Wednesday, September 2, 2015

Foreign workers v Malaysian workers: The Importance of the Minimum Wage

Malaysia seriously needs to review the very liberal policy on the importation of low-skilled manual workers.

This is an economic policy issue. It's not an issue for the Immigration Department or Home Affairs to decide willy nilly.

Young Malaysians who are entering into the workforce are accused of being choosy and selective and spoilt. Is that true?

As with all other countries, anywhere in the world, many young Malaysian men hate studies and they find the need for further education appalling. Is that a bad thing? Do we abandon them?

Young Malaysians will make their own choices. No amount of legislation can change the decision of a young Malaysian to not pursue further education.

So, where do they go to make a living? They will invariably migrate from smaller towns and hamlets into larger towns and cities. 

After they arrive they discover that with their low skill sets, they can only get factory jobs and logistics work as drivers and delivery staff. They can also get jobs in food and beverage outlets.

The wages they receive in those jobs are in the RM5.00 to RM6.00 per hour band.

Work in "dirty jobs" sectors like construction and waste disposal is not much better than that wage band.

Young Malaysians can handle that kind of pay for the first 2 to 5 years of working life. Every Malaysian will have some relative or friend who can provide some room and board during these early years. 

What happens when the young Malaysian want to settle down and start a family?

How much does it cost to get married, start a family and start a home?

This is where the policy on Minimum Wage becomes important.

There are many critics of the Minimum Wage. All of these critics are, of course, employers. Most of them are in labour intensive sectors such as property development, manufacturing and plantations. These are "dirty jobs" sectors that choosy and selective and spoilt Malaysians are accused of avoiding.

Consider this; what if the Minimum Wage is imposed at, say, RM10.00 per hour instead of the current prevailing market rate of RM5.00, or less.

Of course, business owners will experience profit margin compression during the transition. And, there will be many reverberations and percolating implications.

But, this is where the Malaysian Government needs scenario planning and econometric simulations to consider these possibilities and come up with a slew of possible policy responses.

Regardless of the political convulsions that are taking place and issues of serious corruption and abuse of power at the highest levels of the Malaysian government, issues such as economic policy planning to address issues of concern to Malaysian workers and their livelihood must constantly be addressed.

I am against the liberal policy of importing foreign labour. There is adequate human capital at all levels of skills in Malaysia that can handle Malaysia's capacity and economic output.

I believe a sensible start to an inquiry into the matter of the Malaysian workforce must start with a putative position on a Minimum Wage that allows a young Malaysian to dream of a decent start to his or her working life.

A sensible Minimum Wage will give the average Malaysian a sense of dignity in living and it is a starting point for the average Malaysian to consider whether his or her current skill set is adequate or, needs improvement through further vocational training or tertiary education. It is merely a starting point in a Malaysian's journey as a good and citizen.


Anonymous said...

Hello Economist. You have blogged a very goos article. But, unfortunately, if you have a minimum wage and allow the entry of foreign workers on "valid reasons" then you minimum wage will become the benchmark for the maximum wage.

The Answer does not lie on the minimum or maximum wage. a person who gets into an entry level job should have the opportunity to work his way up the ladder. And wage increase should be related to him making his way up that ladder. If you look at the way our colonial masters created job and rewarded workers you will get the picture.

Instead of discriminating against those who work in low paying jobs we should be encourage them to up lift their skills or education to enter better paying jobs. This is where governments come in they should be thinking of ways and means to create opportunities for all so that the worker can be what he wants to be.

With the average rental of houses around Rm500-1000, excluding GST, depending in which part of the urban areas you are residing minimum wage should also address the issue of living wage. That is why countries like Korea first began after the Korean war to first feed and educate the nation, then provide clothing for the nation, then housing the nation. And they have managed to do all that in 60 years. So we should begin now and at least 60 years from now we may become like Korea today.

walla said...

Raising minimum wages is good for getting votes. Therefore not doing it must mean the situation is really bad in the overall balance of things. Not to be able to do something good is a sign of something wrong for a long time from making and running short-sighted development policies.

Secondly, if minimum wages are raised, they will benefit entry-level workers but at expense of senior workers who will then clamor for their own wage increases however unpegged from productivity measures with the result business costs will increase and companies may fold faster.

Thirdly, wage pool increases will trigger market price increases in goods and services which will reduce the very disposable income of the worker that was the original intent of the wage increase therefore compounding the problem from the solution.

Fourthly, increasing dependence on low-skilled foreign workers reflects weak foresight in the past reaped today, itself showing policy formulation failure by depending on deduction at expense of induction.

In today's complex asymmetric nonlinear global market, the knee-jerky 'see a problem, start looking for a solution' deductive approach has to be balanced at the same time with a 'total holistic top-down' inductive approach that pays tribute to the following process chain:

life-culture -> education and motivation -> work culture and improvement -> national game-changing

The heart-beat of a nation is thus a family of smooth, synchronized and harmonized processions of many such different process chains.

Where all the development plans have done grave injustice so far is to neglect the prevailing characteristics and features of the base upon which the plans were to be rolled out and then try to hide the results gaps using aggregated statistics that smear over real improvements unrealized until an addiction to something akin to random-access-memory takes hold which has to be perpetuated.

walla said...

Mining being a niche industry and government a blight, manufacturing, plantation and service remain our three mainstay sectors with regards workforce optimization and welfare. I have written somewhat on manufacturing (; there has not been any noticeable improvement. Doubtless in months to come, officials will parade numbers to show our manufacturing exports have increased; they would if quoted in a weakened ringgit but the fundamental weaknesses remain as they have remained for the last thirty to forty years. We didn't change our game.

Service is another industry which has not noticeably improved; one may say there have been some new financial products and business processes have improved but how much new net revenue streams have they raised is a question that must be put on the forefront. Always. Furthermore, some may have observed significant drops in standards over the years not just in quality of service delivery but also in individual communication, organization and customer response leading to the conclusion that while the educational and training pipeline has increased in diameter, it has decreased in viscosity of value.

Plantation is now eclipsing. For the palm oil sector, the CPO price has dropped below the psychological two grand mark outcome of Indonesia's direct G2G sales to India and China. Furthermore each such monthly price is subject to local deductions by way of taxes, levies, oil extraction rates and other gate fees and the bottomline is further shaved by addition of GST that only residues a final buying price which is increasingly unattractive even to seasoned planters. Competition from bumper soy harvests as well as weak and inconsistent weather patterns have also reduced gains and yields while labour and chemical costs have increased year to year. The quality of foreign workers needed has also dropped, their demands have increased and sources for them have decreased if only for the fact the weakened ringgit in which they are paid is closing the gap with the rupiah they will be paid if working in farms back home. Lastly, many of the local trees are reaching old age so that replanting will be needed during which yield per hectare will be zero while costs have to be sunk in an enterprise dicey in outlook on the horizon.

So our only solution is to look for helicopter aircraft carriers?

walla said...

The process chain above can be a starting point for further elaboration and discussion. If only more commentators will do so here...

Suffice to say, life culture is more about what an individual wants to get out of life at its start. Since infants can't decide, their parents, other family members, even community ecosystem and perhaps friends and government can set the pace, provide the comforts but without making demands. Individuals should be allowed to flower to the best of their abilities on the foundation of good character building and fine values development.

Looking at the present situation, two major factors come to mind:

family planning, and
religious practice

That mentioning either draws acrimonious response from even the most learned is a sore reflection of how cancerously low we have sunk in the psychological schisms that have taken root.

Education and motivation have all been said and concluded. Even the official stand is our so-called educational system which is neither globally educational nor a system in the least integrated form is in one word - sucks.

Additionally, the motivation aspect is non-existent. The young must be motivated to outperform themselves and on the belief their world is actually bigger and more challenging than what they have been cocooned to believe. Their brains and muscles have not been stretched even as their spirits have waned from seeing how the elders have singularly and systematically destroyed their future refluxed to their present for personal political power disguised as national interest and communal survival.

Another aspect is the demographics of the educated. More and more women are getting better educated than men, yet both are in a society that remains feudalistically patriarchal. How will the backbone of this nation's enterprises hold up in the future when our human resources are distorted and self-nullifying in a global stream that moves more and more towards more sophistication reflected as technological and numerate sharpness, suavity in critical thinking and communication, speed of organization and execution? In another word - duds.

So for this segment of the process chain we are already sitting duds that suck.

Work culture and improvement are attendant upon the earlier segments of the chain which lay the foundation to make true progress in the real world. As example, real vocational training these days must have elements of numeracy, curiosity and a personal drive to produce the best in the shortest time with the least defects and material, and be able to articulate from one technical craftsman to his next in a seamless learning and improvement curve that is the altar of quality control. The next generation of vocationally trained workers must be knowledge workers to the extent of being quick solvers and makers. I leave you to find one word that accurately and comprehensively describes the present status.

Finally, national game-changing. We now have an additional problem stacked above our death-march in politics and thus economics. That problem is national branding to the eyes of the rest of the world, especially of buyers, investors and partners. Needless to say, the coming months will see how bad national branding destroys growth potential if not sanity.

After all, who would these days of instant wired communication want to be partners in lies, crimes and injustice when they can be partners elsewhere in honest business and exchanges?

For a second, one heard a whisper the word was, well: fooklamak.

Over to you, de minimis.