Minimum Wage and Living Standards

This March in Parliament, the government will table legislation to institute a national minimum wage system.

In doing so, the BN government reverses over half a decade of its opposition, wily sloganeering and dithering on the matter. But this is more than a policy decision and political calculation.

To move from talking to doing minimum wage acknowledges of the plight of the working poor and the perils of perpetuating dependency on cheap labour. Minimum wage is a measure – among many, of course – that can go some distance toward making Malaysia a more just society and a more dynamic economy.

The magnitude of this intervention and its implications, and the contending interests of workers, employers, and society, demand a robust parliamentary powwow.

On 14^th February, Human Resources Minister Datuk Dr S Subramaniam delivered a closing address to a week-long Minimum Wage Lab, of which I attended a few sessions. He noted that the new law will establish a National Minimum Wage Council and mandate it to deliberate over a range of issues, most importantly, the minimum wage level, coverage, and time frames for review. Other critical issues, especially regarding the independence and authority of the wage-setting body – whether it is a council or commission – remain to be substantively debated.

We ought to be more concerned to do it well than fast. It concerns me that Subramaniam is already referring to high-income countries, where the vast majority (95 percent in some cases) earn above the minimum wage, as benchmarks of progress.

This says nothing about whether the minimum wage reflects a decent living standard. Like the poverty line, the lower we set the threshold, the fewer will fall under it – and the shinier we appear.

Moreover, minimum wage, unlike poverty, is legally enforceable. If all employers comply, then 100 percent of workers earn above the minimum wage – but this still does not tell us anything about worker welfare. Let us not fall into the trap of self-serving and misleading statistics.

We need to think hard about how we determine the wage floor, and how many floors Malaysia will have.

The Minister indicated that the government is leaning toward having one minimum wage level for the country, perhaps with differentials for Sabah and Sarawak.

In other words, all of Peninsular Malaysia will adhere to the same minimum wage rate. Selangorians and KLites should take a keener interest here; in the effort to compromise at a minimum wage satisfactory to all, the level may be too low to sustain the relatively higher cost of living or to compel firms to shift towards higher skill, higher wage production.

The reasons behind a single minimum wage, instead of variations across region or state, are empirical and practical.

Cost of living, or the amount workers need to spend to sustain a living, does not always correspond with productivity, which reflects the capacity of firms to pay their workers. Sabah usually emerges as a case in point: cost of living is high, but productivity is low. Hence, to apply the same minimum wage to all states risks jeopardizing those with higher proportions of firms that cannot afford to pay.

Conditions in Sabah and Sarawak are undoubtedly different and warrant separate consideration, as we have been doing for decades in setting three poverty lines, one each for the East Malaysian states and one for the Peninsula. But we should not apply that three-way breakdown just because that’s the way it’s been done.

Of course, the more geographic or economic categories we account for, the more difficult, costly and time-consuming it gets to gather and analyze data. The practical constraints are significant. To analyze wages and propose minimum wages for all thirteen states could certainly overcomplicate matters and overstretch resources, but surely we can commit ourselves to determine and periodically revise two or three levels within Peninsular Malaysia.

Beyond the question of varying minimum wage levels, we should also take an interest from a more proactive standpoint, and ask what ways a relatively advanced state like Selangor can take the lead in promoting decent jobs, not just minimal standards.

Could we emulate the international “living wage” movement, which enforces wage requirements in government procurement, contracting and licensing? Since these are controlled and can be leveraged by the government, the living wage floor can be set above minimum wage.

I don’t see why not. It’s simple, legitimate and progressive.

We would merely enhance some rules of engagement – in society’s interest – for companies that make money by supplying to government, or by acquiring a license to operate.

There’s a lot of work to be done, and a lot more that can be done, to alleviate working poverty and promote decent pay.

This article was previously published in the Selangor Times, Issue 13, 25-27 February 2011.