Friday, May 04, 2012

In defence of Sabah Minimum Wage

I refer to the recent annoucement by the Prime Minister on the minimum wage for Sabah.


After careful consideration both by the National Wage Consultative Council and by the economic experts including from World Bank, the RM800 amount was decided as minimum wage for the state.
As expected the opposition was quick to turn this into a contentious issue to gain political mileage. They criticised the minimum wage as being too low and also unfair because of the different rate offered in Peninsular Malaysia.


First of all, minimum wage is not a magic wand to solve all economic problems and challenges faced by the lower income society. The government has other tools to help them, which among others, through billions of ringgit of subsidies, direct transfer of cash and training courses to re-skill them.


We must not be misled in thinking that minimum wage is meant to make the poor becoming high income earners overnight. That is never the intention. The minimum wage is a floor benchmark where salary can't go down below the amount decided by the government. This is to ensure employers pay reasonable salary. Of course employers can offer higher if they think the employees deserve it based on their qualification and skill.


There is a big difference between Barisan Nasional and Pakatan Rakyat on the issue. PR is looking at it from populist view and thus insterested only to look at the employees point of view (where the vote bank is). 



On the other hand, BN, being in the government, has to be more responsible. To BN, employees and employers are equally critical parts of the economy. They need each other and no one can exist without the other. Hence, BN's approach is to be balanced and fair to both components of the economy.
In their eagerness to criticise the policy, the opposition conveniently forget that their populist demand for even higher minimum wage could be detrimental to the very workers they say they want to champion.


Yes, cost of living is an important factor to be looked at. But other factors are equally serious and also need to be taken into consideration. Factors such as inflationary pressure and the ability of employers especially in the small and medium sized enterprises to pay (for example coffee shops, restaurants, sundry shops in small towns like Kota Belud).


Take for example a restaurant which has 8 workers who, on average, pays its employees RM500 each. The minimum wage policy of RM800 will now increase the employer's business cost by a RM2,400 a month!


At higher minimum wage of RM1,100 as suggested by the oppposition, how many of them will be able to sustain their businesses?


No doubt some will be able to survive but a lot of them won't and may resort to letting go of their employees. In some cases, businesses will even pass the extra cost to the public by increasing their prices of goods and services to compensate for their lost profits. Imagine the scenario in factories which have hundreds and thousands of workers.


The economic disruption and the danger to the nation's economic well being is real.


So, in the end, unrealistic high minimum wage will increase unemployment, inflation and hurt the economy. This must be avoided to prevent workers and public at large from experiencing the backlash.


After careful studies and discussions from representatives of Sabah employers and employees in the Wage Consultative Council, it was concluded that Sabah's small and medium businesses would be able to absorb minimum wage of RM800. Currently, the median income for Sabah workers is RM577 per month. At this rate, some disruption to the economy will still be expected but the impact is manageable.


According to a statistic, 98% of Malaysian businesses are small and medium sized (SMEs). They will the ones hard hit by the minimum wage policy. In small towns all over Sabah, indeed even the minimum wage policy of RM800 will be a great challenge to them.
On the difference between Peninsular Malaysia and Sabah, the reason is the regions' economic base. SMEs in Peninsular Malaysia have better economic footing and better profit thus could absorb higher minimum wage than Sabah and Sarawak.


Of course, ideally and for political expediency, the National Wage Consultative Council could propose to the government a standardised national minimum wage level of RM800. But the next question is why penalise workers in Peninsular Malaysia from getting higher minimum wage when their employers can afford it?
The Prime Minister had said that the minimum wage rate would be reviewed regularly and hoped that in the next two to three years we could have a standardised minimum wage throughout the nation.


The fundamental question is this. What is the use of higher minimum wage if in the end the workers lose their jobs and the ensuing inflationary prices of goods and services will dilute the higher purchasing power of the workers?


This is a very challenging question indeed. Hence the government is balancing the issues with great care. It is to be commended for taking the first move by announcing minimum wage structure, which is the hardest part and most difficult. Next, employers and employees must find ways and means to be more productive and efficient. This will lead to higher minimum wage levels in the future.


The opposition must stop endangering the livelihood of the workers. Being populist and demanding higher minimum wages when businesses in Sabah cannot afford them is tantamount to economic sabotage and betraying the workers themselves. It is going to hurt the workers, increase unemployment, close down shops and burden the public with cost-pushed inflation.


We must not let the opposition ruin the economy just as they did during the 1998 global currency crisis. Their irresponsible economic policy then almost bankrupted the country and sent the economy on a tail-spin nose dive. Malaysians have seen their ill-advised economic policy before and it was not pretty.


Salam.



2 comments:

  1. Thanks Dato'. A very good explanation. Hope to hear more explanation from you soon on other issues.

    ReplyDelete

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