Minimum Wage Revised Part I: Theoretical Considerations

So the government has finally announced a new revision to Malaysia's minimum wage, two years after the last one. This time though, it's a whopping 25% increase to RM1,500, from the RM1,200 in 2020. Even after all these years (nine to be exact), the minimum wage continues to be the subject of a lot of arguments, so I thought I'd lay out some of the theory and Malaysian evidence (such as it is).

First of all, what we learned in Econ 101 is that when you establish a price above that of the market determined price, quantity supplied increases while quantity demanded decreases, and the market does not clear. In the context of labour, this implies higher unemployment, as more people are willing to work, but less employers can afford to take them on. But in empirical studies, this generally does not happen with the minimum wage. Why?

Data Releases for July 2014

I’m back from my usual Ramadhan blogging sabbatical. It’s been a bittersweet month – the economy is chugging along better than I ever hoped for and the German demolition of Brazil in the World Cup semifinals was a hoot to watch, but then there was the staggering blow of the MH17 tragedy and the incomprehensible Israeli invasion of the Gaza strip on the very same day. Geo-political risks appear to be increasing, while the global economy remains on a fragile footing, the US recovery notwithstanding.

March 2014 Employment

If there’s anything that will tell you the economy isn’t quite as good as the 1Q2014 numbers indicate, it should be employment (‘000):

Not to put too fine a point to it, job creation in 1Q2014 sucked – in fact, it’s been pretty poor since the middle of last year.

February 2014 Employment

The February numbers aren’t appealing: employment growth is crashing (‘000):

Job creation has been negative in four out of the last five months – a cumulative reduction of about 400k jobs. That’s a serious divergence between the labour force numbers, and the growth of the economy as a whole.

The Broadening Scope Of Economic Jobs

It used to be that being an economist, you’d end up working for the government, in academia, or in the financial sector. Nowadays, the market for an economist is much, much wider.

Take for example the following:

1. Google and Youtube are looking for quants, to help analyse “large, complex datasets”;
2. Amazon is looking for economists to, “apply the frontier of economic thinking to market design, pricing, forecasting, online advertising and other areas.”
3. Twitter is looking for help to, “analyze data and answer complex questions related to users, advertisers, and revenue.”
4. Qualcomm, who’s processors are at the heart of many smartphones today, are looking for someone to join their intellectual property team, to help advise on IP policy issues.

It’s a much wider job market than it used to be, and there’s never been a better time to be armed with an economics degree.

However, there are a couple of common threads running through all these “uncommon” jobs – a statistics/econometrics background is absolutely required, and a Masters degree is the minimum entry level qualification (PhD preferred).

Time to start hitting those books again, guys and gals.

November 2013 Employment

Based on the latest report from DOS yesterday, the economy lost 24.1k jobs in November (‘000):

However, as I pointed out last month, job losses are fairly typical in October-November, so this is just par for the course. This is confirmed on a seasonally adjusted basis, which shows an increase of 58.9k, i.e. the reduction in the numbers employed was lower than usual.

However, the total labour force didn’t drop as much as last month’s numbers, so the unemployment rate has stayed elevated:

I’m still thinking this is a temporary, seasonal phenomenon, so I’m looking to see the unemployment rate fall back again next month. But if it doesn’t, that might put a damper on all the other positive data that has come out of 4Q2013.

Technical Notes:

November 2013 Employment report from the Department of Statistics (warning: pdf link)

October 2013 Employment Report

Employment in October 2013 took a setback (‘000):

September 2013 Employment

There’s been a dearth of posts on this blog for the past couple of weeks, mainly for two reasons: first, I had some deadlines to meet last week, and second, I took my year end holiday a little early – four days exploring the Forbidden City and climbing the Great Wall of China, among other things. No email, no twitter, no calls from the office…bliss.

Now its back to covering the Malaysian economy, though things will be a little slow as I catch up on data releases, news developments and the backlog of messages and posted comments. My view of 3Q2013 GDP should be out tomorrow (it was released last Friday), but first up is something a little easier to look at.

Inomics Economics Job Market Report 2013

For those who are interested in the rather refined job market for economists, this is a must read. From the email that announced the report:

New Report shows Job Market Trends for Economics & Finance Professionals

European Economists earn 30% less than Americans, worldwide even greater discrepancies.

INOMICS, an economics and finance recruitment network, on Wednesday, November 6, 2013 releases a worldwide overview of the economics job market. The Report is based on a survey between April and June 2013, in which 2,380 professionals and recruiters in the academic job market for economists answered questions about salaries, international professional mobility, the value of different levels of academic degree, and other issues related to economics and finance careers.

August 2013 Employment

Employment in August rose by 173k (‘000):

Some of the increase was due to a lot more people looking for work and finding it (log annual changes):

July 2013 Employment

The July employment numbers depict a healthy economy, quite at odds with the growth numbers (‘000):

June 2013 Employment

Released along with the report on the July CPI was the employment report for June, and it’s certainly at odds with the prevailing market sentiment (‘000):

What’s Malaysia’s Full Employment Rate?

I honestly don’t know, but our new EPU head thinks its 4% (excerpt):

Parliament: 20 years of full employment, says Abdul Wahid

KUALA LUMPUR: The country's sustainable economic growth over the past 20 years has kept the unemployment rate at below 4 percent, which based on economic definition, is considered as full employment, Dewan Rakyat heard.

Minister in the Prime Minister's Department Datuk Seri Abdul Wahid Omar said the good economic growth since 2011, from 5.1 percent to 5.6 per cent last year saw the creation of 438,800 jobs in 2012, compared to 385,000 previously.

April 2013 Employment Report

Employment continued to strengthen in April 2013, with the economy creating 173k jobs (‘000):

That puts the employment growth figure at about 2.4 million jobs since the beginning of 2009. This helped absorb 137k new entrants into the labour force and 40k from the ranks of the unemployed. As a result, the unemployment rate has fallen again:

Despite what seems to be a much more challenging business environment this year, job generation appears to be intact even if the numbers were poor for February-March. As far as the labour market is concerned, things are about as tight as could be – the numbers for both retrenchment and active job seekers are down in 1Q2013. So far so good.

Technical Notes:

April 2013 Employment Report from the Department of Statistics (warning: pdf link)

March 2013 Employment

The employment situation in March remained pretty stable, neither too hot nor too cold (‘000):

As always, there’s lots of noise in the series, but the general tenor is of slower/negligible employment growth in March. The unadjusted employment number registers at 45k jobs created during the month.

February 2013 Employment Report

I’ve been a busy beaver these last few days, conducting training and doing presentations, which explains the lack of posts. Not that there’s much news to pick from.

However, the employment report for February came out on Monday, and the unemployment rate is back down (‘000):

Taking Part In The Brain Drain

I’ve always thought of the “brain drain” in primarily economic terms. Because of national and social barriers to labour mobility as well as search frictions for both employers and employees, earnings across countries vary widely even within the same industries.

Wages depend more on national level demand and supply, and international arbitrage of wages is at best imperfect. It’s easier for some companies to pull up sticks than to shift labour around the globe to where its needed.

Labour Bargaining And Wages

If you had a choice between two jobs with equal compensation, but one has higher bonuses and allowances but the other has higher base pay, which should you choose?

Take the one with higher basic salary (excerpt):

The intercept is negotiable, the slope is fixed

A new hire only gets one chance to negotiate: a brief window between the time that an offer is made and the time when that offer is accepted. Those initial terms and conditions determine the employee's salary for years to come - possibly the entire the duration of his or her time at the institution.

December 2012 Employment

A day after the GDP data came out last week, a more sobering report on employment in December 2012 was issued (‘000):

The economy officially lost about 38.8k jobs in December – the seasonal adjusted number is about 5 times larger, i.e. under normal circumstances, employment should have increased.

November 2012 Employment

November’s employment data shows the Malaysian economy adding 165k jobs, the first increase since July’s bumper crop (‘000):