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Minimum Wages in ASEAN: How Are They Calculated?
- Minimum wages across ASEAN countries are gradually increasing to match the rise in the cost of living.
- Despite the increases, minimum wage rates in ASEAN remain among the lowest in Asia.
- Foreign investors should seek the help of registered local advisors to help understand how these latest changes will affect their business operations.
Minimum wage rates across ASEAN countries are rising gradually to match the region’s increased cost of living and boost domestic demand. To combat inflation and prevent any outbreaks of labor unrest, ASEAN countries have increasingly been pushing for higher minimum wage levels and enacting new labor laws to protect workers’ rights.
Despite rising salaries, minimum wages in the majority of ASEAN countries remain significantly lower than those in the developed economies of the world. Businesses must take note that the minimum wages in most countries vary regionally and as per the industry and job specifications. They may also be subject to periodic – national as well as local – regulatory changes.
Given that the minimum wage for each country is different, foreign investors should seek the help of registered local advisors to help understand how changes to the wage rate and related compliances will affect the scope of their business and operations on the ground.
Indonesia
Indonesia’s labor market contains significant regional variation because monthly wages are fixed at the provincial level by governors through the wage councils and district wage councils throughout the archipelago’s 34 provinces.
The country utilizes a unique formula to calculate the annual percentage increase of the minimum wage. The formula is as follows:
National inflation + National economic growth = Percentage increase of minimum wage
On October 15, 2019, the Minister of labor issued circular B-M 308, 2019, which authorizes provincial governors to increase their provinces’ minimum wage by 8.51 percent for 2020.
The province of Jakarta continues to have the highest minimum wage at 4,200,000 rupiah (US$298) whereas Central Java province has the lowest at 1,742,00 rupiah (US$123).
In addition to the provincial minimum wages, there is also a minimum wage rate for ‘leading industries or sectors’. Under the Minister of Labor Regulation 7 of 2013, certain industries can determine their own minimum wage rate, known as the UMSP, if they fulfill the following criteria:
- The specific industry encompasses a large number of local businesses;
- The industry requires significant manpower;
- The industry can generate added-value to the economy; and
- The industry is export-oriented.
Despite the annual increases in the minimum wage, Indonesia continues to endure low worker productivity, as less than half of the country’s workforce is classified as ‘skilled’. This has resulted in the slow advancement of sectors vital to economic development, such as manufacturing and agriculture.
The minimum wage rate for each province is shown in the table below:
Malaysia
In Malaysia’s recent unveiling of its 2020 budget, the government is set to increase the minimum wage in 57 major cities from 1,100 ringgit (US$270) to 1,200 ringgit (US$295), taking effect January 1, 2020. The minimum wage in non-urban areas and rural towns will remain at 1,100 ringgit.
The state budget also provides up to 1 billion ringgit (US$246 million) in incentives over five years for domestic businesses looking to become export-oriented. Additionally, 500 million ringgit (US$119 million) in loans has been set aside to develop women entrepreneurs.
Cambodia
In Cambodia, the minimum wage is mainly guaranteed for workers in the country’s textiles and footwear manufacturing industry. The monthly rate has increased to US$190 for 2020 from US$182 in 2019.
Though a significant hike, the wage increase in Cambodia does not impact the competitive advantage of its garment manufacturing industries as the government continues to delay taxing profits in the sector and eliminate export management fees.
The hike will affect more than 800,000 workers in the garment and textiles industry, which is Cambodia’s largest employer, contributing more than US$10 billion to the economy.
Factory owners, who had proposed an increase to US$186, are concerned that the new minimum wage will strain profit margins, particularly as the European Union (EU) is re-examining its ‘Everything but Arms’ (EBA) program with Cambodia. Under the EBA agreement, Cambodia can export most goods to the EU free of duties.
Laos
Laos has yet to implement an increase in its minimum wage since 2018. Back then, the Laotian government increased the minimum wage for all businesses and factories from 900,000 kip (US$101) to 1.1 million kip (US$124) a month.
The minimum wage was determined through tripartite social discussions between the employers’ associations, workers’ organizations, and government representatives.
Myanmar
The daily minimum wage in Myanmar is revised every two years and discussions on the new rate will begin in May 2020.
Myanmar’s current daily minimum wage is set at 4,800 kyat (US$3.29) for eight hours of work. After conducting research on the cost of living and healthcare in the country, the Confederation of Trade Unions of Myanmar will propose a minimum wage increase of 7,200 kyat (US$4.88) for eight hours of work or 9,000 kyat (US$6.10) per hour.
Philippines
The Philippines has daily minimum wage rates that vary from region to region, ranging from P290 (US$5.70) to P537 (US$10.61) a day. The wages are set by tripartite regional wage boards located in every region.
The country’s average minimum wage rate is among the highest in ASEAN – and compared to its neighbors Indonesia and Vietnam.
Thailand
The Thai government has announced an increase of between 313baht (US$10) –336 baht (US$11) to the daily minimum wage starting January 1, 2020, representing an increase of five baht (US$0.17) to six baht (US$0.20) from 2018.
Marking only the second time in seven years that the national daily minimum wage has been raised, the government identified nine provinces that will receive the six baht increase, while the rest of the country will see a five baht increase.
The wage levels can be seen in the table below:
Vietnam
Following the country’s rapid economic growth, in the past few years, the Vietnamese government has increased minimum wages to combat inflation.
The monthly minimum wage rate was increased by 5.7 percent from January 1, 2020, higher than the 2019 hike of 5.3 percent. The country sets a different minimum wage level across its four regions. As a result of the new increase, Region I (urban Hanoi and Ho Chi Minh City) registered the highest minimum wage of VND 4,200,000 (US$190) while Region IV was the lowest with VND 3,070,000 (US$132).
Moreover, employees that have had vocational training must be paid at least seven percent higher than the applicable minimum wage rate.
The minimum wage rates are as below:
Editor’s Note: The article was first published on April 16, 2013. It was last updated on January 14, 2020.
Source: https://www.aseanbriefing.com/news/minimum-wages-in-asean-how-are-they-calculated/