The minimum wage policy gives employers time to raise low pay levels
MALAYSIA, in reconciling the costs and benefits of economic growth and development, finds itself having to weigh the many consequences of each policy it seeks to pursue. Such is the case with the minimum wage -- an inherently fair measure to lift the pay of those on the lowest rungs of the jobs scale but which at the same time can risk dislocation by increasing business overheads and inflation, and lowering competitiveness. The government thus cannot be said to have rushed into this, having spent plenty of time gestating a programme. But after more than 50 years of nationhood and an economy that is becoming increasingly more robust, Prime Minister Datuk Seri Najib Razak thought the time was right to begin correcting the gross inequality in the country's labour market. On the eve of Workers Day, a momentous announcement was made to secure the welfare of the least privileged private sector workers by setting a minimum wage to be implemented within six months of gazetting.
That time flexibility is given to micro industries is a clear indication of the complexity involved. In industries where, thus far, workers have had to endure below poverty-line incomes, a sudden hike in the wage bill would have an adverse impact on the employer's bottom line. The knock-on effect needs no explanation other than that it will be disruptive, specifically to small and medium enterprises (SMEs) where profits are slim anyway. These companies will require significant structural adjustments, something that must be in place within a year, or simply cease operations. Any extensions for non-conformity will have to be based on hard evidence of inability. Companies refusing to comply without good cause will face heavy penalties.
Yet, the SME sector is not unlike an incubator and is fundamental to economic expansion. The government has had to confront the paradox of higher standards of living for workers against the possible damage to the economy. The policy then is a finely balanced mechanism to trigger the desired transformations and achieve several ends. First, as the prime minister stated, to drag the country out of the middle-income trap while, second, achieving a better life for a substantial portion of the country's workers. Third, the ensuing structural adjustment forced on employers should gradually reduce their dependence on foreign labour and at the same time reinvent the industrial landscape. The latter should produce greater efficiency and a change in the nature of investments towards a less labour-intensive mode of production, which should raise the quality of Malaysia's human capital and make the minimum wage largely redundant.