Minimum Wage In Malaysia

 The article <Malaysia’s Minimum Wage set at $330 (RM 900)>
 which is based on 
<http://www.asiaone.com/News/AsiaOne+News/Malaysia/Story/A1Story20120501-343098.html>
  is about minimum wage policy in Malaysia. 

Prime Minister Datuk Seri Najib Razak announced that the government will implement minimum wage on private sector from January 2013, which was also mentioned in budget. Despite of opposition supporting RM 1100 or employees’ demand for RM 1200-RM 1500, the settled amount of minimum wage is RM 900 per month or RM 4.33 per hour for employees in the peninsula while RM 800 per month or RM 3.85 per hour is for workers in Sarawak, Sabah and the Federal Territory of Labuan. 

So, what happens when new minimum wage policy is enforced in Malaysia?

Graph before minimum wage

This is the graph before the government implements the minimum wage.

For instance, the company <A>  runs well with equilibrium wage rate of RM 3.23 hourly and equilibrium labor hours of 70 million which includes 400 workers. However, some changes occurred when new minimum wage is set.

Graph of minimum wage

The government imposes minimum wages as RM 4.33 per hour. At the minimum wage of RM 4.33 an hour, quantity supply of labor hours increases from 70 million to 90 million hours, but the firm’s demand for labor hours decreases from 70 million to 50 million hours of labor. 90 million hours of labor probably is the demand for 500 people who would like to have a job with new higher minimum wage, but the firm wants to have only 300 workers for 50 million hours of labor. So the gap between 90 million and 50 million, which is 40 million hours of labor, is created. If the minimum wage is set above the equilibrium wage rate and the quantity of labor hours supplied by employees exceeds the quantity demanded labor hours by employers, it results in a surplus of labor hour. Here, 40 million hours of labor which is also the 200 workers is a surplus of labor hour, and this is unemployment. Thus as the government imposes minimum wage, there are more people who are willing to work with higher wage. However, they are unable to find the jobs provided because the firms demand less workers.

Moreover, the firm may still need 70 million of labor hours to produce more or maintain their previous production. Although there are more people out there to work, the firm is not able to hire them due to the minimum wage. Therefore, black market will enter to fulfill 70 million of labor hours, and it leads the firm to hire someone illegally under the minimum wage.

By looking at the previous graph, we can notice that the wage below minimum wage of RM 4.33 is illegal and the firms are not allowed to give wages which is under the minimum wage to the employees.

Illegal minimum wage graph

However, since this production needs unskilled labor, the firm may hire low-skilled foreign workers who still demands to work with RM 3.23 which is below minimum wage. This will benefit the firm to save money on wages with RM 1.1 per hour and maintain the previous quantity of labor hours, by not affecting on their outputs.

Eventually it results in decreasing the labor demand of the firm for locals but increasing in the labor demand of the firm for foreigners.

The more decreases in demand of local labors, the more unemployed in Malaysia. 

Therefore, I think it is the only local people who will suffer from unemployment due to minimum wage when there are high possibilities that foreigners might replace them with under minimum wage. 

Then why are the firms in Malaysia not willing to take employees when the minimum wage is set?

 Here is another example of rubber glove industry.

According to Malaysian Rubber Glove Manufacturers Association, to process automation, around RM 500million will be invested by rubber glove manufacturers.

This indicates glove manufacture will use mechanic system in the future instead of using labor force. Once the minimum wage is set, the cost of labor is probably higher than applying machine. There are 60,000 workers and 45 manufactures in this industry. Assume that RM 900 is given as salary to these 60,000 people monthly. Is spending total amount of RM 54 million monthly (RM 900 x 60,000 workers) more valuable or investing RM 500 million for automation more valuable? It surely is investing. If there is any firm to choose “giving salary”, that firm would go on bankrupt without doubt.

Also, when mechanic system is applied, the productivity will definitely increase in this modernized world. Everybody knows that machine can produce more and faster than the human beings do.

Speaking of productivity, output increases when minimum wage increases.

With increase of minimum wage from RM 3.23 to RM 4.33, specifically with decent minim wage, workers are motivated. The higher minimum wage a worker gets the higher possibilities of buying households and the needs, therefore, the more motivated workers will be. And this will result in increasing the productivity of the firm from 200 units to 250 units.

However, is minimum wage RM 900 considered as decent minimum wage and can it motivate people?  

In my opinion RM 900 is very insufficient for local people to live in Malaysia when basic human needs such as renting shelter, food, clothes, transportation and communications are not cheap in price.

According to the survey, for monthly expense, one Malaysian needs at least RM 400+ for renting house, RM 125 to RM 150+ for lunch during weekdays (RM 5-6 per day), RM 150+ for utilities expense (including water, electricity, gas, phone etc.), RM 150+ for groceries, RM 150 to RM 200+ for miscellaneous or households, RM 150+ for public transportation and so on.

If I total up above figure, it is more than RM 1000 which exceeds RM 900. In addition, this was calculated for a person. If this person has children, how would they survive?

This indicates minimum wages that government implemented cannot support the basic living expenses.

As a matter of fact, a worker cannot be motivated with this minimum wage and an unmotivated worker won’t be working but still feels safe to receive fixed salary. Then productivity will decrease. No motivation, no work, no productivity.

As far as I am concerned, government should implement suitable amount of minimum wage above RM 1000, for workers to be motivated to produce more and also for them to have better life in Malaysia.