The Problems Caused By Minimum Wages - A Few More Points. Tengga-mandey Kulasegaran Please Take Note.

A reader sent me this report from Forbes Magazine. Thank you. It repeats almost exactly what I said (or have been saying) about the massive problems that have been created by our own Minimum Wages. First here is the Forbes Report :

Massachusetts, New York, several states seeing ugly side of min wage 

coffee shop, restaurant closures, reduced hours of work, job cuts

minimum wage hikes have ugly side

ugly side is payroll tsunami unleashed on smaller businesses
already under stress from soaring healthcare costs and rents

minimum wage hikes tip balance 
between staying in and going out of business

• That’s what happened to iconic Boston restaurant Durgin-Park 
• closed doors after two centuries in operation
• couldn’t cope with wage and healthcare premium hikes
• great loss for Boston’s living history
• loss for store owners
• loss for those who worked there
• (the workers lost their jobs)
• minimum wage hikes hurt workers they were supposed to help

For small businesses, minimum wage force them to cut employee hours 

or lay-off employees to cope with the higher payroll

First we cut overtime 
Next lay people off, if we want to stay in business

Nowhere is this more evident than NYC
which has seen wage hikes year after year

On 31 Dec NYC raised minimum wage to $15, 15% increase 

city’s small businesses were caught in a payroll tsunami

The result? 3/4 of restaurants in NYC have cut labor input 

76.5% of full-service restaurants  cut employee hours 

36% cut jobs in 2018 in response to minimum wage hikes

NYC restaurant employment down 
from 8% growth in 2012 to  -2% growth in last two years

cutting employees means heavier work burden for those left behind
Once again, minimum wage hikes end up hurting those they are supposed to help

My Comments :

In Malaysia, our problem is the Minister of Labour Kulasegaran Tenggamandey plus many other people (especially the Civil Servants)  WHO HAVE BEEN ENTRUSTED WITH IMPLEMENTING THE MINIMUM WAGE LAW do not understand BUSINESS.

The story above in Forbes magazine details the business closures in New York, Massachusetts and other States in the US AS A RESULT OF THE HIKE IN MINIMUM WAGE RATES.

The small businesses in particular (the SMEs, the mom and pop businesses etc) suffer greatly from Minimum Wages - any level of minimum wages.

Also suffering are the large businesses which employ large numbers of 'Minimum Wage' entry level workers  like hypermarkets, factories, plantations etc. 

The Minimum Wages places a higher burden on their cost of operations. 
Many are forced to close down. 
Or cut the number of workers. 

The net result is businesses shut down and unemployment in the country increases.

I have a few other observations.

1. Minimum Wages and the race factor in Malaysia.

In Malaysia everything is race, race, race.

One effect of Minimum Wages is that MORE YOUNG MALAY WORKERS are becoming unemployed.

And I think MORE Indians are now getting employment.

Before Minimum Wages, more entry level Malays were employed because the market paid them entry level wages. In our gold jewellery business we paid the girls RM600 a month - which was slightly above average for retail outlets in Masjid India at that time.  

The girls were usually SPM holders - meaning they could write a receipt, do basic calculations with a calculator etc.  We hired those who were quick to smile and could talk and make a sale to the makciks who were our customers. 

Then the Minimum Wages were imposed - RM900 a month. We had to let go some of our staff. Many other businesses did the same.  Now it is RM1050.

This amount of money is way beyond the productive output of entry level workers.

Today for RM1050 a month, a business can hire a Diploma holder or even a university graduate. That is why nowadays many university graduates are working for Minimum Wages.  Because there are no jobs available. The university graduates are willing to accept RM1050. 

So the SPM holders will be displaced, out of a job. 
They can become Mat Rempits. 
Or Food Panda delivery boys - which is a growth industry.

So at RM1050 wages, employers can pick and choose between diploma holders, university grads and SPM leavers.

There is a Pizza joint near our workplace. It was run by mostly Malay workers. It had its usual problems. Over a short time the Malay workers have been replaced by mostly Indian executives and workers. The Indians speak English, do not take sembahyang breaks, they seem to work ok.  The employers know who best to employ.

Another example is a T _ _ co supermarket near where we live. When they opened (over a year ago) many staff were Malays, including supervisory staff. Now there are more Indians. I think because of the higher wage costs, the employer has much less margin for error to pay high wages.   

They have to choose workers who give more value for the wages paid.  Ability to read and understand English (on invoices, packaging material etc) and able to work without asking for too many breaks etc becomes more relevant in a high minimum wages environment -  these are basic common sense factors the supermarket has to keep in mind.  Whatever - there seem to be more Indians employed. Which is good for the Indians.


2.  Unlike the USA, Malaysia is still a Third World economy

In the US the minimum wage hikes are putting the SMEs out of business, like that 200 year old restaurant in Boston.  But the US economy is huge. And it is powered by large corporations like Microsoft, GM,  Boeing etc which are NOT Minimum Wage employers.  Boeing and Microsoft are not SMEs (small and medium enterprises). They pay ABOVE Minimum Wages to employ engineers, technicians and othere highly skilled workers.

So the Minimum Wage hikes WILL NOT AFFECT large corporations like Boeing and Microsoft.  Hence the US economy can survive a little better, despite Minimum Wage hikes.

In huge contrast Malaysia is a Third World economy.  Our Malaysian economy is NOT made up of large and succesful corporations like Microsoft and Boeing. Our large corporations like MAS, Khazanah etc are making losses. Billions in losses. 

Instead Malaysia is an economy made up of hundreds of thousands of small companies - kedai runcit, restaurants, small shops, small businesses, small plantations, small factories etc. We are a small economy.

The producticity level of our economy is actually WAY BELOW the level of the Minimum Wages we have imposed.   


Therefore imposing Minimum Wages  on such a 'small enterprise' dependent economy like Malaysia will kill off many SMEs. This is already happening. 

I must repeat : Msia is an SME economy. 

The United States is a huge corporate economy. Even if a 200 yr old restaurant in Boston shuts down, it is no big deal.  Microsoft, Boeing and Lockheed are still around. Microsoft and Boeing are way above Minimum Wage employers.

On the other hand Malaysia is still a kedai runcit, restoran and small family companies economy. 

So our economy is dying. It is already half dead.   Small and medium businesses in  Malaysia are dying.  And then even the big businesses will eventually die.

The Minister for Human Resources Kulasegaran Tenggamandey does not seem to understand this. 

Tengga Mandey 

The Pakatan Harapan government also does not seem to understand this including the new Economic Advisor to the Prime Minister - which is this guy here :

Dr Muhd Khalid

The sales of our SME factories and busineses are dependent on local demand.

Most SMEs are not making parts for Boeing jets. They are manufacturing mee hoon (for example) for the local market.  

The level of costs, output, productivity and sales revenue for the mee hoon factory has achieved a certain equilibrium relevant to the economy in that area. 

Workers wages are not determined arbitrarily by blood thirsty employers. Wages are determined by the cashflows generated by the business. Cashflow comes from lower costs, higher productivity, sales revenues, how quickly the salesmen answer the telephone, whether the sales girls can smile or cannot smile etc.  

Artificially imposing a relatively high level of Minimum Wages will totally disrupt this 'equilibrium' that already exists in the market.  

Wages are best decided by the equilibrium forces existing in a market in that particular area - consonant with the level of productivity and output of that labour force.  

You mess with this and you create disruption. 
Minimum wages has a huge negative impact.
Right now in Malaysia, many SMEs are closing down.
As a result, unemployment is increasing.

And guess which race gets unemployed first?