Minimum wage still in infancy
Writer: Lee Hwok Aun
Published: Fri, 30 Mar 2012
It looks like we are rather conscious these days of lowly incomes and lofty inequalities.
The new civil service pay scheme (SBPA), maligned for turbo boosting salaries of crown officials while softly nudging the pay of most government staff, has given way to a reversed set of increments that is basically more palatable.
Our path to minimum wage passed another turning point, with the announcement of the rates to be enforced in the not distant future: RM900 per month of basic wage for the Peninsula, RM800 for Sarawak and Sabah.
How far we have come. In April 2010, the New Economic Model (Part 1) firmly objected to minimum wage in principle and in practice.
By December 2010, the New Economic Model’s Concluding Part was telling us to “consider a minimum wage policy”. In July 2011, Parliament gave brief consideration to that suggestion and ushered through the National Wage Consultative Council Act.
The council’s deliberations, incorporating recommendations of its technical committee, arrived at a settlement on our inaugural legal wage floor.
Whether due to political expediency or socioeconomic enlightenment, the government’s about face is welcome. I should add that politicising minimum wage is fine, indeed necessary, because this is an issue that must be on the political agenda.
How far we have still to go. Questions remain, on whether sufficient resources have been allocated to monitor and enforce minimum wage, and whether other complementary labour institutions will be formed that foster welfare and productivity.
But now that the minimum wage rates have been publicised, reactions have centred on the amounts and interested parties have expectedly staked out positions.
More vocally, employers’ groups warn of the rate being too high, workers being displaced, and productivity being too low. They ask for minimum wage to be closer to market levels, so that implementation does not cost much.
There is never a unanimously happy time to start minimum wage, since it sets out to redistribute from one side to another.
The policy rests on an acknowledgement that a section of workers are paid below a level that provides for basic needs, and that skewed power in wage bargaining represses earnings, especially among the lowest paid.
These conditions have afforded disproportionate benefits to employers for many decades. It is therefore inevitable that introducing minimum wage asks employers to bear disproportionate costs of adjustment.
They raise the spectre of unemployment. Yes, that is a reality that workers are facing, but they are the ones who have pressed hardest for minimum wage. They have undertaken the risk.
In the learned judgment of Professor Richard Freeman, a distinguished scholar of labour economics, the effects of minimum wage are on the whole modest.
It helps low wage workers earn more but does not by any means solve poverty; it displaces some workers but not to a grave extent.
He reminds us to put the policy in perspective: minimum wage is first and foremost a redistribution programme. We can hope and plan for, but should not expect too much of, other benefits.
Will minimum wage catalyse technological upgrade and replacement of foreign workers with local workers? To some extent, but I would not put too much stock in the capacity of minimum wage to induce technological change.
Other supportive policies need to fall into place to encourage the shift.
Will minimum wage trigger substitution of foreign workers with domestic workers? I’m also not persuaded this will happen to a meaningful extent.
Much of our floor or field production is characterised by high work intensity: long hours per day, many days per week, few holidays per year.
The availability of foreign workers to bear with these conditions will continue to incline employers to hire foreign workers for tough jobs.
More limits on manual intensity, such as redefining full-time work closer to the international standard of 40 hours per week instead of our current 48, are also important for compelling companies to increase productivity per hour.
Laws that grant more freedom for workers to form and join unions can facilitate more secure employment, lower turnover, and thus more investment in training and up-skilling.
On this front, though, Malaysia has regressed, through amendments to the Employment Act made in October 2011 that officially sanctions labour contractors, driving a wedge between workers and their principal – the owner-operator of their workplace.
Also, shifting toward more conducive part-time work conditions, and focusing on raising hourly wages, has the potential to draw in more youth to some jobs in the service sector.
In fact, Malaysia’s minimum wage is stipulated as an hourly wage, although we are not hearing much clarification on this.
So, minimum wage grows out of infancy. But various progressive labour policies are not yet born.