A look at the pros and cons of raising the standard of living.
MORE money in the pocket for low-income workers – that’s one of the main ideas driving the implementation of a minimum wage policy for Malaysia.
That way, proponents of such a policy argue, many households in the country can be kept out of poverty, and to a certain extent, be protected from possible exploitation by their employers.
Recent statistics provided by the Ministry of Human Resources have already revealed a shocking truth to many Malaysians.
Based on the National Employment Return study conducted last year, there were as many as 1.3 million workers, or 34% of the total workforce, in the country earning less than RM700 a month. And that’s below the national poverty line of RM720 per month!
One economist calls that a pathetic state of affair, which should be eradicated from a country with a high-income ambition.
But the question is, is minimum wage a policy – where employers are required by law to pay their workers at least a certain amount of money for the work they do – the answer?
As far as the Government and labour unions are concerned, it certainly is. Many economists, too, are thinking along the same line (with caveats, though), but there are also others, including the Malaysian Employers Federation, holding a different view.
In a poll organised by the Ministry of Human Resources through its blog to gauge the public’s opinion, 64% of the 547 participants are found to be in favour of a minimum wage policy for the country.
That’s not surprising, as a minimum wage policy tends to have a strong social appeal because of its noble intention of safeguarding the interests of the lower-income group that comprises factory operators, bus drivers, postmen and plantation workers.
According to Human Resource Minister Datuk Dr S Subramaniam early this month, the proposal for a national minimum wage would be tabled to the Cabinet by October.
He said the Government was agreeable to raising the wage levels in the country, especially in view of the rising cost of living.
Some economists welcome that stance.
“The time has come for a minimum wage policy to be implemented in Malaysia,” opines Tan Sri Ramon Navaratnam, chairman of ASLI Centre for Public Policy Studies.
“It’s a good measure that is in line with the New Economic Model to help restructure the country’s economy to move it up the value chain,” he argues.
Prof Tan Eu Chye of Universiti Malaya’s Faculty of Economics and Administration puts it as such: “Having a high per capita income would become more meaningful for a country when its workers receive higher wages, rather than having so many of them living in poverty”.
Proponents of minimum wage like to think that such a policy would encourage more locals, particularly the under-employed, to enter the job market and to be more willing to take up menial jobs.
This way, they believe, more foreign unskilled workers will be displaced and this will ultimately help reduce the country’s import for such labour.
The continuous influx of foreign cheap and unskilled labour over the years has its negative impact on the local economy. For one, the phenomenon has been one of the major factors stifling salary increments of many Malaysians.
According to the World Bank, the average annual salary increment in Malaysia for the last 10 years is only about 2.6%, even though the cost of living in the country has been increasing by 10% to 15% during those years.
So, there is an urgency for the country to reduce the number of foreign unskilled workers that have been driving the growth of low-value add and labour-intensive industries, particularly the manufacturing sector, in the country.
Such industries are what the country needs to abandon now to become more advanced, and some economists believe a minimum wage policy can be a useful tool, as it helps stem the inflow of cheap unskilled foreign labour.
The consensus, nevertheless, is that a minimum wage policy has to be accompanied by a corresponding improvement in productivity; otherwise, a minimum wage policy will do more harm than good for the economy in the long run.
For instance, without any improvement in productivity, a higher level of pay to workers as required by the minimum wage policy will only translate into higher costs for businesses.
And that will not only dampen the country’s competitiveness, but will also cause the cost of living to escalate further.
There are several arguments on the effects of minimum wage on the country’s level of productivity.
Some economists think that a minimum wage can motivate people to work harder to avoid being retrenched (as companies become more wary of their costs of hiring workers when the policy is in place), and this will increase a company’s productivity level.
In addition, some economists also think that a minimum wage policy will encourage companies to resort to automation, which can also help improve productivity.
This, however, strengthens sceptics’ belief that a minimum wage policy could possibly lead to higher unemployment.
For instance, Malaysian Employers Federation (MEF) executive director Shamsuddin Bardan recently pointed out that companies could resort to retrenching their workers if they were to be legally compelled to pay their workers more than what they were willing to.
He also did not believe that a minimum wage system would have any positive effect on productivity levels.
Based on his observations of the experiences of other countries, Malaysian Rating Corp chief economist Nor Zahidi Alias, explains: “Minimum wages often come with a common side-effect – rising unemployment among the poor, the very group which we intend to help. This is understandable, as the higher cost of employees tend to make employers do one basic thing – fire those they can do without”.
Timing is crucial, Zahidi argues.
During a high-growth period, rising wages due to the imposition of minimum wage will not deter businesses from hiring, or encourage them to retrench, he explains.
“However, during a period when an economy is struggling to sustain its momentum (as it is now, when most economies are still struggling to recover from last year’s recession) due to volatility of global economic conditions, the imposition of minimum wage will likely make businesses extra cautious, leading to a cutback in the number of workers,” Zahidi opines.
Obviously, there is no one size fits all, no perfect system. But what’s essential, as most economists say, the minimum wage system for Malaysia has to be adapted according to the country’s environment, culture and work ethics.
The Government has to carry out a survey to find out which area requires minimum wage to attract and retain good workers, they say, adding that different industries and geographical locations will require different kind of treatments.
By CECILIA KOK
cecilia_kok@thestar.com.my
That way, proponents of such a policy argue, many households in the country can be kept out of poverty, and to a certain extent, be protected from possible exploitation by their employers.
Recent statistics provided by the Ministry of Human Resources have already revealed a shocking truth to many Malaysians.
Based on the National Employment Return study conducted last year, there were as many as 1.3 million workers, or 34% of the total workforce, in the country earning less than RM700 a month. And that’s below the national poverty line of RM720 per month!
One economist calls that a pathetic state of affair, which should be eradicated from a country with a high-income ambition.
But the question is, is minimum wage a policy – where employers are required by law to pay their workers at least a certain amount of money for the work they do – the answer?
As far as the Government and labour unions are concerned, it certainly is. Many economists, too, are thinking along the same line (with caveats, though), but there are also others, including the Malaysian Employers Federation, holding a different view.
In a poll organised by the Ministry of Human Resources through its blog to gauge the public’s opinion, 64% of the 547 participants are found to be in favour of a minimum wage policy for the country.
That’s not surprising, as a minimum wage policy tends to have a strong social appeal because of its noble intention of safeguarding the interests of the lower-income group that comprises factory operators, bus drivers, postmen and plantation workers.
According to Human Resource Minister Datuk Dr S Subramaniam early this month, the proposal for a national minimum wage would be tabled to the Cabinet by October.
He said the Government was agreeable to raising the wage levels in the country, especially in view of the rising cost of living.
Some economists welcome that stance.
“The time has come for a minimum wage policy to be implemented in Malaysia,” opines Tan Sri Ramon Navaratnam, chairman of ASLI Centre for Public Policy Studies.
“It’s a good measure that is in line with the New Economic Model to help restructure the country’s economy to move it up the value chain,” he argues.
Prof Tan Eu Chye of Universiti Malaya’s Faculty of Economics and Administration puts it as such: “Having a high per capita income would become more meaningful for a country when its workers receive higher wages, rather than having so many of them living in poverty”.
Proponents of minimum wage like to think that such a policy would encourage more locals, particularly the under-employed, to enter the job market and to be more willing to take up menial jobs.
This way, they believe, more foreign unskilled workers will be displaced and this will ultimately help reduce the country’s import for such labour.
The continuous influx of foreign cheap and unskilled labour over the years has its negative impact on the local economy. For one, the phenomenon has been one of the major factors stifling salary increments of many Malaysians.
According to the World Bank, the average annual salary increment in Malaysia for the last 10 years is only about 2.6%, even though the cost of living in the country has been increasing by 10% to 15% during those years.
So, there is an urgency for the country to reduce the number of foreign unskilled workers that have been driving the growth of low-value add and labour-intensive industries, particularly the manufacturing sector, in the country.
Such industries are what the country needs to abandon now to become more advanced, and some economists believe a minimum wage policy can be a useful tool, as it helps stem the inflow of cheap unskilled foreign labour.
The consensus, nevertheless, is that a minimum wage policy has to be accompanied by a corresponding improvement in productivity; otherwise, a minimum wage policy will do more harm than good for the economy in the long run.
For instance, without any improvement in productivity, a higher level of pay to workers as required by the minimum wage policy will only translate into higher costs for businesses.
And that will not only dampen the country’s competitiveness, but will also cause the cost of living to escalate further.
There are several arguments on the effects of minimum wage on the country’s level of productivity.
Some economists think that a minimum wage can motivate people to work harder to avoid being retrenched (as companies become more wary of their costs of hiring workers when the policy is in place), and this will increase a company’s productivity level.
In addition, some economists also think that a minimum wage policy will encourage companies to resort to automation, which can also help improve productivity.
This, however, strengthens sceptics’ belief that a minimum wage policy could possibly lead to higher unemployment.
For instance, Malaysian Employers Federation (MEF) executive director Shamsuddin Bardan recently pointed out that companies could resort to retrenching their workers if they were to be legally compelled to pay their workers more than what they were willing to.
He also did not believe that a minimum wage system would have any positive effect on productivity levels.
Based on his observations of the experiences of other countries, Malaysian Rating Corp chief economist Nor Zahidi Alias, explains: “Minimum wages often come with a common side-effect – rising unemployment among the poor, the very group which we intend to help. This is understandable, as the higher cost of employees tend to make employers do one basic thing – fire those they can do without”.
Timing is crucial, Zahidi argues.
During a high-growth period, rising wages due to the imposition of minimum wage will not deter businesses from hiring, or encourage them to retrench, he explains.
“However, during a period when an economy is struggling to sustain its momentum (as it is now, when most economies are still struggling to recover from last year’s recession) due to volatility of global economic conditions, the imposition of minimum wage will likely make businesses extra cautious, leading to a cutback in the number of workers,” Zahidi opines.
Obviously, there is no one size fits all, no perfect system. But what’s essential, as most economists say, the minimum wage system for Malaysia has to be adapted according to the country’s environment, culture and work ethics.
The Government has to carry out a survey to find out which area requires minimum wage to attract and retain good workers, they say, adding that different industries and geographical locations will require different kind of treatments.
By CECILIA KOK
cecilia_kok@thestar.com.my
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