base salary will mean higher
contributions to the
Employees Provident Fund (EPF) and the extra will
go some way to shore up the retirement savings of many Malaysians.
Companies
will see an increase in their payments to the EPF, but with
productivity having risen 6.7% per year over the past 10 years and
companies making a lot more money than before judging by profits
announced by
listed companies and tax collection by the Government, they
can afford to pay a little more for their workers without diving into
bankruptcy.
With a third of the workforce soon enjoying a higher
base salary, the increased income will go some way to satisfy the
requirement of banks under the new responsible lending guidelines.
Under
the new loan criteria, banks will look at the basic salary and decide
whether a person can afford a loan. With higher salaries, maybe that
will be enough for low salaried people to qualify for a loan to get the
small car or home they need.
The minimum wage will help those in
need. It might help those like the pizza delivery man if the
minimum
salary together with allowances are fixed. It is a start that many
Malaysians will be thankful.
●
Deputy news editor Jagdev Singh Sidhu needs to get a lucky charm ahead of this weekend's FA Cup final.
Minimum wage effects manageable
Effects of the minimum wage policy are expected to be manageable and
unlikely to have a significant impact on companies, with rubber glove
manufacturers seen to be the hardest hit, analysts said.
UOB KayHian Research head Vincent Khoo said there will be no
significant wage rise for most listed companies, especially given the
flexibility for the floor wage to include allowances and benefits, hence
no wage restructuring is required.
"However, small and medium enterprises in particular, may still be
impacted by higher overtime and there may be an upward cascade effect
for some listed companies."
In terms of sector, he said glove manufacturing remains the most
impacted but the effect should be significantly softened with the
incorporation of some allowances into wage calculations.
"Minimum wages would lower industry profits by as much as over 10% as
a significant portion of the industry's staff force earn only RM600 to
RM700 a month before allowances and benefits."
Consumer companies emerge as the winner as overall demand for
fast-moving consumer goods should improve with higher disposable income
among low-wage earners.
"We expect manufacturers to raise product prices during the implementation grace period to maintain profitability," Khoo said.
Affin Investment Bank economist Alan Tan said: "The direct effect of a
minimum wage increase will result in increases in the relative prices
of goods produced. However, even if minimum wages were to lift prices
(especially in low-wage industries), we expect the inflationary impact
to be manageable, as the minimum wage is set at a relatively low level,
which will not raise production costs and overall price level
significantly.
"Overall, we expect the broader economic effects of minimum wage in
the country on company profits, prices, and inflation, to be manageable
and unlikely to have a significant impact on the economy."
However,
CIMB Research said higher wages will release pent-up consumption, albeit with some inflationary impact.
"Our view is that an appropriate minimum wage could over time achieve
a big push, which is moving the low-wage, low-consumption and informal
labour market to a high-wage, high-consumption and formal labour
market."
For rubber glove makers, HwangDBS Vickers Research said staff costs
would increase by 17-22% while earnings could fall by 5-19% .
"We expect the additional staff costs to be passed to customers over
time, but in the immediate term, we expect earnings and margins to be
dampened."
It said Hartalega Holdings Bhd is the least affected while Top Glove Corp Bhd would be most affected.
"Based on our estimates, Hartalega's salary costs could rise by RM10
million a year, an increase of 17% and this would lower the 2013
estimated net profit by 5%. For Top Glove, staff costs could rise as
much as RM39 million (an increase of 22%), denting 2013 earnings by 19%.
Meanwhile, we estimate Kossan Rubber Industries Bhd's annual salary
costs to increase by RM18 million (a rise of 17%) and net profit to fall
by 13%."
However, it said that if fixed allowances or cash payments are
allowed in the calculation for minimum wages, the impact will be
softened.
It maintained a hold on Top Glove at a target price of RM4.80 and Hartalega (RM7.70) and Kossan (RM3.30).
Affin Investment Bank said rubber glove makers have indicated that
they will most likely reduce or re-categorise certain allowances to help
offset the increase in their workers' basic salary.
Ee Ann Nee
sunbiz@thesundaily.com
Glove makers to gain from wage rule in long run
PETALING JAYA: While the new minimum wage will dent glove makers’
earnings in the near term, it is expected to be beneficial for the
industry in the long run,
CIMB Research said.
“It
will encourage glove makers to reduce their use of low-skilled labour
and improve their manufacturing processes by using more advanced
technology and methods.
“Also, we believe that wage inflation
will make the smaller glovemakers less competitive and catalyse
consolidation in the sector. This will strengthen the positions of the
large glove makers, favouring those with more efficient processes such
as
Hartalega (
Holdings Bhd),” the brokerage said in a note to clients.
On Monday,
Prime Minister Datuk Seri Najib Tun Razak
announced the details of the country’s wage floor for the private
sector, with the monthly benchmark set at RM900 for Peninsular Malaysia
and RM800 for Sabah, Sarawak and Labuan.
This translates to an hourly rate of RM4.33 and RM3.85 respectively.
Some
analysts say the new minimum wage rule may encourage glove makers to
reduce their use of low-skilled labour and improve their manufacturing
processes by using more advanced technology and methods.
The
policy applies to all workers in the private sector, save for those in
domestic services, but it will only take effect six months after the
Minimum Wages Order is gazetted.
The law, which will be reviewed
every two years, affords some flexibility to employers as they can
absorb a certain amount of allowances and fixed cash payments in
calculating the new wages.
According to CIMB Research’s
forecasts, the minimum wage could shave some 1% to 7% off glove makers’
financial year 2013 core net profit, but the brokerage has kept its
“neutral” rating for the sector and estimates for the companies under
its coverage as they may yet find ways to mitigate the impact of higher
staff costs.
Other research houses have also maintained their
ratings pending further clarification from the companies and the actual
gazetting of the law.
Among
the glove makers, Hartalega is the least affected by the setting of a
wage floor due to its highly automated production facilities and high
margins relative to its peers.
“We believe Hartalega will emerge
the strongest from the higher wages as its operations are already lean
and management is working hard to further automate its manufacturing
process.
“With the highest margins (lowest post-tax cost base),
technologically advanced manufacturing process and an aggressive
eight-year expansion plan, Hartalega has the most wiggle room in the
sector to price gloves competitively and gain market share,” CIMB
Research said.
Management was aggressively working on further
automating the stripping and packaging portions of its manufacturing
process to reduce the use of low-skilled labour and optimise operating
expenditure, it added.
CIMB Research said
Top Glove Corp Bhd
would be the hardest hit as a result of low margins and an oversupply
for its gloves that could take two to three years to work off.
“We
believe it would be challenging for management to pass on the cost of
the minimum wage to customers. This would put further pressure on
margins and Top Glove’s high-volume low-price model.”
Top Glove
shares have reflected this, with the counter losing 13 sen, or 2.72%, to
RM4.65, making it one of the day’s top losers.
In contrast,
Kossan Rubber Industries Bhd and
Supermax Corp Bhd dipped one and two sen respectively to RM3.24 and RM1.87 yesterday, while Hartalega was unchanged at RM7.80.
For
Supermax, CIMB Research said the manufacturer was ramping up nitrile
production to 53% of capacity by financial year 2013. This could help
curb rising staff costs, the brokerage added, as the cash cost of
producing nitrile gloves was 20% lower than natural rubber.
Kossan,
meanwhile, is poised to tap on the growth in China, where glove usage
is a mere two gloves per person per annum versus 50 in Europe and 96 in
the United States. Kossan entered the market in financial year 2012 via
its 53%-owned
Cleanera HK Ltd.
Moving forward,
HwangDBS Vickers Research expects the additional staff costs to be passed on to customers over time.
Affin Investment Bank,
in a report, also noted that Top Glove had previously said it would
likely pass on 80% to 90% of the higher costs by increasing prices,
which could prompt other glove makers to do the same. - The Star Business
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Malaysia's minimum wage, and its implications
Malaysia's Minimum wage’s benefits and effects
