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Southeast Asia – Labour costs set to rise further in 2014

24 March 2014

This year will witness the rise of labour cost in the Southeast Asia region, in-line with the implementation and increment of minimum wage across several countries, according to The Malaysia Chronicle.

Malaysia officially implemented the country's first-ever minimum wage on 1 Jan 2014 after a year of postponement. The minimum wage in Peninsula Malaysia is set at USD 273 (MYR 900) per month, meanwhile in the regions of Sabah and Sarawak it is USD 243 (MYR 800) per month.

Effective from 1 Jan 2014, the minimum wage in Jakarta (Indonesia) will be raised to USD 202 (IDR 2.4 million) per month. In addition to that another 23 provinces out of the total 34 provinces in Indonesia also confirmed their new provincial rates range from between USD 105 (IDR 1.25 million) and USD 160 (IDR 190 million) for the year 2014. Indonesia has different minimum wage rates across provinces as the local governments have the authority to set their own rates according to Indonesian law.

Vietnam also raised its minimum wage in four different regions categorised based on the standard of living, to between USD 90 (VND 1.9 million) and USD 128 (VND 2.7 million) from 31 Dec 2013.

Cambodian garment workers ushered in 2014 with a strike that turned ugly after the announcement of a minimum wage of USD 100 per month, instead of USD 160 per month, as demanded. The garment industry accounts for more than 90% of Cambodia's export and is worth approximately USD 4.6 billion a year.

Labour intensive sectors will feel the pinch in the short run in-line with the implementation and increment of minimum wages. It may also affect export competitiveness due to rises in production cost; given that some Asean countries like Malaysia and Indonesia are gradually cutting down subsidies on fossil fuel and electricity.

However, the overall labour cost in Southeast Asia countries is still relatively cheaper than China. The minimum wages in China is expected to increase by at least +10% in 2014. Effective 1 Feb 2014, Shenzhen has the highest minimum wage rate of USD 299 (RMB 1,808) per month. Moreover, other important production inputs and resources are also less expensive in most Southeast Asia countries especially in Laos, Cambodia, and Myanmar. Therefore, on this basis, Southeast Asian region remains as an attractive investment destination.

Minimum wages have a more positive effect in the long run as the increment of income amongst the low and middle-income groups lead to a virtuous cycle of greater consumption of goods and services. Thus, it will strengthen the real private consumption and boost the GDP growth.

Moreover, minimum wage is also seen as an opportunistic approach that raises the productivity of the labour force by pushing workers to enhance their own skill levels. Skilled labour is necessary to ensure each country is staying ahead of the competition.

Southeast Asian nations need to achieve sustainable economic growth in order to meet the target of becoming upper-middle income and high-income countries.

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