The issue of minimum wage has grabbed the headlines. This is because starting January 2020, the minimum wage will be raised to RM1,200.
However, before all employees get too excited, this RM1,200 minimum wage base rate will be limited only to workers in areas under the administration of 57 city councils and municipal councils. The minimum wage for those outside the 57 areas remains at RM1,100 per month.
Before delving into some of the details of the impact of minimum wage, it is important to understand some of the background.
Minimum wage is defined by the International Labour Organisation (ILO) as “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract”.
From the practical aspect, the key purpose of introducing minimum wage laws is to stop employers from the exploitation of workers. Additionally, it is also to ensure there is sufficient income for workers. This is referred to as “a living wage”, meaning the minimum required to provide enough food, clothing, and shelter.
The first structured concept towards minimum wage began at the 1919 Paris Peace Conference, where Article 427 of the Treaty of Versailles referred to “the payment to the employed of a wage adequate to maintain a reasonable standard of life as this is understood in their time and country”. This became the guiding principle towards the implementation of minimum wage across nations via the ILO.
From here, we can see that efforts to implement minimum wage across all nation began 100 years ago. The challenging efforts to implement this for workers are now bearing fruit in some of the nations.
The ILO, which has been instrumental in the drive to introduce minimum wage, is a United Nations agency set up in 1919. Headquartered in Geneva, Switzerland, its mandate is to advance social justice and promote decent work by setting international labour standards.
Malaysia has now been a member of the ILO for 62 years. However, it was only in 2013 that we adopted a comprehensive system of minimum wages. This now applies to all workers except for domestic.
Initially, in 2013, two different rates were implemented, one rate for Malaya, (RM900) and another for Sabah and Sarawak (RM800). Effective July 1, 2016, this rose to a minimum wage of RM1,000 a month in Malaya and RM920 a month in Sabah, Sarawak. Subsequently, from Jan 1, 2019, the current rate of RM1,100 and RM920 respectively came into force.
There are several advantages of having minimum wages that have been cited, such as; better morale, higher productivity, better standard of living, reduction in income inequality, improvement in the welfare of workers, perhaps investment in their career education and better employee retention leading to a reduction in retraining costs.
On the other hand, employers who oppose raising the minimum wage have highlighted the disadvantages such as the obvious increase in labour costs. These employers argue also that fewer workers are being hired leading to higher employment rates.
A minimum wage is also said to penalise industries that are labour-intensive. This, in turn, can lead to job outsourcing, meaning moving production to other countries where labour costs are lower.
Ultimately companies that fail to adapt to the new scheme may either downsize, reduce or eliminate bonuses, cancel health benefits packages, reduce allowances or even be forced to declare bankruptcy instead.
The above are just some arguments that have been put forward over the years and reflect both sides of the argument.
In a recent press report, the Kuching Coffeeshop and Restaurant Owners Association stated that their members would stop providing accommodation and meals for their workers due to the new minimum wage. I suppose it is usually the smaller businesses that are always the hardest hit.
The Federation of Malaysian Manufacturers (FMM), representing over 10,000 member companies have also over the years cautioned upon the increase in minimum pay. The Malaysian Trades Union Congress (MTUC) at the other end of the spectrum in the interest of their members always welcomed the increase in minimum pay.
It must also be noted that there might be more turbulence on this issue as the Ministry of Human Resource in their press release dated Dec 18, 2019 stated, “The minimum wage rate will be constantly reviewed to ensure it is in line with current needs. It is also in line with the intention to reach a minimum wage of RM1,500 per month during the first five years of the Pakatan Harapan government administration.”
Personally, I am an advocate of minimum wage. However, the relevant decision-makers need to calibrate these rates in the interest of the people and the overall impact of the economy. This is not surely an easy task or an enviable job.
Considering the increase in the cost of living, I would say the current increases are fair. However, RM1,200 should be extended throughout the country. After all, those outside the 57 cities and towns also face the same cost of living if not higher where food and supplies are concerned.
So, is the current increase a boon to our nation or will it bust our industries and economy? I am sure with the extra spending power given to workers it will help boost spending power for essential goods and will have a positive impact. There might be elements of contraction in some sectors, but overall most firms will adapt and move on.
In capitalism, it is survival of the fittest and the fittest are those who adapt quickly.
The views expressed are those of the author and do not necessarily reflect the official policy or position of the New Sarawak Tribune.