The Case for the Minimum Wage in Malaysia

26 Mar 2007 | Current Affairs, Economics & Finance | by admin | 8 Komen

Noor Yahaya Hamzah made a strong case for minimum wage in Malaysia.

Left on its own, the labour market could correct itself, provided that there are no outside forces interfering in the supply and demand mechanism. But in our Malaysian case, the government has this rule that undermines the labour marketâ€™s bargaining power in that â€˜employees can only join in-house trade unions; large nationwide umbrella trade unions are not allowedâ€™. As such, workers have no negotiating power for the wages they get.

The government further undermines the labour market by doing almost nothing about rampant illegal worker immigration from neighbouring countries. There were cases in the past in Sabah whereby illegal immigrants were given citizenship, hence enlarging the pool of cheap labour.

Introducing minimum wage legislation would bring a lot of benefit to the country. Letâ€™s say that we set minimum wage at RM5 per hour this year. Inefficient companies who cannot afford to pay this minimum wage will have to close shop, freeing labour resources to be employed elsewhere…

Would a minimum wage law would reduce our competitiveness? Would FDI flow to other countries? That is shallow argument hiding the fact that competitiveness is equal efficiency in every aspect of our activity. Who is more efficient, a street sweeper using a truck or a few street sweepers using brooms and baskets?

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Hazri

Nazmi,

Apologies if this may not be related to the entry. I am simply curious as to your stand on the free trade agreement negotiation with the US which is fast approaching its deadline as I cannot recall you blogging on the matter. Even the search function produces no result for “free trade agreement.” Sorry if you have written on this before – if you don’t mind can you provide the link? Thanks.
http://www.niknazmi.com Nik Nazmi

Will respond soon Busy week!
http://faizulmd.blogspot.com FaizulMd

IMHO, we can’t just set a minimum wage without any other supporting policies. In the original article, he said firms will invest more on capital. That is true, provided that they are relatively stable like big companies. SME firms are still struggling to survive. Unless the government or the firms themselves realize that capital investment is important and they have the means to do it, the SME firms which are mostly relatively still inefficient will close down and create more unemployment.
http://maddruid.com Hafiz

I don’t think how it is a strong argument at all because, the two last paragraphs of the excerpt are based on poor economics.

The obvious question, in response to the “RM5 minimum wage” example, is how does causing cost of doing business up is efficiency?

And this: “Inefficient companies who cannot afford to pay this minimum wage will have to close shop, freeing labour resources to be employed elsewhere”

It’s called unemployment, in simpler term. Some people may enjoy higher wage but that would cause others to be unemployed.

The last paragraph also needs to be inspected: between two countries of differing labor cost, which country is more likely to attract labor-intensive industry, given all else the same?
http://micpohling.wordpress.com/ mich

“Inefficient companies who cannot afford to pay this minimum wage will have to close shop, freeing labour resources to be employed elsewhereâ€¦”
Me, not economist, seeing this is a funny statement. Instead of encouraging bussiness to close shop, why not we encourage more people to venture into bussiness/entepreneurship so that more jobs to be created, and therefore people/labourers will be having more choices to choose. And if there are more competition in the labour market, the tauke would have to increase wage to attract the worker. Logic?
http://micpohling.wordpress.com/ mich

Nik, I responded to her whole letter here. You are welcome to read and comment there:
http://micpohling.wordpress.com/2007/03/27/minimum-wage-in-malaysia/
http://www.infernalramblings.com johnleemk

I think the minimum wage is a poor way to ensure equality of opportunity. If we want to help people out, let’s be upfront about it and make the government pay through its revenues, rather than indirectly taxing businesses. Moreover, the minimum wage is not effectively targeted – why is it just to guarantee the same wage to a high school dropout and a single mother of two? Why is it just to impose the same tax (because that’s really what a minimum wage is) on a multinational and a local mom-and-pop store?

I had a debate with a couple of other bloggers about this, and I still can’t see the case for a minimum wage, to be frank:

http://sigma.blogsome.com/2007/02/22/a-challenge-to-neoliberals-on-its-economic-model/
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