The Minimum Wage Conundrum

To implement or not to implement, that is the question. The minimum wage conundrum has plagued Malaysian media headlines for the past few weeks. It has also sparked debate from all quarters beginning from the two political coalitions to the Malaysian Plastics Manufacturers Association.

Just what should be done? And what steps should the government of the day take? I would endeavour to answer these two questions in this article.

I would like to begin by clarifying my position. I am very much in favour of a minimum wage policy. We are, according to the International Labour Office in Switzerland, one of the only countries in the world that does not possess any kind of legislation favouring a minimum wage.

Even Vietnam and Thailand have minimum wage policies. How is it that these two countries that are much less developed than us have basic policies that support a person’s right to earn a decent living and we do not?

This need for a minimum wage has been a long time coming. Price inflation, which can be equated to cost of living, has been rising immensely in the past five years.

From 2001 to 2004, PEMANDU statistics show inflation was at an average of 1.5 per cent but from 2005 to 2008 inflation rose to an average of 3.5 per cent, reaching a peak of 5.8 per cent in 2008. However, wage inflation has just barely matched price inflation. The rise in wages must at the very least match the rise in prices if one is expected to maintain or increase one’s standard of living.

According to the Department of Statistics, from 2004-2007 inflation was at an average of 2.7 per cent. Household income growth during that period was 3.6 per cent. This means that a Malaysian’s ability to purchase just increased by a meagre average sum of 0.9 per cent a year!

A minimum wage policy targets workers working in low-income jobs. These workers make up the majority (almost 58 per cent according to the Department of Statistics) of Malaysia’s workforce. In the past few years, wages in low-income jobs have been driven even lower by the inflow of foreign immigrants. This inflow has resulted in an oversupply of workers willing to work in industries such as manufacturing and construction industries.

These foreign immigrants are willing to work harder and longer for even lower pay, which has forced many local employers to hire them to lower costs to increase profits. Many locals are forced out of a job because of harder working immigrants. And even if he/she is willing to work as hard as the foreign immigrant, he/she will not be able to obtain wages as high as before because if he/she is so brave as to demand higher wages, local employers can just replace he/her with another immigrant!

It is clear that the need for a minimum wage is imperative and inevitable. Malaysians, especially those working in low-scale jobs can no longer survive in the face of rising costs and low wages.

However, raising wages means higher costs and a fall in competitiveness. A minimum wage must be a good business decision to the employer as well. After all, how can an employer pay higher wages if his employees’ work is not worth a higher amount of pay?

Therefore, a minimum wage policy cannot be a stand-alone policy. There has to be a policy to increase productivity for such workers as well.

Malaysia’s productivity is four to six times lower than that of countries such as Japan, the US and the UK, according to the Malaysian Productivity Corporation. If we want to implement a minimum wage and expect employers to concur with it, then we need to get our productivity up to the levels of the UK and the US. The government has to step in to provide training and classes to help employers. These policies to increase productivity have to be implemented in phases, in line with the minimum wage policy.

It does not end there. To justify higher wages, being productive is not enough. One needs to work harder and longer as well.

In 2012, Singapore has 11 national public holidays, South Korea has 14. If you live in Kuala Lumpur, you will have 19 public holidays. The number is clearly too high. We need to cut it down. Nothing beats old fashioned hard work. It may not be a popular move by the government, but it is needed.

Basic economic theory states that wages should reflect productivity. The minimum wage policy is needed. But at the same time, it cannot be a stand-alone policy. There has to be policies aimed at increasing productivity to complement it.

This article was first published on The Malaysian Insider.


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Posts by Galvin Wong

Galvin is an 18 year old who believes that voting is a right with responsibility attached to it. He had wanted a lot to express his views but had no idea how to until he stumbled upon this website called LoyarBurok.com. He enjoys writing in his free time and has a manic obsession with football tactics.

Posted on 20 March 2012. You can follow any responses to this entry through the RSS 2.0.

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