Wednesday, June 12, 2013

The Impact Of The Minimum Wage

We’re a few months into Malaysia’s experiment with a minimum wage, and there’s we’re already seeing some effects, at least for the manufacturing sector:



The shaded areas cover November 2012 to the present. It appears wages actually started climbing before the minimum wage came into effect in January. Some of that is possibly the effect of year end bonuses or salary increments, but there’s no sign of a general pullback in January-February as has happened in the past three years. Note that even now, wages are just 5.6% of sales (up from an average of 4.8% in 2010-2012).

So it appears some of the big gap that has been thrown up between productivity and wages since 1998 is starting to close a little. It’s still too soon to tell, but at least things are moving in the right direction.

Technical Notes:

Data from the April 2013 report on Monthly Manufacturing Statistics from the Department of Statistics


  1. Hi Hisham,

    Dont quite understand the log difference between gross productivity and wages. Would u please elaborate more?

    1. Basically the log difference explains how much the Chinese towkay balak get from cutting down the rainforests in Sarawak and Sabah. Or in the DAP Chinese case, 4000 hectare in Kelantan.

      By using cheap labour, the Chinese towkays destroy rainforests while the amount of money their greed incentives depends on the amount of logs that their slaves can take out from the forests and into the rivers.

      Oil palm plantations is not viable using civilised and humane wage calculations. By exploiting the poor natives and foreign labour paying slave wages, enormous profit can be had. This lead to over plantation and social evil like snatch thefts and house breaking as their slave wages will inevitably produced.

      Thus, low slave wages only enriches the Chinese and Indian capitalists while making our quality of life filled with robberies and snatch theft.

      Minimum and higher income will give the true value of plantation work and bring back the Indians who have left the plantations for car thefts and then dying in police stations, back into the plantations where they are meant for.

      Thus the log difference refers to the difference in our quality of life to the obscene wealth stolen by these Chinese and Indians plantations owners.

      These owners should be made owner occupier and worker by preventing them from leveraging on bank loans, just like Felda or Felcra.

      Then we will have less crime and cut down less logs.

    2. @Justin,

      Basically, it's a way of showing the percentage difference between the two. The numbers on the side can be read as the percentage difference in ratio terms i.e. 1 = 100%, 2.9 = 290%.

      The two graphs above are actually reciprocals, showing the same data in two different ways.

      You can see a longer term chart (with the underlying data chart) in this older post.

    3. I did laughed out loud at the first description of "log difference".

      Thanks anon, you made my day :)

      P/s: I do hope it was a parody answer


      Side note Hisham,
      not that I'm questioning your methodology here, but monthly manufacturing stats are so unreliable as wage indicators (my opinion). The difference between what's reported monthly - presumably DOS monthly sample size is at question here - and the 5-year census data is way too large.

      Yeah, this post just magnifies my gripes about national wage data. I'm still really annoyed with policymakers who think that implementing/monitoring a minimum wage system is possible without regular, consistent and economy-wide labour/wage data.

      /end whinge

    4. Jason,

      Yeah, I think DOS puts in a much greater effort for the Census than it does the monthly numbers (witness the regularity of revisions). On the other hand, it's the only source of monthly data we have.

      You're right, the way wage (and employment!) data is collected is too spotty - I've been meaning to tabulate service sector sales and wage data for example, but it's dis-aggregated and I don't want to use CEIC as a source in this blog. I would add that sales data should be on the list too (I've been looking at that issue this week).

  2. Great one @Log Difference, thoroughly enjoyed your accurate albeit unrelated spiel on the issue and your rather irreverent take on the Chingkies, especially the exploiter/slave allusions, hahahahahaha. Way to go mate....Memang bagus dan tepat sekali...ini kalilah or is it ‘ini kani........’??!! Made my day,mate.

    Personally and probably unrelated, I think that the role of TFP in productivity growth and by default wages, has been underestimated though this( Fed Reserve Atlanta) paper thinks otherwise:

    How Important Are Capital and Total Factor Productivity for Economic Growth?Scott L. Baier, Gerald P. Dwyer Jr., and Robert Tamura Working Paper 2002-2a April 2002

    But if you lump Malaysia under the NICs as per that paper (TFP constitutes 26% of output growth per slave), then the implications are clear as TFP inputs have stagnated or declined marginally in Malaysia and maybe, by linkage so have wages:

    Pages 75 & 76 here:

    In simple language, the exploitative bastard Chingk capitalist class would rather use the government loophole of cheap labour than invest in TFP, thus compressing productivity and hence giving it (the capitalists) a legit reason to defraud its slaves of higher wages (No higher productivity= no higher wages). And they have the gall to talk about being uncompetitive some more. Apa sebenarnya loo mau, ah??

    No wonder the bastard Chingkie capitalist class was at the forefront demonstrating against a minimum wage and against curtailment of cheap slave labour!!Damn Orwellian pigs!! Time to rise up, proles and throw off the Chingkie yoke through mass expropriation and culls!! would be what Orwell’s Old Major intone!

    By the way, admin, this is strictly off topic:

    1. I think I posted back on May 29th with links to certain papers of which, one related to Palil and Ibrahim: THE IMPACTS OF GOODS AND SERVICES TAX (GST) ON MIDDLE INCOME EARNERS IN MALAYSIA - MOHD RIZAL PALIL & MOHD ADHA IBRAHIM.

    If you happen to find the link I gave as faulty or problematic , here is an alternative :

    Caution though as the English is unedited, I presume.

    2. Sometime back, in the ‘Inequality’ thread, I read you being engaged in a heated debate with Warrior 231 on Malaysian inequalities. I am just wondering whether if you have the latest data on the income inequality ratios between the Malays and the Chingkies, since I vaguely remember you saying that the latest data will prove your contention, that the ratios between the two ethnics would have further narrowed post 2009, subject to the details of the latest census data or something to that effect.

    Just wondering if such data is available now and accessible in the public domain?

    Thanks beforehand for any links,mate.

    1. @anon,

      Sorry for the late reply, it's been a busy week.

      On your last point, the gap has widened slightly, by about two percentage points (from 72.3% to 70.0%).

      More importantly, I think I know the source of the variation across the whole series. Unfortunately, there's not enough data points to prove my hypothesis. Basically, we're looking at something of a repeat of the early 1990s, when high investment and house price appreciation were correlated with lower Bumi income gains, or to be more precise, faster Chinese household income growth.

    2. Well we must always remind ourselves, economic terms and methods are western man made to hide their original race biased and power play.

      While Hisham talks on their terms, we should strip down economics to their basics for at the end of the day, it affects everyone.

      The wealth created are made at the expanse of another part of society and the poverty resultant affects the crime rate etc. Some capitalists run away and live in gated houses to keep out those they enslaves. But for how long?

      But they still have to leave their selfish cocoon to meet the people they oppress at one time or another.

      And with realisation of what is happening good man will make the right laws like the recently gazetting of Sabah rainforest corridor. More can be done. Moratarium like in Indonesia or Brazil.

      Evil men will destroy our 130 million old rainforests if good men do nothing.

  3. Thanks mate, really appreciate it even though I thought I lost you awhile. Work? Understandable, dude.......heh, heh,heh.

    So does the TFP thingy holds? Just curious......

    1. @anon 86

      I don't think your supposition holds. The problem for wages is not productivity growth, but the delinking of productivity growth with wages. Moreover, the biggest gaps between productivity and wages appears to be in the manufacturing sector, which is dominated by foreign, not Chinese, firms. (For example, there doesn't appear to be the same divergence in the services sector, from my limited sampling).

      But then, I have plenty of reservations about productivity statistics.