Why settle for minimum wage?
Writer: Lee Hwok Aun
Published: Fri, 23 Dec 2011
THE lowest- paid workers in Selangor’s state agencies stand to gain from a wage boost next year. The state government’s recently announced RM1,500 minimum wage moves us in a fair and progressive direction.
This measure not only acknowledges that wages at the bottom end are too low to sustain a basic livelihood. Tan Sri Khalid Ibrahim’s administration follows up by allocating funds to bolster the earnings of employees effectively under its trusteeship.
How RM1,500 was determined ought to be explained in greater detail. The quantum corresponds with the Malaysian Trades Union Congress’ (MTUC) national minimum wage baseline, calculated from an appraisal of basic needs. Undoubtedly, the cost of living in Selangor exceeds the national average, and RM1,500 will exceed any prospective federal minimum-wage levels that will be enforced in the not-too-distant future.
Still, it will be helpful to know how we settled on this level.
Selangor has also budgeted for training along with minimum wage, and has indicated that workers must acquire new skills to qualify for the wage bump. This is a reasonable condition, and the government again substantiates its decision by committing funds to training programmes.
But it is somewhat misleading to link skills and productivity to the wage floor. Minimum wage must be grounded in an estimation of basic needs. The lowest wage level is primarily a function of the low bargaining power of workers and the labour market’s proclivity to pay as low as possible, regardless of workers’ living conditions. In countries like Malaysia, repression of labour organisation and weak labour regulations compound workers’ incapacity to press for decent wages.
Still, Selangor’s wage intervention gives us much to applaud, particularly when we take note of two things: it plants a seed that can grow, and it brings us closer to a “living wage”.
The policy will take effect only in state GLCs, not across the board – not even in the civil service in Selangor. The programme will register a relatively small number of beneficiaries. This fact does not tarnish the initiative; we just need to adjust our expectations. Over time, the coverage of this policy should be broadened, potentially to contractors and licensees of the state government. However, we have to be mindful that federal government and laws exert much greater influence over labour markets.
Of course, raising wages impacts on employers, but the outcome here is considerably manageable. This wage policy operates internally and through specific agencies, not as a mandate on employers at large.
We will know over time how well Selangor’s subsidiaries cope, but the information and opportunity are available to compute the costs and prepare accordingly.
In terms of the bigger picture, we should take note that we are in good company. Consciously or not, Selangor significantly emulates living wage movements in advanced economies and democracies.
The living wage agenda grew out of a discontent toward the relatively passive notion of minimum wage, and the reality that minimum wage levels are simply inadequate for a family’s basic needs.
In the US, municipalities and cities took the lead, principally through requiring public contractors to pay their workers at least a locally determined living wage. For example, In June 2004, Santa Fe introduced a living wage of $8.50 an hour, exceeding the federal minimum wage of $5.15.
The movement ran campaigns and conducted local surveys to evaluate household needs as well as costs to employers. A Measure of Fairness: The Economics of Livings Wages and Minimum Wages in the United States, written by a group of scholars at the University of Massachusetts, Amherst, recounts how Santa Fe and about 140 municipalities across the US instituted living-wage ordinances.
There is evidence that the wage intervention has pulled families out of poverty, while higher wage earners have benefited through “ripple effects”, as the living-wage level becomes a general benchmark.
Businesses have experienced modest increases in cost and have generally adjusted well.
Selangor’s initiative affirms the case for different states to have different legislated wage floors. But it is also going beyond the notion of minimum wage, albeit without adopting the language of living wage as applied in American cities and in various places around the world.
Selangor’s minimum wage clearly conforms to a higher conception of basic needs. This sets a decent precedent for state governments to follow, and takes a first step that can be built upon, especially in expanding from employment within GLCs to contracting and licensing as policy levers.
The new rule should be: you want to do business with the government, you pay workers better, forego some profit if necessary.
Let’s not settle for a minimum, let’s go for a living wage.