Rethinking wage policy to reposition our economy


― Liew Chin Tong
The Malaysian Insider
Nov 28, 2012

NOV 28 ― Although the minimum wage law is scheduled to take effect in January 2013, the Barisan Nasional government does not seem to be particularly committed to re-imagine the Malaysian economy through wage policy reform. Efforts to smoothen the transition for small and middle industries are seriously lacking too.

Minimum wage is meant to tackle several long-standing structural issues of the economy at once. As the United States and Europe struggle to stay afloat economically, Asia can no longer remain as an exporter, we need to grow our domestic/Asian markets; a higher income among locals will help generate a more vibrant domestic market which in turn will generate more jobs.

Also, with minimum wage, companies and industries will likely to rely less on cheap labour but invest in longer term potentials, capabilities and hence productivity of the workforce.

This is a virtuous cycle that will check dependence on unskilled foreign workers and brain drain at once. Skilled citizens who work in foreign countries are likely to consider resettling back to their homeland if the wage difference between their home and host countries is narrowed.

Gangnum-style policy making

Essentially, BN lacks a coherent new economic framework.

I frankly do not think that the BN government and its leaders had any idea why there was a need to introduce a minimum wage. Like many other policies, it was done just to respond to the opposition’s agenda.

While BN is currently the longest serving elected government in the world that is still in office and wanted to be re-elected for policy continuity, most policies were made in what I call “Gangnam style manner” ― on the horseback, basing on just back-of-envelope calculation. Consultants were brought in later to make ad hoc decisions implementable.

So we hear hilarious claims by MCA president Dr Chua Soi Lek and his son, Chua Tee Yong, that minimum wage leads to national bankruptcy and that paying foreign workers minimum wage will amount to more currency outflow through remittance.

By the way, Dr Chua Soi Lek also claimed that Pakatan Rakyat’s policy to renegotiate toll rates with concessionaires and to end North-South Expressway toll collection would result in tens of thousands of toll workers losing their employment.

To Pakatan Rakyat, removing many monopolies and rent seekers in the economy will help generate higher disposable income for ordinary Malaysians. To Dr Chua and BN, any change to the crony economy is a bad idea.

Why minimum wage?

Before we venture into the rationales for a minimum wage in Malaysia, let us first understand the regional economic dynamics.

On November 21, 2012, newly elected Jakarta Governor Joko Widodo raised Jakarta’s monthly minimum wage by 44 per cent to Rp 2.2 million (RM700).

On the subsequent day, West Java increased the minimum wage levels of its 26 districts and cities by an average of 25 per cent; one of which, Bekasi, is at Rp 2.1 million, just slightly below Jakarta’s level. More regions are likely to match Jakarta’s level close enough to prevent their own workers from flocking to Jakarta.

The immediate response from the Indonesian stock market was huge appreciation of share prices for companies producing consumer goods, as higher wages mean higher domestic consumption. Of course some employers were not happy with the rise but many can immediately spot the benefit of a bigger domestic market.

In the Eastern seaboard of China, such as Shenzhen, minimum wage is at RMB1,500 (RM735) while new daily minimum wage level in Thailand is at 300 baht a day (RM30, almost equal to Malaysia’s minimum wage).

What do these figures mean for Malaysia? The Barisan Nasional government sets its minimum wage at RM900 for Peninsular Malaysia and RM800 for Sabah and Sarawak while Pakatan Rakyat proposed a RM1,100 package with transitional funds to facilitate vulnerable industries to adapt.

The challenge for Malaysia in the years to come is whether there will still be abundance of supply of foreign labour from neighbouring countries like Indonesia and Burma where their wages are close enough to that of Malaysia’s.

The Malaysian economy will soon to be at a standstill if supply of cheap labour dries while Malaysia’s skilled labour and professionals look elsewhere for greener pastures due to low pay and lack of upward mobility in general in Malaysia.

Minimum wage is but one of the many reforms Malaysia that needs to undertake to move to the next level.

A new agenda for SMIs/SMEs

Many of the reforms like helping labour-intensive industries to become skill and knowledge intensive should have happened twenty years ago in 1992 when Malaysia first reached middle income nation status. But because for every foreign worker brought into this country, someone close to the establishment makes a cut through licensing and other sorts of payment, there is a huge lobby to resist any change.

While minimum wage has very little impact on most industries especially those with very high value added, it is also clear that the implementation of minimum wage, even at RM700 – not to mention higher rate, causes problem for small and medium industries in low-end manufacturing.

To help them is not to stop implementing minimum wage but to support them with financing as well as skill development so that they can be less labour-intensive. What is lacking in BN’s minimum wage policy is a facilitation fund as proposed by Pakatan Rakyat to assist these affected industries.

Beyond minimum wage, Malaysia’s small and medium businesses face other challenges. Corruption, red tape and dominance of GLCs in the economy make it very difficult for the “small guys” to operate in. A form of “tax terrorism” in heightened tax collection and frequent tax raids on SMIs/SMEs have caused fear among small businesses.

What Malaysia needs is a rethinking of our wage policies in a new global and regional environment. Anything short of that won’t take us very far. ― The Rocket

* Liew Chin Tong is the member of parliament for Bukit Bendera

* This article was originally published by The Rocket (http://www.therocket.com.my/en/rethinking-wage-policy-to-reposition-our-economy/)

Print Friendly

  1. #1 by monsterball on Saturday, 1 December 2012 - 1:09 am

    They do not care about productivity.
    They care to make Govt. workers happy..so that all will vote for BN.
    Suggesting reducing toll rates..Umno b puppets are hoping mad..saying thousands workers will loose their jobs.
    These idiots will say anything..and Umno B must keep on employing….not reducing.
    Reducing…workers need to seek jobs in commercial firms..big and small businesses as assistants..and once they do that…their minds and eyes will see many things they never seen before…..no favouritism..not race politics…all equal and all must produce results.
    They never felt so good…feeling free and that;s what makes Umno B afraid most….that the Malays can perform as good as Chinese.
    Once Umno B loose control of Malay minds..they are finished.

  2. #2 by Bigjoe on Saturday, 1 December 2012 - 8:22 am

    Its quite clear the low-wage in Malaysia is due to unbridled import of foreign workers – A purpose policy to extend the life of low-wage manufacturing industries that were being priced out in the late 1980s as well as Mahathir hair-brain sub-scheme of immigration of Muslims into this country to guarantee “ketuanan Melayu”.

    However, I disagree with PR policy of minimum wage. Imposing minimum wage is like going cold turkey for drug addicts. You can take it away, but it does not mean the addict will reform even if he has all the support he needs. Restructuring our industries take a degree of time including a labour force has lots of gaps and need a long period to retool or reskill.

    Its not so simply to impose minimum wage to rid of foreign workers once you are addicted. Foreign labour WILL ALWAYS BE MORE FLEXIBLE than local labour because they come from a very very much larger pool whereas we are a small country. The level of skills needed for local labour to be more flexible is huge investments and takes a long long time.

    In the long run, minimum wage kills jobs. Period. Even if the pseudo-immigration problem which itself is problematic, minimum wage will kill jobs. And worst, it sets a precedent that increases collective demand. Once its set, they will demand increases again and again decreasing the flexibility of the workforce over time..

    I honestly wish PR had look at a negative tax before resorting to minimum wage – Negative tax takes from the better paid to pay the underpaid. Its more progressive and it less government because its collectively decided how much.

  3. #3 by waterfrontcoolie on Wednesday, 5 December 2012 - 7:23 am

    With current state of affairs, I don’t think any member of the cabinet is interested in any issue. They are bent on making the last hurray in spite of all the claims made by UMNO recently. They are oblivious to all the changes that are taking place even in the ASEAN and Asian regions where our main trading partners are located. UMNO leaders are just concern on how much they can bleed Petronas at the moment!

  4. #4 by lopez on Tuesday, 25 December 2012 - 8:47 am

    how can you run a business without considering recurring costs….literally maintenance costs….just imagine if you are a business that ride on the band wagon of employing Malaysians last, merely foreign labour is cheaper. What we have seen today since the big fuss of insufficient labour to stay competitive with other economies as advocated and claimed by so called specialist and experts in human resource development and what else.
    Now dont blamed those businessman, they are businessman and do anything to stay in business. Funny thing never hear them complained about the turnover of migrant workers and inherent costs in money and time that they lose each time when the rules to import migrant workers changes. ..yes there is no faster change that the changes made in this particular area of intense interest.
    Literally these costs builds up , and who ever bothers that it is latently better to employ Malaysian for Malaysia.
    Just take a bus ride to old streets of KL, try to see how often you bum into another Malaysian.

  5. #5 by lopez on Tuesday, 25 December 2012 - 9:00 am

    Extending the Private sector pension age…..huh what is that….another yielding to the businessman. And all the hoo har “for the people”.
    If these clowns knows what they are doing for the nation, just implemented on the day they passed the law. Instead these clowns stay indecisive and called themselves makers of law for the good of the people. Even our close neighbor have extended the pension age to 62 from 60. and in several European economies the pension age is 70.
    Still, they stay indecisive and pushes the implementation date to 31 July 2013 and yet open to accommodate petitions till Feb 2013 for possible further deferment….Hey dont they know most of the workers in the private setor are in the GLC…and yet allows double standards to propogate , what kind of human resources

You must be logged in to post a comment.