Minimum Wage in Malaysia

Minimum wage in Malaysia: need for it and its’ possible effectiveness 1. 0. Introduction Background Information There has been growing debates concerning the minimum wage in Malaysia, with strong opinions from both sides of the arguments. In 1979 edition of their introductory textbook, William B. Aumol and Alan Blinder explained, â€Å"The primary consequence of the minimum wage law is not an increase in the incomes of the least skilled workers but a restriction of their employment opportunities† (p. 7). On the other side of the debate, social activists, policymakers and other non-economists often argue for an increase in the minimum wage. Advocates of the minimum wage have included Franklin D. Roosevelt, Martin Luther King, A. Philip Randolph, Walter R. Reuther, Edward Filene, Beatrice and Sydney Webb. Finally, Malaysia took its stance and made its first legislative attempt at putting in place a national minimum wage on twenty first June 2011 . Introduced by Human Resources Deputy Minister, Maznah Mazlan in Parliament, the National Wages Consultative Council (NWCC) bill was tabled for its first reading. Most significantly, the general public does not widely share the negative opinion of the minimum wage, according to surveys. What questions us, is whether there is a need for minimum wage, and if there, how effective it might be. Statement of the Problem This paper will investigate on the need and the effectiveness of the yet to be minimum wage bill among security guards, cleaners with its current value of RM720. The idea of having a national minimum wage in Malaysia has been proposed more than 12 years ago by the Malaysian Trades Union Congress (MTUC), when Tun Mahatir was still the Prime Minister, and has been continuously rejected, until more recently, the current prime minister, Datuk Seri Najib has stated in the Malaysia Budget 2011 speech â€Å"Businesses must embrace the minimum wage as a business strategy†. A minimum wage theoretically, is planned to affect the low-skilled workers such as janitors, cleaners and security, who are paid with low wages which affect their standards of living. With a minimum wage in effect, they were supposed to be able to raise their standards of living and live a more comfortable life. Conversely, Orrenius and Zavodny (2008) and Ragayah Haji mat Zin(2007) argue that the effect of a minimum wage may just put these low skilled workers out of employment because of economic conditions in country, putting the low-skilled workers in an even worse situation: unemployment. Research Purpose This paper aims to investigate whether or not Malaysia is in need for implementation of a national minimum wage, based on the reviews of recent developments in the literature pertaining to the overall effects of a minimum wage, and the opinions of the janitors, cleaners and security guards. The focus is on the perceptions of low-paid workers as mentioned earlier and their satisfaction with the amount they are being paid and whether or not it covered their day to day expenses. Analysis can be made on whether or not these workers were exploited by the absence of a minimum wage and that a minimum wage is indeed can end such situations. To answer the questions surveys will be done and literature review will be made that will analyze on how are salaries are appointed and later on the consequences of implementing the minimum wage. This paper aims to answer the following questions: 1)Is there any need for Malaysia to implement national minimum wage? 2) As for now are low-paid workers are paid enough to cover their daily expenses? )Does the law bring a tangible change? Significance of the Study There are lots of studies pertaining to the issue of minimum wage around the globe, however, only few had focused on the issue being practiced in Malaysia, like Rohayu Abd. Ghani in her article† Salary and Wages in Malaysia† and David Lim in his article â€Å"†Sweet Labor† and Wages in Malaysian Manufacturing† . Referring to the history of an alysis, some have focused on developing countries that have already implemented the minimum wage, like P. Jones, where he discusses issues pertaining Ghana; or first world countries, like M. Bowey and A. Lupton where comprehensive explanation about implementation in United Kingdom was done or D. Neumark and W. Wascher analyzing the situation in USA. This brings us to the conclusion that more studies need to be done to find out the conditions of so-called â€Å"black workers†: janitors, cleaners and security guards in Malaysia. Ironically, many newspaper articles have addressed the economic conditions in Malaysia, the effects of those on citizens of Malaysia. But never the question of implementing the minimum wage policy was taken any further. Findings of the investigation will be helpful in determining if the minimum wage needs to be implemented, to analyze whether it would be actually successful in improving the lives of janitors, cleaners and security guards, and whether or not their current salaries will be sufficient for them to live a comfortable life, as concerning this issue Shireen (1998) has shown that poverty in Malaysia officially seen s as a situation of relative rather than absolute deprivation. By understanding their conditions, a better decision of how the minimum wage could be implemented can be recommended and the proximity of the issue can be understood. 2. Literature review Bowey and Lupton (1982) has discussed that wage and salary administration is complex and subtle, and littered with techniques designed to reduce the complexity for the administrator and cope with the subtleties. The explanations that are brought together are the descriptions of the most important techniques that are available for coping with the principal tasks of wage and salary administration, and shows how and when these may be used. They propagate that there are many systems of payment which attempt to relate earnings to the work done and before any such system can be used it is necessary to assess that work in some way by comparing the nature of the work (eg. Is it heavy work? Does it carry a large amount of responsibility? ), it may also involve assessing the rate at which the employees are working and rewarding them according to their different rates of performance. The first method is job evaluation while latter is work measurement. Regarding this matter they outline that â€Å"Job evaluation and work measurement are two subjective areas which are of crucial importance to the operative and the manager as they radically affect the payback and the quality of work† ( Bowey & Lupton, 1982, p. 159). And here is the issue that we have, why is that in some instances, wage amounts differ, regarding the fact that it’s one country, one sector of work, but yet, some workers are abused and get to be paid a very low salary. The inform us that there are three different consideration while salary is being allocated to each job. First, the mechanics of assigning different amount of money to different positions is the job hierarchy and different standards of performance. Second, consideration of the absolute levels of pay which should be given when pay in other organizations is taken into account. Third, the process of negotiation between the management and the union about levels of payment. And exactly the third consideration appears to be quite an issue. Why is that we require the workers to give the just amount of performance, finishing the assigned work, but we aren’t just in giving enough reward for the effort contributed. It appears, that using the power as an upper- manager who hires, the abundance of work supplying the market, especially with the flow of illegal immigrants, workers will have to agree on terms offered. Do we consider the undue influence and abuse of situation as an ethical act? Bowey & Lupton(1982) stated that: With management by objectives, the employee and his superior agree a set of objectives for the coming year, and the individual is given salary increase at the end of the year, which is partly determined by how well he has succeeded in achieving those targets (p. ) Theoretically, the wage systems seems just fine. Unfortunately, this is not the case in Malaysia. Plantation workers are initially paid RM350 and can achieve RM700 with bonuses. Would that be enough for an average Malaysian citizen to cover rent, food expenses? They argue that â€Å"If we give equal rations to everyone, who do we designate to carry out the most onerous tasks-and on what basis do we make this choice? † ( Bowey & Lupton, 1982, p. 159). In the end, whether we like it or not management has to make decisions about the worth of the contribution comparing different levels of jobs and finally assigns the salary, even if the appointed salary makes it cheaper than in other place as starting amount of salary differs from the budget of one institution to another. Journal Business Asia has analyzed the ambivalent attitude of government to foreign labor. Before the crisis 2. 5 million immigrant workers were regarded as â€Å"undesirable but necessary encumbrance†( Business Asia,2000,p. 2) . It is a very degrading attitude toward human being, be he from first world country or third, but what matters is that, in the end, we can’t change much. Laws and bills are issued, but these workers still are considered cheap workers for black jobs. This type of attitude is problematic, as the accountability and dignity of an employee disappears, especially when allocating the salary. Wikipedia (2011) states that the minimum wa ge that Malaysia has stated for plantation workers is RM350 and that even may reach RM700 with bonuses! The article explains further â€Å"Officially-orchestrated- and mostly employer-funded-repatriation programmes saw the number of registered foreign workers drop below 700,000 by end 1999, from peak of 1. 2million in 1997†(Business Asia,2000,p. 12) . Though, after the pressure from exasperated employers, the government announced the lifting of a freeze on the recruitment of foreign workers, but yet, â€Å"the grudging nature of the concession was underlined by an accompanying list of 138 categories of job† for Malaysians only (Business Asia, 2000,p. 12). And ironically, all these statement are done by those who â€Å"stated an intention to transform Malaysia from a production to a knowledge- based economy† (Business Asia, 2000, p. 12). Employers complain that â€Å"Instead of encouraging the free-thinking innovators needed to help realize such a lofty ambition, the education system seems expressly programmed to eliminate them† (Business Asia,2000, p. 12). All of the above had lead to the core of the issue, the rise of salary. The fear among employers is that a rise in wages will eventually begin â€Å"outstripping productivity gains† (Business Asia,2000, p. 2). Despite the increase of GDP by 3. 7% wages by relative modest grew by 2. 7%. The question is what should stand above, a just increase in wages, which a company can afford, or the increase of the profits at the expense of exploitation of decent workers. As Annil Netto reports at Indian-Malaysian Online â€Å"The Malaysian Trades Union Congress, an umbrella for private sector unions, threatened by nationwide strike if its request for a minimum would be ignored, even so, the Malaysian government gave a cool response †. In March 2000 a national survey by MUTC and International Labor Organization has revealed that some 2 million workers earned less than a poverty- line income of RM600, MTUC demanded at least RM1,200, which we still do not have in 2011. Further, Jones (1997) examines the impact of minimum wage legislation in developing countries with incomplete coverage, using the case of Ghana. Her extensive research has proved that the implementation of the minimum wage was not an efficient policy for reducing the incidence of poverty in a situation where coverage of the minimum wage legislation is partial. The reason is that people working outside of the wage sector e. g. Farmers who survive by selling and consuming their own output are not covered by the minimum wage, and they are the ones who are in need of the minimum wage. Thus, the implementation of the minimum wage becomes non-effective. Her results have shown that the minimum wage in Ghana had a negative impact on employment; there were significant job losses due to the policy. Although the study is based on the case of Ghana, it can be deduced that if Malaysia were to implement the minimum wage, it should cover a large proportion of the population, and not just those working in the public sector, to increase coverage. Ghana and Malaysia are two different countries of different cultures and mentalities, government structure, though communality are the social problems that each faces. But the differences might tell us that policies implemented in one will not necessarily give the same results if applied in the other. The main key point that could be inserted is that the minimum wage should have a large coverage, in our research cleaners and guards. Saget (2001) examines the relationship between the level of minimum wage and employment and between the level of minimum wage and poverty through literature survey and also empirical evidence. The response of employment and poverty to changes in the minimum wage on more than twenty countries was tested in the research, and â€Å"†¦ he data analysis had given strong support to the proposition that the minimum wage may bring positive results in poverty alleviation by improving the living conditions of workers and their families. † (Saget, 2001,p. 31). The literature survey however, had differing opinions, for example some papers mentioned that raising the minimum wage in developing countries may contribute to a widening of the gap between the covered and uncovered sector, similar to Jones (2007), generating relative poverty. Unlike Jones (2007), Saget's (2001) analysis proved that minimum wage had no negative results on employment whereas Jones had shown that the minimum wage policy had caused significant job losses. This is because Jones’ study was focused on incomplete coverage of the minimum wage while Saget looked into the minimum wage in general, cross country to see the effects it had on poverty and employment. Therefore based on Jones’ study, if Malaysia were to implement the minimum wage, then up till now there would be a reduction in poverty, which is positive and one of the goals of Malaysia in becoming a high income nation by 2020. Jones did not manage to find a significant link between unemployment and the minimum wage thus, this means that a minimum wage would not cause unemployment to increase significantly. However, the results could also mean that countries that implement the minimum wage are more committed to reducing the level of poverty in the country thus leading to results which imply that setting a higher minimum wage would reduce poverty. Lo (2010) in his paper titled ‘The case for a minimum wage in Malaysia† is a highly passionate in support of the minimum wage. It is perhaps due to the fact that the writer is the secretary of the MTUC which is the very same organization that has been pushing for minimum wage legislation in Malaysia for over 12 years now. Malaysian workers suffer from suppressed wages because of the influx of cheap foreign labor, but having a minimum wage according to the Malaysian Employers Federation (MEF) would hurt Malaysian’s competitiveness due to the increase in costs firms will have to incur. However this is countered by Lo (2010), â€Å"If a firm cannot even provide a decent living wage to its workers – one that is enough to meet their basic needs – it has no business being in business†(p. 3). He also suggested that Malaysia can’t always depend on cheap foreign labor forever. Although now it would be expensive to invest in research and development to develop tools that would improve productivity, it would be cheaper in the long run to use these machines. Furthermore, higher wages lead to higher productivity. It would encourage employers to invest in research and development to increase overall productivity and efficiency. Malaysia has not been spending much on research and development, especially private sector, but this would change if there was minimum wage legislation, and more on research and development would give Malaysia a better future. According to this, Malaysia should implement the minimum wage, because of the effects it has in reducing social poverty and also its potential in enhancing economic growth and productivity improvements. â€Å"There is a growing view among economists that the minimum wage offers substantial benefits to low-wage workers without negative effect. Although there are still dissenters, the best recent research has shown that the job loss reported in earlier analyses does not, in fact, occur when the minimum wage is increased† (Fox, 2006, p. 1). Also, over 650 economists, including five Nobel Prize winners and six past presidents of the American Economic Association, recently signed a statement stating that federal and state minimum wage increases â€Å"can significantly improve the lives of low-income workers and their families, without the adverse effects hat critics have claimed† (EPI, 2006). Although the paper focused purely on the evidences from the USA, the effects of minimum wage are still similar if it were to be implemented in Malaysia. However, there could be major differences as Malaysia would be implementing the minimum wage for the first time, while the USA has been doing it for much longer and their case is to do with raising the minimum wage. Malaysia would face lots of opposition in the beginning as t he adjustment process would take time. Card and Krueger (1995) extensively describe the effectiveness of minimum wages of each sector of US population. As stated by CIA World Factbook (2011) US GDP for year 1995 was 2. 51 and 3. 7 for year 2006, and current GDP of Malaysia is 3. 9,hence we can conclude similarities in the phase of economical development. Card and Krueger present us a new body of evidence showing that recent minimum wage increases have not had the negative employment effects predicted by the textbook model. Some of the new evidence points toward a positive effect of minimum wage on employment most show no effect at all. Moreover, a reanalysis of previous minimum wage studies finds little support for the prediction that minimum wages reduce employment, like Richard Lester during the 1940 or Card and Krueger initial work in 1988, California state as a case study. If accepted, the findings will call into question the standard model of the labor market that has dominated economists’ thinking for the past half century. They have showed us the empirical findings which result in later: first of all, a study of employment in the fast- food industry after the increase in New Jersey minimum wage was not affected adversely by law, stating that â€Å"modest increases in the minimum wage have no adverse effect on the employment outcomes of low-wage workers† (Card & Krueger, 1995, p. 114) as Lo ( 2010) and Saget (2001) had argued above. The results were gathered from 400 restaurants. Relative to restaurants in Pennsylvania, where the minimum wage remained unchanged, they found that â€Å"employment growth within New Jersey was higher at restaurants† (Card & Krueger,1995, p. 46). Second, a cross-state analysis finds that the 1990 and 1991 increases in the federal minimum wage did not affect teenage employment adversely. Thirdly, an increase in the minimum wage leads to a situation in which workers who previously were paid different wages all receive the new minimum wage. Card & Krueger(1995) ar gue that once there is an increase in the minimum wage it would result in a â€Å"ripple effect†, leading to pay raises for workers who previously earned wages above the new minimum. Surprisingly, increases in minimum wage do not appear to be offset by reductions in fringe benefits. Increase of such kinds has decreased the minimum dispersion, partially reversing the trend toward rising wage inequality that has dominated the labor market since the early 1980s. Finally, as a fact minimum wage is a blunt instrument for reducing poverty. It’s â€Å"an amount that is smaller than most other federal antipoverty programs, and that can have only limited effects on the overall income distribution† (Card & Krueger,1995, p. 3). They also note, that â€Å"more than 60 percent of all workers have worked for the minimum wage at some time during their careers(Card & Krueger,1995, p. ). References Anonymous (2000). No staff, no skills, Business Asia, Vol. 32 Issue 14, p12, 4/5p Card D. , Krueger A. B. ,(1995). Myth and measurement. The new economics of the minimum wage. Fox, L. (2006). Minimum wage trends: Understanding past and contemporary research. Retrieved from http://www. epi. org/publications/entry/bp178/ Jones, P. (1997). The Impact of Minimum Wage Legisl ation in Developing Countries where Coverage is Incomplete. Retrieved from http://www. bepress. com/cgi/viewcontent. cgi? article=1066=csae- redir=1#search=†jones+ghana+wage† Lo, A. 2010). The case for a minimum wage. Retrieved from http://www. mtuc. org. my/andrewminimumwageaug2010. pdf M Bowey,A. , Lupton, T. (1982)Managing Salary and Wage systems,Great Britain: Gower Publishing Company Retrieved from http://www. indianmalaysian. com/minimum_wage. htm Retrieved from https://www. cia. gov/library/publications/ html Saget, C. (2001). Poverty reduction and decent work in developing countries: Do minimum wages help?. International Labour Review, 140. Retrieved from http://www. ingentaconnect. com/content/ilo/ilr/2001/00000140/00000003/art00002