BACK in November, the Malaysian Trades Union Congress (MTUC) urged the government to raise the minimum wage to RM1,500 by January 1, in accordance with the National Wage Consultative Council Act 2016 – which requires biannual revision of the minimum wage – since its last adjustment took effect in February 2020.

On February 5, Human Resource Minister Saravanan Murugan hinted that a new minimum wage of “around RM1,500 a month” is expected to be implemented before the end of 2022.

However, he explicitly stated that the new rate is yet to be finalised, pending cabinet approval.

On the following day, the Malaysian Employers Federation (MEF) issued a statement warning the government that raising new minimum wage rate to RM1,500 a month before the year end will kill businesses that are still reeling from the economic shock of the Covid-19 pandemic and the devastating impacts from recent major floods.

Some other businesses associations, like Sarawak Oil Palm Plantation Association and the Federation of Malaysian Manufacturers, have since echoed the message from the MEF.

Let’s briefly discuss the impacts of raising the minimum wages from more angles.

The chambers of employers and businesses favour the traditional argument put forward by an American economist, Milton Friedman, who is well known for his free market ideology, that the introduction and/or raising the minimum wages will trigger unemployment due to the competitiveness of the labour markets.

Higher wages lead to less demands for workers. However, there is significant worldwide evidence which disputes this argument.

For example, the minimum hourly wages in the UK had increased far beyond the rate of inflation, from £5.93 (RM33.44)/hour in 2010 to £8.91/hour in 2021, an increase of 50.2% over 11 years.

Yet, during the same period, the employment rate in the country increased from 70.1% to 75.2%.

Bear in mind that, while the Covid-19 pandemic bites globally, the UK economy contracted 9.9% in 2020, while Malaysia experienced a 5.6% decline in that year.

More importantly, both nations showed almost identical rates of growth normalised to the previous year contraction.

Based on 30 research projects over a 20-year, long-term assessment on the impact of minimum wages, the UK Low Pay Commission concluded in 2019 that none of the research projects showed strong evidence that minimum wages will lead to falling employment rate.

According to Malaysian data, the same fear was proven baseless since we adopted the minimum wages in 2013.

Of course, we should bear in mind that the minimum wages might have the opposite impact if the nature of the labour market is heavily dominated by self-employed rather than salary-employed.

Spokespersons of the business chambers, such as MEF president Syed Hussain Syed Husman, conveniently ignored these facts for some reason, and continued to push their baseless narrative.

Furthermore, Syed Hussain said that with the increase of minimum wage to RM1,500 per month, this would force many Malaysian micro, small and medium enterprises (MSMEs) to wind up and/or move to other Asean countries.

Although I agree that wages could be one of the reasons that caused some businesses to wind up as the pandemic perpetuates, there are plenty of other factors forcing the businesses to close down, such as the rise in other business costs, shrinking market size etc.

Furthermore, as most Malaysian MSMEs are selling non-niche value products and often serve local industries and markets, it is unlikely for these MSMEs to move to neighbouring countries.

In addition, it is simply not true to assume that the overall cost to run businesses in these countries is lower than Malaysia.

In fact, the minimum wage in Jakarta for 2021 was IDR4,641,854 (RM 1,355) a month, which is 12% higher than our current minimum wage.

To bail out business sectors hit by the pandemic, the government had to dig deeper into its pocket to create targeted facilities such as temporary higher tax exemption allowance, lower business loan rate, stipend furlough scheme etc, which means collectively we taxpayers need to share the cost and surmount the hardship together.

Given that trade unions are weak in Malaysia, we have seen drastic changes in the labour market with the growth in temporary and/or zero-hour contract employment.

The low-paid workers who are often less educated will find difficulties in utilising collective bargaining power to demand higher pay and better welfare.

Employers often ignore such demands and leave these low-paid workers struggling.

Thus, a better designed and up-to-date alignment with living costs, a minimum wage policy must be put in place to protect these hardworking vulnerable workers.

It may not be able to reduce the gaps between rich and poor, but it can help in creating a fairer society, gradually.

The Monetary Policy Department of Bank Negara Malaysia published a paper in March 2018 and championed living wages, benchmarking other countries such as the UK, Canada and New Zealand.

That paper suggested that the living wages needed for a single person to afford a minimum acceptable standard in Kuala Lumpur was estimated to be RM2,700 per month back in 2018.

The new proposed rate of RM1,500 minimum wages is just barely 55.6% of Bank Negara’s suggested figure.

We have experienced huge inflation since 2018, therefore the proposed new rate RM1,500 still makes the low-paid earners living in deprivation.

As we move towards a high-income nation, we should ensure all-rounded wellbeing for one to live with dignity, not limited to barely letting one meet the end needs.

The MEF claims that additional increase in wages will benefit the migrant workers, send more money back home, and cause more outflow of currency.

My rebuttal is this: When migrant workers earn so little and hardly meet the end needs, how do we expect them to spend more money from here?

If our minimum wages can achieve 75% of the BNM proposed living wages, these migrant workers will have some spare money for better food and healthy leisure activities.

The spill-over effects will boost the domestic economy. Furthermore, we have a few hundred thousand Malaysian workers earning the minimum wage, they work and ensure a clean and safe venue for essential services such as hospitals, government offices, schools etc.

I am really puzzled as to how the chamber of employers cannot see these simple consequences. Let me remind the MEF that migrant workers work hard, are often subject to exploitation, at the same time contributing to our economy enormously and paying the consumption tax too.

The Keluarga Malaysia benefits should apply across the board to all residents in this land, regardless of their ethnicity, creed, nationality, immigration status etc.

Like other tools, minimum wages have their drawbacks too. Let’s postulate a scenario in which minimum wages are increased by RM300 per month.

How should a company react? Should the company increase wages uniformly for all its unskilled and skilled workers by RM300, or just target the unskilled workers who have been paid less?

For the former case, the company may end up transferring the increased cost to its customer. If the company offering niche value-added products/services is still justifiable, otherwise the company will encounter fierce competition, and may be wiped out from the global market.

If the company opt for the latter case, it will demotivate the skilled workers as they see the gap of earning being reduced significantly. Having said that, Malaysia is still far from having this unhappy scenario, but we should be aware of it.

The elephant in the room of the Malaysian employment market is skewed distribution of payroll systems, in which the senior management share more than half of the payroll quantum and underpaid workers regardless of skill status.

Finally, on top of the minimum wages, we desperately need a comprehensive social safety net to protect vulnerable communities.

For example, better protection in employment; inflation control; voucher handout for fresh food and dairy products to ensure all needy kids have access to minimum nutrition; progressive tax systems not limited to income tax but also consumption tax; single fee system for public healthcare to all residents, etc.

After all, economics in a democracy is not only about maximum profits but also the well-being of all members of the society. – February 14, 2022.

* Chong Kok Boon is a member of Agora Society. He is a self-declared Peter Pan who advocates science in forging a more democratic and humane society.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.