Minimum Wages in ASEAN – All You Need to Know in 2016
By: Mareike Entzian
It is important to evaluate current minimum wages across ASEAN every couple of years, as they often fluctuate heavily and impact productivity, profits and ultimately investor decisions. With recent shifts towards a “China Plus” strategy within APAC at large, examining minimum wages across ASEAN is an increasingly useful strategy. Although wages alone will not determine the utility of given markets, minimum wage trends provide valuable insight on whether a country is likely to be a sourcing, production, or sales market for a given product. Trends show sustained inflationary pressures on wages within the region as ASEAN-5 members make an effort to bolster middle class growth and transition their economies away from traditionally export led growth.
Facts and Figures – Global Wage Report 2014/2015
Across Asia, wage trends are driven by a regional power – China – and changes take place amidst larger structural adjustments in the economy. The Global Wage Report, published by the International Labor Organization, states that wages in the Asia Pacific Region have increased almost two-and-a-half fold since the beginning of this century. In many countries, this translates into a more dynamic economy, characterized by higher living standards and incomes. As we will show later, increases in wages often translate into less dependence on foreign sources of labor, investment, exports, and result in uptakes in domestic demand.
When comparing wages across countries, investors should be pay close attention to all attributes of wages within a given country as they can differ drastically – leading to disproportionate production costs. Differing units of measurement, in conjunction with regionally specific wages within member states, are of particular importance in this regard. It should also be noted that collective bargaining – as is common in Western economies – is largely absent from ASEAN economies, and thus governments rely heavily on minimum wages to drive average wages upward.
To provide insight on these trends and to illuminate the intricacies of ASEAN’s diverse labor market, the following article provides an overview of the regional bloc’s current wage differentials.
Recent years in Vietnam have been pivotal in terms of new labor regulations, and 2016 will be no different. On January 1st, 2016 Vietnam’s regional minimum wage increased by 12.4% according to Decree No. 122/2015/ND-CP. Vietnam is divided into four different regions, each with different regional minimum wages.
The above minimum wages are subject to adjustment every year, and will be in place from January 1st – December 31st of each year. In July or August, the National Wage Council – part of the Ministry of Labor, Invalid and Social Affairs – will also propose minimum wage schemes. Following this proposal, the prime minister’s approval is required but in the event of a confirmed wage increase it will be 3 months before these adjustments will be put in place. This gives companies ample time to adjust their budget and forecast for the next year and makes compliance easier.
Recent months have seen Indonesia’s minimum wage adjusted as authorities attempt to boost the country’s economic growth and strength domestic demand. Although enjoying sustained economic growth in recent years, Indonesian wages have not kept up. Dealing with this issue head on, new regulations put into place in October peg the countries minimum wages to growth and inflation rates.
It should be noted however, that minimum wages differ across the country’s provinces, even cities, and are determined by regional wage councils. In 2015, urban areas like Jakarta set their minimum wage at Rp 2,700,000 (US$ 199.8) while rural provinces such as East Nusa Tenggara set their rate at Rp 1,250,000 (US$ 92.5). While the rate in Jakarta still remains higher compared to Vietnam, it overall is the lowest minimum wage rate across the ASEAN-5.
The standard rate to determine minimum wage increases will bring more stability towards Indonesia’s economy and resolve friction between workers and business owners. Since Indonesia shifted towards a formal market economy, investor interest has risen, but many have been deterred from making investments due to fear over labor disputes. The Jakarta Chamber of Commerce hopes this new regulation will not only attract more investors, who were previously hesitant, but will also help already present investors in setting a budget and business strategy for upcoming years.
The topic of minimum wages is hotly debated in Singapore. While many developed economies have long engaged in paying minimum wages, Singapore has no such system in place. Instead, wage rates are determined by the open market – raising concerns over too many low-paying jobs. Since there are no official minimum wages, we can only give some facts. The median gross monthly income from work in 2015 was US$ 3,949 for full-time employed residents; much higher than the national minimum of SS 1,000 (US706.5) a month proposed by the Singapore Workers Party last year.
During 2016, we will be able to observe a raise in minimum wages – which the government hopes will reduce dependence on foreign workers in Malaysia. The budget for 2016 includes a raise in minimum wage for private sector workers from RM 900 (US$ 216) to RM 1,000 (US$ 240) per month in the peninsula. The regions of Sabah, Sarawak and Labuan will see an increase from RM 800 (US$ 192) to RM 920 (US$ 220.8).
During a speech in 2010, a New Economic Model (NEM) was announced, introducing new policy options to authorities, with the purpose of transforming Malaysia into a high-income economy, less dependent on foreign labor, by 2020. As part of this program, Malaysia first introduced a minimum wage of RM 900 for the peninsula in 2013 and of RM 800 for the other regions. According to the Minimum Wages Order 2012, the above rates have to be reviewed once in two years, which lead to the adjust rates for 2016.
Thailand has a national daily minimum wage of 300 Bhat (US$ 8.4) which was passed and implemented in 2013. Assuming 20 working days a month, this would have amounted to a minimum wage of 6.000 Bhat (US$ 168.4). However, this rate ceased at the end of 2015 and will be replaced by the old system, in which minimum wages across Thailand depended on the province one worked in.
Many employers and investors may welcome this change, since resistance claimed, a minimum wage undermined Thailand’s international competitiveness, especially in regards to other ASEAN low-cost manufacturers. Now, each province and their wage committees have the opportunity to propose a provincial minimum wage, subject to no wage being lower than the previous 300 Bhat wage. These changes likely wont go into effect until later in 2016, which creates an uncertain situation for employers.
As seen in many countries across ASEAN, minimum wages in the Philippines also differ regionally. Currently, the daily minimum wages ranges as low as P235 (US$ 4.92) in Region VIII (eastern Visayas) and can go as high as P481 (US$ 10.07) in the metro Manila region. The wages in the National Capital region were adjusted by P15 in 2015, based on a wage order, and can’t be changed for the coming 12 months – creating some stability for investors. However, it should be noted that this wage hike only applies to the National Capital Region, and doesn’t affect other regions in the Philippines.