Wednesday, 14 March 2012

KL's RM800-900 minimum wage plan out this month

Updated version

"Even former premier Mahathir Mohamad has weighed in, saying the move would bankrupt Malaysia"

If people in Malaysia can't even be paid a measly RM 800 per month for a full time job, then Malaysia deserves to go bankrupt, I am sorry to say (please note that my wife and daughter are actually Malaysians).

Malaysia is earning tens of billions of RM a year in oil and gas (and is also rich in other commodities), has huge amounts of fertile land suitable for palm oil, rubber and the like, has a young and multi-cultural population, no natural disasters, and all of this at a very strategic location. You simply can't get more lucky than that.

Blogger Salvatore Dali just happened to write about this today, and I agree, in the long run having ample resources is disadvantageous. It is the "Dutch disease", called after my home country where a huge amount of natural gas ready for export was found in the sixties.

If Malaysia does go bankrupt, then I think it will be because of corruption and wastage, not because of introducing measly minimum wages.

For instance, in my home country The Netherlands, minimum wages are more than RM 5,000 per month, and the last time I checked they are doing pretty ok.

Minimum wages will force employers to be more productive, and that is exactly what is needed and long overdue. Some industries might decline or worse, but others will thrive, especially the ones that rely on services to and consumption by the lower income group. Crime will also be reduced, since poor people have an alternative. There might be some short term shocks, but in the long term I think it will all pan out well.

Malaysia has one of the highest degrees of inequality and minimum wages will initiate a change for the better.
I would propose to start with minimum wages of say RM 800, and to slowly increase them each year by say RM 50 to 100 until a reasonable amount is reached.

On the other hand, I would limit the number of foreign workers (in a humane way, by strongly reducing new visa's) and would be strict at enforcement against employers who hire illegal workers.

[Please don't take the above too serious, I am not an economist, nor will I ever be one, just wanted to give my 2 cents]

From The Business Times (Singapore), March 13, 2012

Minimum wage to pave way for Najib's other delayed reforms: govt source

Prime Minister Najib Razak and his Cabinet have yet to complete the plan, according to the official, who spoke on condition of anonymity because the talks are private.

Malaysian government sources, who declined to be identified because of the sensitivity of the issue, told Reuters that the Cabinet had approved setting the minimum wage at RM800 (S$332) to RM900 per month, depending on location.

The minimum compares with RM760 per month, which according to a government survey roughly represents the poverty income line in Malaysia and the gross pay that workers take home in the key manufacturing sector of this trade-reliant country.

'The Cabinet approved (the minimum wage) about two weeks ago and the government has explained this to industry groups,' said a source with direct knowledge of the matter yesterday.
'There is some reluctance, but we are moving on with it,' the source said. 'The prime minister could announce it either this week or next week.'

The move is a major part of Mr Najib's new economic model launched in 2010 to transform the country from a middle- income economy to developed nation status by 2020 via market reforms and greater focus on services.

Mr Najib is preparing for elections due in early 2013, and a minimum wage would follow an October budget that featured cash payments to low-income families - a step that's helped increase his approval rating.

Thailand and Vietnam plan to boost minimum pay, and Singapore last month introduced a permanent programme for handouts to low-income people, as policymakers throughout the region seek to address wealth gaps as Asia leads global growth.

'It's clear that elections are the motivation but what is unclear is if this will be a blanket minimum wage or whether it will be differentiated by sectors or by state,' said Kit Wei Zheng, an economist at Citigroup Inc in Singapore. 'There will be a loss of competitiveness if it's a blanket hike across all sectors. The government is aware of the pitfalls.'

Mr Najib announced in October 2010 that Malaysia intended to adopt a minimum wage policy as part of its long-term economic planning.

'We are waiting for the government to make a decision,' said Shamsuddin Bardan, executive director of the Malaysian Employers Federation. 'We have expressed our concerns about the rates and sectors to be involved during our consultations.'

The minimum wage has faced heavy opposition from Malaysian employers, who have said imposing the policy too quickly will erode competitiveness in a country that has kept costs low for decades to hold onto investments from Dell Inc and Intel Corp.

Even former premier Mahathir Mohamad has weighed in, saying the move would bankrupt Malaysia, once known as South-east Asia's electronics hub.

The Malaysian Employers Federation painted an even bleaker picture, forecasting that the minimum wage would wipe out four million jobs and 200,000 companies.

Yet in recent years Malaysia has fallen off the investor radar as it struggles to compete with Indonesia with its ample, cheap labour and South Korea with its highly developed electronics sector and skilled workforce.

The minimum wage would also pave the way for Mr Najib's other delayed reforms, the second government source said, which could help Malaysia reduce its budget deficit.

The government aims to cut the fiscal gap to 4.7 per cent this year.

The reforms include a goods and services tax that would widen Malaysia's narrow tax base, which largely relies on revenue from state oil company Petroliam Nasional Bhd, and rolling back some food and fuel subsidies. -- Bloomberg, Reuters

(KUALA LUMPUR) Malaysia will announce plans for a minimum wage this month, a government official said, bringing the nation in line with South-east Asian neighbours strengthening support for those with lower incomes.


  1. I beg to differ. In my opinion, the minimum wage plan is simply a transfer of wealth from the rich to the poor. Implementation of this plan all around the country will increase the overhead costs of many businesses. I agree that the plan should be introduced in states which have high living costs such as KL or Selangor where surviving with less than RM 800 is almost impossible. But that could not be said the same to other parts of the countries where the living costs are much much lower than the bigger cities. The quality of the labour that these places have do not justify a pay increase of 10% or perhaps 20%.

    The perception that the public has over the private sector labour is long working hours, mundane and repetitive jobs, and poor working conditions. Mind you, some cashiers and clerks who are dropouts or just graduated from high school are paid about RM 700 per month in smaller towns. Even some of the low level workers at KFC/McDonald are paid less than RM 800 per month. And there is only one thing that most businesses will do, raise prices. The businesses know that their customers have a higher disposable income and they are circling that quantum like vultures.

    I dont see how this plan will benefit our economy except the increased public acceptance/rating of the proposing party. Yes, the poor will spend more. But bear in mind that the rich will spend less too. It is a zero sum game, simple as that. Instead of implementing the minimum wage plan, there should be programmes aimed towards increasing the quality and skills of the labour, not giving them an election windfall.

  2. I agree that there are big differences per state, on the other side, that makes it rather difficult, and you get artifical things like companies relocation just across the stateborder to get lower minimum wages. In my home country, it is the same for all, big cities or kampongs. Not completely fair, I agree, but simple.

    Rich people can only eat 1 meal at the time, distribute some wealth to the poor and more of them will eat a decent meal. I am a strong believer in having a large middleclass, much larger then now in Malaysia.

    I have seen the effect at farms in Malaysia. If they can't handle the workload, they just hire another foreign worker. Productivity is very low, nothing is automated. Minimum wages will force them to be more productive. Government also can help here by supporting R&D.