National Minimum Wage Workshop

SPEECH BY Y.B. DATUK S. SUBRAMANIAM
MINISTER OF HUMAN RESOURCES

NATIONAL MINIMUM WAGE WORKSHOP
4 AUGUST 2010
PUTRAJAYA INTERNATIONAL CONVENTION CENTRE

Yang Berbahagia Tan Sri Lee Lam Thye,

Yang Berbahagia Dato’ R. Segarajah,

Mr. G. Rajasekaran from Malaysia Trade Union Congress,

Tuan Haji Shamsuddin Bardan from Malaysian Employers Federation,

Mr. Davies Danavaindran from Federation of Malaysian Manufacturers,

Mrs. Shahuren Binti Ismail from Malaysia Productivity Corporation,

Mr. Khaw Veon Szu from Socio-Economic Development and Research Institute,

Friends, ladies and gentlemen,

I would like to thank everyone for being actively participating in this one day seminar to enable us to have wide view points on perceptions of what should be the direction of the Government as well as the wage determinant growth and when we do it or how should we do it. I shall try to present the picture that is as neutral as possible and not to show our stand or direction till we have further decisions.

First, I think I would agree to start of with one clarification that Mr. G. Rajasekaran (MTUC) made. The minimum wage does not mean it’s the wage which must be paid to all people. Minimum wage is for any person who is employed in this country whereby this is not something new and has been practiced in other countries in the world including United States and our neighbors like Indonesia which has minimum wage which varies between provinces, but how well it is implemented or how effective it is, that’s a different issue. So the point of the definition will be clear, it is not something which means that you pay people for not being productive or you pay people for not being efficient. I think we should be clear on that.

There are a few facts which we have to address. One fact is of course the issue that our wages did not increase over the years. Our wage, according to the World Bank report has only increased 2.6% for the last 10-15 years, as what Mr. Andrew Lo (a participant of the workshop from Malaysian Trade Union Congress) said that the salary at McDonalds is still the same today when compared with 20 years ago whereas the cost of living has increased over the same period. So, when we touch on market forces, the question comes why didn’t the market forces increase the wages during the time. This is a very important fact which you have to think if market forces determine wages. The market forces in our country should increase in everything else except wages, right? Inflation increased, cost of living increased, income of company increased and everything else increases but wages didn’t increase. So somehow or rather this phenomenon of market forces did not work and we have to go to the basic fact why it didn’t work.

There is another area to think, another area to analyze of why didn’t market forces caused upward movement of wages in this country for the lower category of people and what are the reasons for it? There are a lot of reasons and one that is commonly supplied is allowing foreign labour to come, the excess amount of the foreign labour and the easy supply of foreign labour contribute to the suppression of wages. I mean that is the argument that has been put forward. I am not sure that is rights, true or not, whether it’s right or not. FMM might not agree with me because they say without the foreign workers we might become less competitive and all the other issues that are related to it. So this is one issue which we must recognize. When the argument goes to say that market forces determine, we have to answer why didn’t market forces determine all these while. What are the reasons? And we have to answer that fact fully and truthfully.

The other reason is, according to our National Employment Returns 2009, 34% of 1.3 million workers in the study earn less than RM700. It could be more. Our Government has determined the poverty line to RM720, so we have by virtue of the wage mechanism itself, we are creating poverty in about 34% of people on the go, without doing anything else at all. So when the Government decided the poverty rate is RM720 and our wage mechanism by virtue implementation as we have, shows that 34-35% of below poverty line and that is something to do and to think about. How does wage address the issues of capacity to live in this country is important issues and because of this we have this phenomenon of very low income group within the urban sector and the stresses of life which is associated with it. So we will have to accept all these facts and find a solution on how we are going to address it. The issue which we all agree is that the wages have to be increased. I think everybody will agree on the point. Some people said this should be done through productivity, some people said it should come with efficiency and should not be given without any mechanism to determine efficiency, that’s all fine but as what we have said just now we are talking what should be the entry point for any person to enter into employment in Malaysia. If we do so, what should be the wages, what should be given to them?

We also have to recognize because of the wage structure we are losing Malaysian to other countries. Our nearest competitor is Singapore. I was just talking to some people in skill training institute in Johor Bahru, we spent a lot of money training our people and the moment they finish training they go to Singapore to work. They were all trained using Government money, Government skills, Government institutes and then they contribute their skills in Singapore. They are contributing for not any other reason but because of wages. So we are losing Malaysian, skilled Malaysian. Malaysian like any other citizen of this world has the right to look for the better pastures and we cannot stop them from going although we always fight this question of brain drain. We cannot have a law to tell Malaysian that they cannot work in other countries. If they think that they can find better wages in other country, they will go. So we are losing good skilled workers to other countries. About 400,000 Malaysian works in Singapore. Out of which about 150,000 of them travel from Johor Bahru daily. So Johor Bahru has got a massive shortage of workers because every sensible thinking Johorean goes to Singapore to work. Because by just going across the Coastway you get two, three, four times more salary than what you get if you remain in Johor Bahru. So that’s another issue.

We can both close our eyes and allow this to go on and approve applications for foreign workers which keep increasing, then the wages will continue to become low. I asked an American company who came to ask for foreign workers, what was the salary they give here and was told that provide a starting salary of RM570. That’s average in the industry. FMM may agree or not agree. In manufacturing industry, a vast majority of them, their starting salary in the range of RM570- RM600. But the same company for the same kind of activity has to pay USD7.50 per hour if they were to get an employee in United State. That is according to their law. So for eight hours of work, employees get US$60 a day which translates to RM200-RM250 compared to a salary of RM570 a month in Malaysia. It is a vast difference which we have allowed to be recognized, to be developed and perpetuated over the years. The scenario that we are giving is that our country is a source of this kind of labour and now we are facing big problem because there is a huge amount of foreign workers, legal and illegal. We are faced with the task of how we are going to manage it. That’s another issue.

The government has to decide once and for all whether it is going to be a centre of such labour intensive, low cost labour based industry or not. Obviously we cannot afford it to go on in such way. We have to change ourselves, we have to transform, we have to grow to become a high income based, high skill based economy which is not going to be based on high labour intensive.

So this transformation is the basis of high income model to make the economic transformation so that we will meet up to this expectation. The case is for the wages to be increased as all of you agree, but the dispute is on whether it should be based on minimum wage mechanism or should be used on principal of skills and productivity.

If you all asked me one main factor which induces me to support a minimum wage mechanism is the fact that our wages did not increase for 15 years. That means, structurally in the market force itself the perception is, market forces determine wages, so why didn’t the market forces here determine wages? If it did not, then what else that we have got to do to ensure that wages is determined by market forces. This is an important point which we have to consider because the advantages of higher wages is very clear as it tries to increase the standard of living, higher purchasing power, increase in investment company, workforce, to increase in investment in research technology, automation, moving up the ladder of productivity and the investment skills to enhance optimization. All these things which come with higher wages are very clear.

On the other hand, whether minimum wages have side effects, antagonizes those who are against the minimum wage, who say that the economy should not have manipulators which should allow market forces to determine. It is the fundamental proponent of the economy, who said that wages should be determinant by market and should not distort because if distorted, it might cause problem of abnormal states in the market itself. It might be true from economic point of view but in Malaysia for some reasons or rather the model did not work and we have to examine why it didn’t work and see how we are going to move on.

The other argument is of course, the development of unemployment consequence to minimum wage for those who have implemented minimum wages. As far as Malaysia is concerned at the present moment, for some reasons or rather we are able to support 3.6 million foreigners in the country. Obviously we have jobs for them or we have opportunities for them. If not, they would not be here.

The risk of Malaysians becoming unemployed because of minimum wage in our setup may not be as high as other countries in which the border between employment and unemployment is very nebulous. It has shown that if minimum wage reduces employment opportunities, the people who are most affected are the vulnerable categories who will find it most difficult to get employment. That is a logical fact. I think that is the fact we have to keep in mind. That means in any scenario, in any situation there are those who will be able to get jobs easily and those who will find very difficult to get jobs. So if the effect of minimum wage reduces jobs, then that category will suffer most because their opportunities to get jobs might become lesser. That is one issue we might have to address. How we address the state of those who are vulnerable so that they will also be skilled, will be capacitated so that they will be able to find jobs even in that new environment. That will be one challenge for us.

The other argument is minimum wage will affect the investment if foreigners stop coming to Malaysia because wages in Malaysia are relatively high. In doing so, I am sure if we start to implement this, this is one fact which we have to keep in mind. With the assistance of tripartite partners, whatever wage increase which we suggest will not have a negative impact on its ability to draw in investment. That is another issue which we have to consider, which might be possible because as we look at newer industries, newer types of investment that we are trying to draw in which we hope to be based more on knowledge, more on technology and less on labour, we might be able to draw in investment despite the increase which might have been on the cost of labour minimally. So that is an issue which of course we have to consider.

The other thing is it will have an effect on productivity and skills development. Again going back to the answer this, the minimum entry point should not impede or prevent a management to promote productiveness of the employees so they can have a better career path. So in theory, we are not saying that people should be paid higher salaries for low productivity. Definitely, that should not be the intention. The principle that remuneration should be increased based on productivity of course stand. It does not fall flat but what we are talking is what should be the minimum starting point upon which productivity will further enhance them and take them to higher level. That is one thing I think you have definitely have to keep in mind.

For the last one of course is what Mr. Shamsuddin Bardan (FMM) said about foreign remittances. I am sure we can come out with system and mechanism for increasing income levels which might not lead to very high remittances overseas because of foreign labour involvement. Basically, there is the story of what most of you have been discussing today either in this direction or be in the other direction.

Now, we will leave to the Government as what we are going to do next. Definitely the Government knows that our stand is that we want to increase wages and we will have more detail discussion with the stakeholders which is more micro than what is we have done today so that we can have a firmer ground which we can move forward to developing models upon which we can go on to the next step. The next round will be greater discussion with individual stakeholder to take their viewpoints and consideration and then try to find a mechanism which will be able to address all the issues. It should be something which we do together, so that we will not after implementing something, realize we have done something wrong. We want to do the right thing. We will have adequate discussions to get the views of all stakeholders. Based on their views and opinions, we will compile our eventual direction which will determine whether it is going to be national or regional, sectoral or otherwise before it can be taken to Cabinet for further direction. Later we will consider the legal mechanism, whether it will be rigid or flexible where the employers can have decision on how to implement minimum wages. This is all areas which we need to discuss in detail before we can actually make a conclusion because it’s a major decision which will have a wide spread implication and we want to make the right decision on it.

The principle of tripartite consultation will be very actively involved and it will not stop collective bargaining. Like Mr. Navamukundan (a participant of the workshop from National Union of Plantation Workers) said, minimum wage should be not maximum wage. The role of collective bargaining is to ensure what is the most appropriate wage for that group of workers in that particular period of time. It will not be minimum wage. Rightfully it should be above the minimum wage. That will be the role of tripartite collective bargaining which the union should be doing. Minimum wage is not the ‘anti-word’ for collective bargaining or something which will stop collective bargaining. It will assist the direction and the level upon which collective bargaining can subsequently go on. That are the main views and definitely we would like Sabah and Sarawak to be involved. If it involves amendments to whatever acts which we might have to do, we will definitely do those amendments to ensure wages in Sabah and Sarawak are not much lower than Peninsular. We have to address those issues if not we have a situation where Sabahan and Sarawakians either find work in Peninsular or Singapore. There are a lot of agencies in Sabah particularly which recruit young people and send them to Singapore. The largest number of complaints that we have are from Sabahan workers as they face problems in Singapore because of the way they were recruited.

As far as our education system is ensuring productivity, there is a great impetus on skill training to move up to high income model. That is something which we are committed to and I share the views which were put forward I think from both Mr. Asohan (a participant of the workshop from Malaysian Industries Commerce and Companies Information-MICCI) and Puan Noraini (a participant of the workshop from Sipro Plastic Industries). That is something the Government is committed to do - increase employability, increase skills of workforce and make sure that they are employable. As I mentioned, 350,000 Malaysians find themselves very employable in Singapore. So whether you say they are not employable here or they don’t have the knowledge, there is always somebody who willing to take them, who find their knowledge is sufficient, their skill is sufficient. I don’t know whether the argument of lack of skills, lack of knowledge is the primary reason for not being employed.

The other view that was put forward is performance related wage structure which we don’t have to dispute on. Minimum wage is actually below that. Performance related wage structure, greater income, is above that. This is just the starting point. If you compare private and public sector, a stenographer or typist in the public sector which we now call the N17 scale, their starting salary is about RM1,500. Whereas a similar person employed in the private sector, gets about RM900 to RM1,000. There is a big gap now between private sector and public sector. Previously, it used to be private sector which was higher than public sector but now the public sector has overtaken the private sector. A fresh graduate who start on 41 level has a salary about RM2,400. How much do you pay in Human Resources Development Corporation (PSMB)? RM2,700. Whereas a similar graduate works in private sector, it is RM2,200 and 2,400. So there is a big gap between private sector and public sector salary’s scale because public sector has readjusted itself. Particularly in last revision and for whatever reasons we don’t know, the private sector did not follow suit with wage increase. It has stagnated over the years and this is the result of which if there has been continuous increase of private sector wage in the last 20 years according to cost-of-living increase, we may not be facing this problem. But somehow or rather it did not happen. That is why we are facing this problem.

Now I have the capacity to implement whatever which is right. I hope I can use it to implement the right things so that it will do good for this country.

Thank you.

MEF Argument on Minimum Wage

Economic development is non homogenous
In discussing the applicability of minimum wage in Malaysia, the present economic structure of the country needs to be addressed. It has to be appreciated that whilst there are large pockets of developed areas, which is growing at a reasonable pace, there exists a large rural sector. In these rural areas, there exist very small enterprises such as provision shops, coffee shops, motorcar service shops and petrol kiosks. In fact, about 99% of companies in Malaysia are small and medium enterprises (SMEs). In these places, the imposition of a national minimum wage would only result in many of these enterprises closing down causing serious difficulties to those living in the vicinity. Malaysia at this stage should assist in the development of these small industries and not dampen their efforts of survival by the imposition of a national minimum wage. Another area of concern is the effect on unemployment should these small enterprises be forced to close because of the labour cost involved in hiring workers.

Present system works
Presently, wages have been determined principally by the market forces and where workers are unionised, it is always the practice of the management and unions to negotiate wage settlement. These methods of wage determination make it possible to have differences in wages among different types of economic activities among firms of different sizes situated in different locations with differing costs for those doing or working for, the business. They are far more superior methods of determination of wage levels compared with arbitrary imposition of a minimum wage. The labour laws provide sufficient scope for workers to organise themselves and settle questions relating to wages through collective bargaining. The law provides that a Collective Agreement once concluded becomes a contract of an employment for all employees covered in the establishment. It supersedes all other contract. The Collective Agreement cannot be varied, annulled etc. without mutual consent.

In the Malaysian context industrial harmony is a jealously guarded goal. The present industrial relations system allows parties to resolve issues themselves. If this fails, conciliation services are provided. Where this is not successful the Industrial Court hears the matter and hands down an award that binds the parties and more importantly prohibits industrial action. The present system works well. A national minimum wage would introduce inflexibilities into the system and interfere with management‐workers relationships.

Those who advocate a national minimum wage do so on the mistaken belief that it will execute the objectives of ensuring that wage earners receive so‐called decent wages; to eliminate exploitation; to reduce poverty; and to ensure equal pay for equal work. We should not recognise that all these objectives could only be met when an economy prospers. Continuous economic development will inevitably improve the welfare of wage earners because the increase prosperity will make possible increase in wages. A minimum wage cannot ensure the needed economic expansion.

Minimum wage may lead to erosion of competitiveness
We operate within a competitive scenario and the cost of doing business is a vital factor. This affects not only the continued presence of foreign investment but also the capacity of the country to attract new investors. It has been proven that when labour costs exceeds a particular level which an employer recognises as reasonable, some employers are prepared to close down the place of employment and move to other countries where the labour cost is considered acceptable. There have been many instances of closures during the recent financial crises. Although certain sectors of the economy are beginning to show signs of recovery, growth is not broad‐based and performance across companies and sectors is very uneven.

MEF is of the view that in adopting the right policy relating to wages, it is imperative that the objectives should be to instil confidence among global investors in the economy; help companies regain their cost competitiveness; and preserve jobs for workers and minimise unemployment. A national minimum wage is certainly not a step in the right direction. What the government, employers and unions should go towards is the promotion and adaptation of a performance based wage system.

MEF supports the Government’s stand that Malaysia is not ready to implement a minimum wage policy, as the move will drive away existing foreign investors from the country and would act as a hindrance in attracting new investors to the country.

Statistical aspects of minimum wage determination
A system of minimum wages, whatever its form, cannot work unless it is based on regular, reliable and timely statistics on a variety of data items, including income, wages, prices and characteristics of wage earners (sex, occupation, skill levels etc.). It requires a supporting system of labour statistics based on a programme of regular establishment surveys, frequent household labour force surveys, household income and expenditure surveys and ongoing compilation of statistics from administrative systems. Fixing the minimum wage level is therefore not easy. The ILO Convention 131 and Recommendation 135 concerning minimum wage with special reference to developing countries state that the criteria should be: the needs of the workers and their families, the general level of wages in the country, the cost of living, social security benefits, the relative living standards of other social groups; and economic factors, including the requirements of economic development, levels of productivity and the desirability of attaining and maintaining a high level of employment.

It is difficult for Malaysia to indicate the numerical weightage that should be given to each of these factors if it is at all possible to fix the "correct" minimal wage.

Union’s arguments

Narrow the gap between the poor and rich and reduce poverty

There are countries around us that have legislated a national minimum wage, such as the Philippines and Thailand and there is no conclusive evidence to say that the workers there are much better off tha workers in Malaysia because of the minimum wage. On the contrary, earnings of workers in Malaysia since independence in all sectors of the economy have consistently increased and without the ad of a national minimum wage.

The concept of minimum wage is some times made synonymous with "minimum living wage" to enable workers to meet subsistence needs. When we talk of subsistence needs we are referring to the very poor, those "below the poverty line" stated in Government documents. The term "wage" implies the existence of a contract of employment between an employer and an employee. It should be noted, however, that those below the poverty line are generally not in wage employment, e.g. the very poor in rural areas.

Even if there is a minimum wage it cannot be in the service of the very poor because they are not wage earners. What, then, is the use of a minimum wage? The MTUC would argue would raise the level of the lowest wage rates. That must depend, surely, on the level determined as the minimum wage. In fact this is the crucial issue. Countries such as Indonesia and Thailand fix the level so low that it does not reflect the "minimum try me wage". A possible reason for this is to ensure high degree of compliance.

There is, however, a disadvantage in this so called high degree of compliance. There may be employers who are able to pay much, much more; but the existence of a minimum wage will only act as a disincentive for them to do so. This will be especially true in times of high unemployment as occurring now in Indonesia. The argument that a minimum wage will raise the level of the lowest wage rates ‐ sometimes put as protection of vulnerable groups of workers ‐ is misplaced and not proven.

In 1968, a Royal Commission report in the United Kingdom concluded, "statutory protection does not result in raising the pay of the lower paid workers in relation to other workers". Even if, contrary to this finding, a minimum wage is able to raise the wage level, in a situation of less than full employment, it will only lead to further unemployment.

Low wages in the plantation sector?

Under the MAPA/NUPW Rubber Tappers’ Wage Agreement a wage revision of between 9% and 13% was granted and the following components are paid to tappers for the performance of their duties:

a) Monthly component of RM95.00 for tapping at least 26 tasks a month
b) A daily component of RM13.50 per task
c) Incentive for latex in excess of 11 kg., the current rate is 73 sen per kg,
d) Incentive for scrap at 20 sen per kg. (wet),
e) Daily bonus based on the price of rubber, currently the rate if RM7.60 per day
f) A safety net of RM350 per month excluding price bonus and out turn incentive.

Rubber tapers could earn as low as RM800 per month and as high as RM1,500 per month. This flexi wage system is comparable to other systems in other countries. In addition amenities are provided by the employers in the form of free housing, water supply, electricity supply, medical treatment, crèche and a plot of land for cultivation. The value of these amenities is estimated between RM350 and RM450 per month. Therefore, the allegation propounded that they are poorly paid is without substance.

Conclusion

The proposal to implement a national minimum wage in Malaysia is counter productive. We have in place a system of wage payments that has seen to work well within the context of our economic development. The machinery whereby disputes on wages are dealt with has proceeded smoothly and industrial harmony has prevailed throughout the years. A more positive direction in wage negotiation should be directed towards linking wage to productivity. MEF has long advocated the promotion of a performance based wage system, which takes into account the performance of the company and the performance of the individual. Based on the arguments stated above, the case for a minimum wage system is without basis or justification.

MTUC Argument on Minimum Wages

Debate on minimum wage system for workers in Malaysia is not a new thing. Over the years, MTUC has been consistently championing the need to have the system in place. Recently, despite intensifying debate, our struggle has not fruitful yet. Indisputably, wages/ income related issues and poverty are two sides of the same coin. There are Malaysian workers who still earn basic wages below the poverty level.

Cost of living in Malaysia is rising whereas workers income cannot offset the incurring expenses. Should the government decide to withdraw subsidies on certain goods and services, the lives of workers without reasonable income will surely be negatively affected since their wages remain inert while the purchasing power is declining.

It is imperative for the government to implement minimum wage regulation since employers, on their own discretion, will not raise wages rates for low income workers who have to struggle in meeting their daily needs. The government’s aspiration towards a high income economy is unlikely achievable without reasonable minimum wages.

Many people, including the Minister of Human Resources himself, argue that locals not interested to work for private companies due to unattractive and low wages. Transportation cost is higher than before. Food is becoming more costly. Inefficient public transportation forces workers to use their own vehicles which in turn would increase the cost of living.

In this era of rapid development, oppression towards workers should not be heard of anymore. Sadly, the oppression does occur. There are employers who offer very low wages without taking into consideration the living cost especially in urban areas such as Klang Valley. A notion that the market forces should be the deciding factor in determining wages rates not only badly affect workers’ lives but it would also lead to suppression as well.

MTUC stands by its demand that workers in Malaysia should be paid wages of RM1, 200 per month (including Cost-of-Living-Allowance). As Malaysia is moving forward to become a developed country, it is apt and timely to introduce the minimum wage legislation. Many countries all over the world including our neighbours have already implemented the minimum wage system. Bear in mind that a minimum wage does not mean that the wage rate will remain the same. To put it simply, minimum wages are not maximum wages.

Minimum Wages

The ILO has defined minimum wages as “the lowest level of remuneration permitted …
which in each country has the force of law and which is enforceable under threat of penal or other appropriate sanctions. Minimum wages fixed by collective agreements made
binding by public authorities are included in this definition.

A national minimum wage is determined by government or a tripartite committee consists of representatives from government, employers and workers. Most countries adopt this model and is categorised into two: i) a uniform national minimum wage rate or ii) multiple national minimum wage rates for different sectors/ regions.