Monday, August 9, 2010

Malaysia Getting Serious About A Minimum Wage

We’re going to see a proposal to the Cabinet in October:

Should bosses pay a minimum wage? - RASHVINJEET S.BEDI

About a third of the country’s working population still earns less than RM700 monthly, according to the Human Resources Ministry which is now drawing up a proposal for a national minimum wage.

...A study on wages initiated by the Human Resources Ministry reveals that almost 34% of about 1.3 million workers in the country still earn less than RM700 a month, according to a report in The Star on Friday.

Conducted last year, the National Employ­ment Return study stresses on the need for wages to be increased, as the findings show it is difficult to rely on market forces alone.

Human Resources Minister Datuk Dr S. Subramaniam cites a World Bank study that found that the wage trend in Malaysia has recorded only an annual 2.6% growth during the past 10 years. His ministry, he says, will table a proposal on a national minimum wage to the Cabinet by October.

You can read what I think of the minimum wage here. What’s new is the data on income growth, which is frankly pathetic. But I am not convinced that a minimum wage is a good mechanism for raising incomes – for labour protection and for “living wages”, perhaps, but not for raising incomes. A minimum wage won’t do anything at all for wages of those in the middle income bracket for instance.

In the absence of a decent social safety net, the implementation of a minimum wage could backfire in raising youth unemployment. I maintain that a minimum wage is most useful in limiting labour abuse, and would not have a negative impact if it is set close to the market clearing wage. But if we follow for instance the MTUC’s proposal of RM1,200, then we’re risking quite a bit of unemployment in marginal non-unionised occupations. But of course, MTUC members won’t have to worry about that, would they?

A better question to ask is why market forces are not raising incomes in the first place – could it be due to our almost-as-bad record of raising productivity in the past decade?

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