Category Archives: Ekonomi & Kewangan

The Case for Minimum Wage?

(My column in The Edge Financial Daily published on  17 August 2010. The actual article in the print could contain some editorial changes)

Ordering food in some restaurants in the capital can be tricky nowadays. The best way is to point to a menu – you will get exactly what you ordered. The worst way is to give instructions on how you want your drink made – you are bound to meet with some frustration. With more and more foreign workers taking up waitressing job in restaurants, communication problem should be expected.

A friend once moaned why not many locals want to take up these jobs. Most people know the pay is not attractive enough for locals, hence the influx of foreign workers over the last two decades to take over these jobs from Malaysians.

What we don’t know however is the extent of the problem – how low the wages are; how many people are being paid these low wages and how this phenomenon will have a severe impact in the long run on the economy.

That riddle was partly answered last week when the Ministry of Human Resource released a set of figures that shows 34% out of 1.3 million workers in this country earn below RM700 a month. The statistics may not be of any consequence, if not for the fact that the national poverty line is at RM720 monthly household income.

The revelation is startling – a third of our workforce earn below the poverty line. One has to wonder how our citizens who do not have a steady job survive at all when a third of those in employment earn below the poverty line.

Much has been written about the need to go into higher income economy, the rising cost of living, the dependency on foreign workers and a plethora of other economic problems we are facing. All this relates to one common problem faced by our workers – low wages.

Thus, the discourses on elevating the level of income for our workers and the necessary steps to achieve this immediately and harmoniously (for all parties involved) should take the centre stage as a national agenda and not confined to a small circle of economists and administrators.

The truth is we have been addicted too much to low wages to the point that we attribute our comparative prosperity to this policy. We give too much credit to the habit of keeping low wages as a key competitive edge, so much so we overlooked that it is easily replicable by competitors.

A recent study by World Bank exemplified Malaysia’s addiction and dependency on low wages. As we face more rigorous competition from our neighbours, it is as if we resort to suppressing wages to keep our cost structure competitive.

This premise is supported by the World Bank’s data that puts the average annual salary increase in Malaysia for the last 10 years at an abysmal 2.6%. Contrast this with Indonesia which has seen an average of 10% salary increase for three consecutive years in between 2007 to 2009.

It is unsurprising that Malaysian employers are finding it difficult to get Indonesian workers to work here. It is no longer economically advantageous for skilled Indonesian workers to work in Malaysia when wages in Indonesia are steadily rising to match what we offer to them.

If this continues unabated, the prediction that one day our sisters and daughters may end up working as maids in Indonesia is not far-fetched after all.

Therefore, the introduction of minimum wage should no longer be viewed as an anti-merchant agenda brought by political parties and trade unions. It is true that a promise of minimum wage featured in Pakatan Rakyat’s manifesto for the last general election (and will continue to become one of its top agenda going to the next general election), but the debate on minimum wage is a lot bigger than the political divide.

Minimum wage is still one of the most practical and pragmatic solutions that can resolve quickly the few economic problems the country faces. One big challenge is to manage potential inflationary impact of the introduction of minimum wage; but given Malaysia’s stated aim to become a high income nation by 2015 the threat of inflation is an issue that we have to manage with or without minimum wage. Perhaps a bigger challenge is to convince the employers that it is not a zero sum game – rationalisation that may take place to contain cost due to the introduction of minimum wage can lead to higher automation, better system or even entrance into higher value industries.

Unfortunately the public’s understanding of the pros and cons of minimum wage on the economy and their livelihood is still relatively low. The responses I get on minimum wage range from emotional condemnation of minimum wage as a tool to oppress consumers, to great concerns on the inflationary pressure it might create; and the extreme of complete ignorance of what is the concept of minimum wage. What is more obvious to me is the likelihood that a majority of our workers do not understand that an introduction of minimum wage should cause an upward revision of salary across the board for all sectors in order to maintain the hierarchy of earning levels. Many seem to think that a minimum wage policy will only affect the plantation workers, labourers, operators at factories or pump attendants.

This is where the politicians, activists and unionists should strive more to explain the concept and impact of minimum wage on the economy to the public. It may be one policy that can be debated on bi-partisan basis because our economy is at a stage that requires it to go through the motion.

In my reading, the political grouping that can best explain and champion the issue of minimum wage may have the edge with the voting public in the next election. It will be interesting to see which group can acquire this grouping first.