Wednesday, February 28, 2007

Reasons Why We Need Minimum Wage Legislation

Reasons Why We Need Minimum Wage Legislation.
I read with dismay and disappointment when Deputy Prime Minister Datuk Seri Najib Tun Razak said that Malaysia is not likely to implement the minimum wage legislation any time soon. This can be interpreted as “not likely, not in my watch”. His reason that implementing minimum wage would erode our competitiveness in world market is lame indeed.
In our headlong rush towards modernization, higher GDP per capita and accumulating riches undreamed of in our father’s generation, we have forgotten that as a nation, we must move together, and share our resources, spoils and tribulations in good times or bad times.
Some of us have the luck and ingenuity to move ahead, earn wealth and live happily ever after, while some sections of the society, whether through their own fault or not, still stuck in poverty even if they work 12 hour days 6 days a week.
A blogger in Malaysia Today commented that we should not implement minimum wages legislation, instead educate the poor so that they can lift themselves out of poverty. Have we forgotten that not all of us have the gift and ability to be educated and learn new skills? Wages and salary, whether high or low is still a market reflection of supply and demand of labour with particular skills, as well as the person’s ability to negotiate high wages. If you are buddy with your boss, and your boss cannot do without you, it’s no brainer that you will be able to negotiate high wages.
You, are your own commodity, your ability to package and sell yourself is the key to your net worth and potential.
Does anyone wonder why Siti Nurhaliza is in demand and highly paid?

Left on its own, labour market could correct itself, provided that there are no outside forces interfering supply and demand mechanism. But in our Malaysian case, the government has this rule that undermined labour market bargaining power “employees can only join in-house trade union, large nationwide umbrella trade union is not allowed.” 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 immigration from neighbouring countries. There were cases in the past in Sabah whereby those 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. Let’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. I remember reading news article highlighting acute labour shortages in construction and agriculture sector. On the labour supply side, people who normally do not work because of other commitment or unattractive wages, might find RM5 per hour is good and start looking for jobs, thus contributing to the economy.
More people in the payroll would increase economic activity, contributing to higher economic growth. Companies would invest more, since the economic climate is rosier.
This will spur the country forward to make more capital investment and increase per capita productivity, since employers would not employ employees to do low value jobs. It will also help employees on low income; higher income will ease their burden.

Higher wages for workers would force employer to make more capital investment, since higher capital would result in higher productivity per worker. Workers will be equipped with machinery, instead of doing manual job.
For example in the west, a street sweeper uses truck equipped with sweeper can sweep every street in a city the size of Klang in 3 hours.

A minimum wage law would reduce our competitiveness? FDI would 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 truck or a few street sweepers using brooms and baskets?
We continue to hide the facts that our government red tape is onerous, with a lot of unnecessary paper works. Add to that, service is slow, with a few levels of hierarchy and nobody seems to have the power to approve, even if we have followed the rules to the letter.
What make the matter worse, our government keeps changing the rules and requirements as often as they like.
Multinational companies invest in efficient operation, which enhance their competitiveness. So as a country, we should consider investing in efficiency, which would lead us being competitive.

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