KUALA LUMPUR (Reuters) – Malaysia’s cabinet has approved a national minimum wage for the first time in the country’s history, two government sources said, as Prime Minister Najib Razak looks to shore up incomes and votes ahead of widely expected elections this year.

The minimum wage comes as Asia increasingly turns to such social safety nets to counter widening income gaps and the related political repercussions, while debt-laden Europe struggles to keep these policies afloat.

Malaysian government sources, who declined to be identified because of the sensitivity of the issue, told Reuters that the cabinet had approved setting the minimum wage at 800 to 900 ringgit per month, depending on location.

The minimum compares with 760 ringgit per month, which according to a government survey roughly represents the poverty income line in Malaysia and the gross pay that workers take home in the key manufacturing sector of this trade-reliant country.

“The cabinet approved (the minimum wage) about two weeks ago and the government has explained this to industry groups,” said a source with direct knowledge of the matter on Monday. “There is some reluctance, but we are moving on with it. The prime minister could announce it either this week or next week.”

The move is a major part of Najib’s new economic model launched in 2010 to transform the country from a middle-income economy to developed nation status by 2020 via market reforms and greater focus on services.

Malaysia’s basic wage policy coincides with moves by China, the world’s manufacturing hub, to raise minimum wages by at least 13 percent in the five years to 2015.

A Malaysian government spokesman declined to comment on the matter.


The minimum wage has faced heavy opposition from Malaysian employers, who have said imposing the policy too quickly will erode competitiveness in a country that has kept costs low for decades to hold onto investments from Dell Inc and Intel Corp .

Even former premier Mahathir Mohamad has weighed in, saying the move would bankrupt Malaysia, once known as Southeast Asia’s electronics hub.

The Malaysia’s Employers Federation painted an even bleaker picture, forecasting that the minimum wage would wipe out 4 million jobs and 200,000 companies.

Yet in recent years Malaysia has fallen off the investor radar as it struggles to compete with Indonesia with its ample, cheap labour and South Korea with its highly developed electronics sector and skilled workforce.

The minimum wage would also pave the way for Najib’s other delayed reforms, the second government source said, which could help Malaysia reduce its budget deficit. The government aims to cut the fiscal gap to 4.7 percent this year.

Th reforms include a goods and services tax that would widen Malaysia’s narrow tax base, which largely relies on revenue from state oil company Petroliam Nasional Bhd , and rolling back some food and fuel subsidies.


News of the policy comes nine months after lawmakers passed a bill to set up a minimum wage task force, signalling an aggressive push by Najib for votes from lower income households that account for a third of Malaysia’s 28 million population.

“It is definitely an indicator that elections are around the corner,” Shaun Levine, a Southeast Asia analyst with Eurasia Group, said of the new wage policy.

Levine said Najib was attempting to counter a move by the opposition, which set a minimum wage of 1,500 ringgit in central Selangor state, one of five state governments it won in historic gains against the ruling national front coalition in the 2008 polls.

Najib needs to win back support from voters in urban areas — who say living costs have outpaced wages — in polls that must be held by April 2013 but are likely to be called in the first half of 2012 before a looming global slowdown hits Malaysia.

He also needs to cement his grip on votes from the majority Malays, who make up half of the population and are favoured under a decades-old affirmative action policy that investors and the opposition say has been abused by business elites.

Despite the affirmative action, Malays make up 73 percent of the bottom 40 percent of households that earn less than 2,300 ringgit per month, according to official data.

So far Najib appears to be gaining traction. A polling firm said Malaysia’s approval for Najib had risen to 69 percent in February thanks to a resilient economy and disbursement of social funds to lower income households.