Time to move on from the minimum wage debate

 

The increase in the minimum wage from RM1,500 to RM1,700 disappointed many, including me but on balance it appears to be a reasonable compromise.

The government has listened to employers and responded by balancing the need to raise incomes against their concerns that higher minimum wages will increase costs, cause job losses and be passed on to consumers in higher prices.

The extra RM200 is actually in line with inflation since the last time minimum wages were fixed. So companies have seen prices and revenues rise, now wages are simply catching up.

The evidence shows that minimum wages have not increased overall unemployment, closed companies or had a big effect on inflation.

On the other hand the evidence also shows that the minimum wage has helped millions of lowly paid workers to raise their income and improve their lives.

It has also created more spending power in low-income groups who mostly spend in their local communities. This helps local SMEs in the wider economy.

The net effect is positive in line with global evidence that a minimum wage does not have the negative effects claimed by some people.

It should not drive up costs of goods and services too much. Those companies that use this as an excuse to raise prices should be punished by consumers who should buy from elsewhere.

The increase in the minimum wage will not help Malaysia become a high-income nation because the increase in wages above this floor is still very slow.

High income status will arrive naturally through economic growth but the challenge is to ensure this growth is fairly distributed so that take home income rises.

Of course RM1,700 per month is still very low but the unity government is moving towards a “higher incomes” or higher take-home pay agenda where wages can be topped-up from other sources such as STR-SARA cash transfers as well as the progressive wage for those earning above the minimum wage.

This offers a more holistic approach to wages and incomes bringing together employees, employers and the government to help deliver a reasonable living income or take home pay.

Combined together the minimum wage and other assistance can bring most people above RM2,000 per month and is good progress towards a target of RM3,000-RM4,000 minimum income suggested by the prime minister recently.

The idea to increase the minimum wage each year automatically in line with inflation should be considered because this allows businesses to plan ahead for small increments and avoids 13% hikes.

For foreign workers the higher minimum wage and mandatory EPF deductions should be music to the ears of those who want to reduce dependence on cheap foreign labour.

The increase will improve their conditions and allow them a more decent standard of living. This will raise the reputation of Malaysia in terms of treatment of foreign workers and create good sentiment for foreign investors and supply-chain contracts.

The EPF payments for foreign workers is even better and ensures the increment is saved here and not sent overseas through remittances which would weaken the ringgit.

It will also help regularise foreign worker employment as Malaysia moves to higher value-added activities.

The evidence is that most companies pay more than the minimum wage anyway and those that do not will be given an incentive to change their business models, improve management, adopt technology and reduce reliance on low-paid jobs and foreign workers. There are many support programmes to help them.

Companies that cannot do this are those without a viable business model and likely to close anyway. The minimum wage will not be the cause of this. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.