Monday, June 9, 2008

Fuel Hikes: Minimum Wage+ and National Welfare

In the aftermath of the fuel price hike there are 2 proposals that warrant consideration. Firstly, as reported in Malaysiakini (June 9) Dr. Francis Ngu of the Sarawak PKR has called for the introduction of a national social welfare system. This proposal is underpinned by reference to the Petronas revenue contribution to the federal coffer.
The second proposal is a reiteration by Tony Pua in his latest blog entry entitled "Fair Wages & Malaysia Bonus" also linked at Malaysiakini. Tony's proposal is a hybrid of minimum wages. Let's call it Minimum Wages+ (The name reference is given with apologies to Tony and, I stress that this moniker is in no way intended to trivialise nor to make light of an excellent proposal. It is merely an easy reference in the context of this blog piece).
There are other more radical and interesting proposals to deal with the fuel price hike such as Dr. Azly Rahman's "One Nation Under God, In Sarong Protesting" featured in But let's just discuss Dr. Ngu and Tony's proposals.
The common thread between Dr. Ngu and Tony's proposals is the dire need to alleviate the burden of the fuel hike on lower fixed income earners and Malaysians living at the fringes of poverty. All Malaysians with a conscience should be in full agreement with this central plank of both proposals.
Dr. Ngu's idea of the source of funding i.e. with reference to Petronas is, with great respect, too simplistic. But, the message is clear. The message is that the current Malaysian National Budget and 9th Malaysia Plan must be urgently reviewed.
The allocation of national financial resources which is contained in the Consolidated Revenue must be reviewed. The obvious area for review must be the National Defense Budget. For instance, does Malaysia seriously need military hardware such as French submarines? What is the security and threat justification for submarines? We can't imagine terrorists attacking from the sea by any stretch of even the wildest imagination. And the exertion of sovereignty over little pieces of maritime rock formations along our littoral borders and coastline cannot be done furtively. In fact, we actually need loud surface vessels with drumbeats to assert our presence! The necessity for submarines is puzzling ... unless the intention is to scare away cetaceans from the Straits of Malacca or the South China Sea.
So, on this matter of allocating resources for welfare matters, we should leave Petronas out of it. Petronas isn't going anywhere. We know the obvious point that whoever is in control of the federal government will control Petronas and its coffers. And, Petronas is not the panacea for all of Malaysia's economic challenges. The solution must come from sound economic policies, not the erstwhile policies that favours rent-seeking behaviour (such as APs, tolls, IPPs).
Tony's (or DAP's) Minimum Wages+ proposal
The Minimum Wages+ idea is sound. I say this even though I am a small employer (and would be saddled with the proposed increase in employer EPF contribution from 12% to 15%). I am even prepared to agree with the component that Tony calls the "Malaysia Bonus".
The intention is good and the rationale is sound. As an employer (a small one) I am prepared to stand up to be counted.
Tony's point about middle-aged workers earning less than RM1,400-00 per month is very true and very real. If we each take the trouble to talk to the middle-aged clerical staff at our respective offices, we will fully appreciate that the Minimum Wages+ proposal addresses very real and necessary needs of the Malaysian workforce. It is to be commended and supported.
On a facetious note, since Tony and the DAP has been generous in sharing this proposal, the BN should photocopy the proposal and put it on their letterhead and implement it. It will be popular with the voters and the DAP and Pakatan Rakyat will be forced to support it sebulat suara!
Points and principles to consider on Miminum Wages+ and the national welfare proposal
It may be said that from an economic perspective (and I stand to be corrected), the recent 40% fuel price hike and the forecasted inflationary rate of 5%, will lead to an increase in the cost of living. But wages and salaries are lagging. There is also a very real possibility that Malaysian employers will completely ignore this phenomenon. Malaysia does not have a mandatory statutory policy on COST OF LIVING ALLOWANCE (COLA) which adjusts salaries and wages based on changes in a cost-of-living index. The Minimum Wage+ proposal will have a salutary effect and, will combat this phenomenon of employer callousness towards the plight of employees.
Although it is a tedious matter, we should all consider the pros and cons of the Minimum Wage+ and national welfare proposal. We need to think about it so that we can make an informed decision whether to support or modify the proposals (I didn't say oppose it!).
Points in favour
  • It will help alleviate the double-whammy shock of increased fuel prices and inflation.
  • It will motivate employees to work harder.
  • It does not impose any cost on the government (the cost is borne by the employer).
  • It is a policy that is administratively simple - aggrieved workers just complain if employers do not comply with the policy.
  • It stimulates consumption by putting more money into the hands of lower-income Malaysians who spend their entire paycheck.
  • It increases the work ethic as employers demand more return from the higher labour cost.
  • It decreases the cost of government social welfare by increasing the income of the lowest-paid workers.
  • It will shift the employers' dependency on cheap foreign workers in favour of employing Malaysians.
Points against

  • It hurts the small- and medium-enterprises more than large corporations.
  • It lowers competitiveness by increasing the labour cost component of production.
  • It will force employers to automate and reduce dependency on human labour.
  • It will reduce profit margins.
  • It will result in higher prices of goods and services.
Naturally, the list is never complete. But this is to give you an idea and to challenge all of us to think harder!


etheorist said...

Welfare helps those who have a job. Those without a job requires economic growth to give them the opportunities. Both legs must walk at the same time.

de minimis said...

Shouldn't welfare policies also prioritise those who at the fringes of the economy? The unemployable e.g. due to age or infirmity. It's not the subject of this blog entry, of course. But i get the point that employment and growth are twins. The nightmare is the flipside scenario of no growth and unemployment.

Ahmad said...

hai. thanks for your comments earlier on my blog. yes i completely agree that this policy has alot of benefits and advantages. It seems like not implementing this policy is stupid. A minimum wage will ensure the development of economic and increase the employment rates. Let say salary is fixed such that working in MCD pays RM 5 per hour (so the the minimum wage is RM 5)

working 8 hrs per day and 30 days of the month brings the total earnings of RM 1200. I think that this is a reasonable amount for someone without any skills or qualifications to earn. This way he/she will have a chance to survive in this economic tsunami.