Tuesday, February 8, 2011

Minimum wage

Whether or not to implement a policy on minimum wages for workers in Malaysia. As the owner of services-based SMEs, I don't have a problem if the Malaysian government decides to implement a policy on minimum wages. In fact, I support the idea of minimum wages.

But, I am aware that the issue is not a simple one. The Malaysian economy still depends on fairly labour-intensive industries. The primary industries sector of oil palm plantations is particularly labour-intensive. The workers are unskilled.

On the other hand, Malaysia aspires to be a Knowledge-based and Services-based economy. Our macroeconomic indicators point to the growth of Services-based industries. Workers in these sectors are semi-skilled and skilled. Extensive training is required. Even hospitality and tourism industries require some degree of certification now. This is a good thing. It ensures that there are minimum standards of services.

There is indication that the Malaysian government is taking a sensible approach of segmentation of minimum wage policies based on the peculiar labour supply-demand matrices of each economic sector. This is the correct approach. One size can never fit all.

To engender a sensible discussion on this matter (as opposed to brainless hysterics), here's a pro and con view of the matter of whether a formal minimum wage policy should be instituted. It is sourced from here

The following table summarizes the arguments made by those for and against minimum wage laws:

Arguments in favor of Minimum Wage Laws
Supporters of the minimum wage claim it has these effects:
  • Increases the standard of living for the poorest and most vulnerable class in society and raises average.[1]
  • Motivates and encourages employees to work harder (unlike welfare programs and other transfer payments).[32]
  • Stimulates consumption, by putting more money in the hands of low-income people who spend their entire paychecks.[1]
  • Increases the work ethic of those who earn very little, as employers demand more return from the higher cost of hiring these employees.[1]
  • Decreases the cost of government social welfare programs by increasing incomes for the lowest-paid.[1]
  • Encourages the automation of industry.[33]
  • Encourages people to join the workforce rather than pursuing money through illegal means, e.g., selling illegal drugs [34][35]

Arguments against Minimum Wage Laws
Opponents of the minimum wage claim it has these effects:
  • As a labor market analogue of political-economic protectionism, it excludes low cost competitors from labor markets, hampers firms in reducing wage costs during trade downturns, generates various industrial-economic inefficiencies as well as unemployment, poverty, and price rises, and generally dysfunctions.[36]
  • Hurts small business more than large business.[37]
  • Reduces quantity demanded of workers, either through a reduction in the number of hours worked by individuals, or through a reduction in the number of jobs.[38][39]
  • May cause price inflation as businesses try to compensate by raising the prices of the goods being sold.[40][41]
  • Benefits some workers at the expense of the poorest and least productive.[42]
  • Can result in the exclusion of certain groups from the labor force.[43]
  • Is less effective than other methods (e.g. the Earned Income Tax Credit) at reducing poverty, and is more damaging to businesses than those other methods.[44]
  • Discourages further education among the poor by enticing people to enter the job market.[44


walla said...

In our case there may be other factors as well.

For instance, our sector productivities have been parlous (http://is.gd/iCWRnf - 3Mb).

If it comes, GST may ricochet sidereal impacts.

Desubsidization may magnify those impacts.

The prices of many essential consumer items have already gone up.

Legislating minimum wages will raise scales and may catalyze the situation further.

All this is hardly the way to try and achieve a high-income economy.

Furthermore, we already have 19 public holidays.

In addition, 3-month maternity leave multiples for a work demographic increasingly shifting to females with the same trend for graduates who are not so easy to proxy when they enter employment to manage the enterprises whose productivity must increase under a minimum wage regime.

There's also the question whether legislating a minimum wage for locals won't cause foreign worker agencies to raise their minimum wage demands as well.

This can be perilous if our own locals won't be enthusiastic to do the work of those foreign workers whom our enterprises may no longer afford anymore unless they are willing to risk raising prices and thus getting their market shares knocked out with nothing in the pipeline to get them back before the banks start recalling loans already taken.

In other words, are we already a Germany in Asia to risk multiple whammies on our national human resource pipeline?

Yet one can understand how this topic has surfaced. The capital/labour distortion in employment does exist.

Rewards are not that nicely distributed to obviate the impression they have been too top-heavy for too long.

In the west, the gripe is now over those pre-contracted stock options and golden handshakes which have obscenely contributed to their rich-poor income gaps.

Over here, it is only because the young are too innocent to do some research on pay histories before accepting their first offers.

Since it remains an employers' market which is an expression of a disjointed economy, their job-hopping does not raise entry wages that much to say the baselines are rising.

The tipping point for ignition will probably be inflation.

That, and something else which goes like this:

- the rakyat are extremely unhappy over the way the government has been spending their money;

- the rakyat are livid over the leakages and siphonages whose sizes have increased to billions annually;

- the rakyat are about to burst an artery knowing how politicians and government officials have been living it up while they have had to queue to pay their taxes;

- the rakyat are disgusted with the red tape, inefficiencies, short-sightedness, apathy and jurassic legislations which are still in place and hampering their businesses,

- and, et cetera.

Hysterics and histrionics aside, this is saying the rakyat no longer trust the government with their money.

Which implies the politically incorrect notion that they would rather minimize their tax exposures.

Which thus implies that any idea of taxing property and shares sales in order to correct the capital/labour wealth distribution distortion should be viewed with grave suspicion unless the middle-income group escapes it totally.

One must remember that this group had only managed to accumulate some wealth beyond their flat pays by playing the stock and property markets during those pre-crisis heydays.

That's how those who were not subsequently burned could rustle some funds to start their SMEs if not send their children away to get a better tomorrow.

Introducing such a tax will cut off the legs of the present generation of middle-income earners besides increasing their rancor over the present torpid regime. In base terms, hardly vote encouraging.

Maybe the idea should instead be applied to the bloated GLCs but oops they're bleeding.

Finally, a reality check:

what is it that we are doing exceptionally well?

semuanya OK kot said...

Most of the reasons against minimum wage are deliberately opaque or specious, if not illogical. E.g. Is a person lining up to enter the hell-hole of a 3D job giving up his chance for further education? If he is qualified, who finances him and his family?

In setting minima, we have to distinguish between hourly wage and monthly salary. The latter often comes with many perks. Institutionalised bigotry and spineless management ensures that the sincere employees take up the slack created by the shirkers.

As Prof. Richard Wolff points out, women's lib and education increased the workforce significantly, but led to lower wages despite rising productivity. Today, not alone do 2 adults in a family slave away where just one would have, they usually work for longer hours and for more years. The irony is that in earlier eras of child labour, children often remained with at least 1 parent, instead of the constant uncertainty that parents face today.

Everywhere, unionism has been successfully demonised and enervated. Public authorities are mere puppets of the very wealthy. By and large, we dare not face the fact that capitalism has major intractable dangers, has brought us to the edge of the financial and environmental abyss, and - given the inertia of human affairs - will probably tip us over.

"The morality of work is the morality of slaves. The holders of power have used the concept of duty to induce others to live for their masters. In former times leisure for the few was only rendered possible by the labors of the many. Leisure is essential to civilization; labor is valuable, not because work is good, but because leisure is. The war showed conclusively that, by organizing production scientifically, it is possible to keep modern populations in fair comfort using a small part of the working capacity. At the end of the war, the old chaos was restored; those whose work was required were made to work long hours, and the rest were left to starve. This ensured that any unavoidable leisure would cause misery." - Bertrand Russell, In Praise of Idleness, 1932

"It takes all the running you can do, to stay in the same place. If you want to get somewhere else, you must run at least twice as fast as that!" - Lewis Carrol, Alice In Wonderland, 1865