Revision on minimum wage long overdue

Image for illustration purposes.

KUCHING: The move to revise the minimum wage is long overdue and very much needed, said an academician.

Dr Nur Zaimah

Senior Lecturer and Head of Strategy, Faculty of Economics and Business, Universiti Malaysia Sarawak (Unimas) Dr Nur Zaimah Ubaidillah pointed out the move would be beneficial for those   living on minimum wage and struggling to make ends meet.

She was commenting on the recent announcement made by Prime Minister Tan Sri Muhyiddin Yassin that the minimum wage rate was being reviewed to ensure the earnings of workers remain relevant with the current economic conditions.

“We have to take a step back and look at the true purpose of minimum wages. The International Labour Organisation (ILO) states the purpose is to protect workers against unduly low pay.

“Minimum wages can also be one element of a policy to overcome poverty and reduce inequality, including those between men and women by promoting the right to equal remuneration for work of equal value.

“In Malaysia, this is indeed a good move for those who are living on minimum wage and struggling to pay rent and other expenses.

“Besides that, the minimum wage will lead to higher consumer spending whereby workers with income will have a higher marginal propensity to consume. This will create a multiplier effect which later leads to economic growth,” she explained.

Nur Zaimah also pointed out that the increase in minimum wage would have an effect on the public and private sectors’ expenditures.

“This is where the wages of those lower than the revised rate will also rise as a result of the minimum wage increase, hence imposing additional expenditure costs for the government.

“As for the private sector, higher minimum wage may increase the private sector’s expenditure through higher spending on the workers’ wages. In a worst-case scenario this may cause businesses to minimise the number of their workers or lay them off.

“However, decision-making by firms is usually made according to the law of demand and supply. For example, due to the rise in the marginal propensity to consume, the demand for certain products may increase, causing an increase in production output. Hence, the rise in supply leads to an increase in additional labour,” she said.

Asked if the increase in minimum wage rate would cause the prices of goods and services to increase, Nur Zaimah said it was inevitable as the propensity to consume would increase.

“As the minimum wage increases, so do  the firms’ operation costs which push the prices of goods and services up. As the propensity increases, so do the market prices of the commodities.

“The price changes will be mirrored by the composition of an average Malaysian food basket in which a RM50 food basket after the initiative might be lesser than before the minimum wage increase is implemented,” she said.

Nur Zaimah added that government policymakers needed to predict the possible aftermath and provide solutions to the issues.

She said the locals might venture into 3Ds (dirty, dangerous and demeaning jobs) given the rise in minimum wage.

“An increase in minimum wage may or may not encourage employment by the local people to take up the 3Ds. However, if there are no work opportunities in the non-3Ds jobs, there will be possibilities for locals to venture into the territory considering the rise,” she said.

Besides reviewing the wage rate, Nur Zaimah pointed out there were several areas that needed to be looked into to improve the livelihood of the people.

“The areas that need serious attention to improve the livelihood of the people include reducing the rural-urban development gap and improving the income in the informal sector where minimum wages do not apply.

“There is also a need to enhance the productivity of workers from low-income people via education and up-skilling as well as to strengthen digital transformations for all walks of life, especially for the disadvantaged and those living in the rural areas,” she said.

Nur Zaimah added that more programmes or initiatives should be provided for those who were affected and had become unemployed as a result of the pandemic.