Myanmar: Dilemma on minimum wages could lead to better productivity

Concern is rising among employers over demands that the minimum wage be raised to K4,800- K6,600 ($4-$5.20) per day from K3,600 per day currently. That’s a potential increase in wages of more than 80 percent, a move which, if implemented, could put many companies out of business.   

The Confederation of Trade Unions in Myanmar (CTUM), the largest workers’ union in the country, is lobbying to increase the daily minimum wage to K6,600, claiming that the sum is necessary for workers to meet the rising costs of living.

To be sure, Myanmar pays the lowest minimum wage in ASEAN, falling short of even Cambodia, Laos and Vietnam. According to the list of comparative wages in ASEAN released last month by National Wages and Productivity Commission in Manila, Philippines, Myanmar’s monthly minimum wage, estimated at around $80.28, is less than the monthly wage of $110.34 in Laos, $140 in Cambodia and $147.47 in Vietnam.

Higher wages

The move arrives more than two years after U Thein Sein’s previous government set the minimum wage at K3,600 ($2.80) for an eight-hour day in September 2015 despite calls for the wage to be set at K5,600 a day. With the minimum wage at that level, most factory workers typically draw around K130,000 on a monthly basis and up to K190,000 including overtime, bonuses and other allowances.

According to local workers, food expenses and room rentals in the outskirts of Yangon amount to K80,000 a month on average, but prices are rising as the cost of basic commodities like petrol and clothes as well as education and healthcare have been going up.

As such, many unions have lobbied hard for the minimum wage to be raised. In February, the government set up the National Minimum Wage Committee, which later recommended that the minimum wage be set between K4,000 and K4,800 for an eight-hour workday.

In comparison, trade unions have lobbied for a minimum wage of at least K4,800, which would enable workers to earn an average of K120,000 per month excluding overtime and up to K172,000 per month if overtime pay is included.

Based on the CTUM’s demand for K6,600 per day, workers would earn about K198,000 monthly, excluding overtime. If overtime is included, workers could earn up to K283,800 (about US$ 218.30), which would raise living standards substantially and lift millions out of poverty.

Not commercially viable

However, the main problem is that by raising minimum wages to the higher end of the government’s recommendation of K4,800 per day, many factories and small and medium enterprises (SMEs) could sink into losses and eventually collapse. SMEs collectively form up to 80pc of the Myanmar economy, according to previous estimates.

Higher minimum wages would be especially daunting for garment factories, which cannot afford to pay their workers much more. “The average locally-owned garment factory is loss-making due to poor infrastructure and logistics. As a result, costs are higher [in Myanmar] than in other ASEAN countries,” said U Win Aung a patron of Myanmar Garments Manufacturing Association (MGMA).

“Garment production lines are very expensive, we can’t afford to pay higher minimum wages while we have not enough benefits in business” said U Khin Maung Aye, owner of Lat War Garment Factory.

He added that wages are the biggest investments in the garment industry compared to other major costs such as electricity, export, import and transportation. “We might be put out of business if wages, which is our biggest cost, is made much higher,” he said.

Productivity push

Yet, despite warnings that a minimum wage of K4,800 or more could lead to the closures of some businesses, others say the current impasse could lead to new opportunities. That’s because the squeeze in profits could drive many factories to replace unskilled workers with machinery and equipment, which, while capital intensive initially, are cheaper over the longer term. That could be the push companies need to reskill their workers and raise productivity.

In fact, in the past two years since discussions over raising the minimum wage surfaced, factory owners across many sectors have started to invest in machinery and equipment to automate parts of the production process. When the minimum wage was fixed at K3,600 in 2015, some factories had already reduced the number of unskilled workers in their workforce in favour of automation.

U Sein Lwin, owner of Sein-Brand Noodle factory told The Myanmar Times that he has already replaced workers with a few machines in several parts of his production line. “If the minimum wages are fixed over K4,000, most of the factories will be squeezed and I am planning to substitute more workers with machinery for production,” he said.

U Sein Lwin added that most factories are unable to generate high-quality products within an eight-hour workday and most workers are forced to work at least three or four hours overtime to achieve enough production.

As a result, may businesses including his, are agonising over the higher costs involved should the minimum wage be raised over K4,000, given that overtime fees are based on the daily minimum wage level.

Nevertheless, a higher minimum wage is bound to impact no small number of businesses, especially in the garment sector. The nature of the garment industry is that workers are still needed for parts of the production process. Currently, the industry employs up to 300,000 workers, the majority of which comprise of women who are unskilled and uneducated, said U Win Aung.

“We provide many job opportunities. If we must pay double the current minimum wage, we will close down,” he said.